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Comment by ACow_Adonis | Hacker News Reader

Speaking as an Australian, , where we already have nominally similar policies, and keeping in mind the metro house price phenomenon is repeating in several places in the world in a similar fashion, there's just one small problem with these policies:

There's limited evidence available that it's foreign buyers primarily responsible for our high house prices :/

The primary cause has always been local steady employment, low interest rates combined with liberal access to debt with households culturally disposed to pumping that into housing.

It's very easy to blame this on Chinese money (which I'm sure is a common story in many parts of the world where house prices are taking off), but the far bigger cause had always been leveraging afforded by local households combined with a low interest rate environment.

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Just replying to myself now to add: the solution to high house prices is, like much transport policy, boring and well known but not implemented for political reasons. On the housing front: tax capital gains, limit leveraging ability, implement a land based tax and zone/invest appropriately to encourage new supply. This will bring housing far more in line with what people expect.

This brings us to the other awkward point though: truthfully, I'm sure many New Zealanders, just like many Australians, neither want their housing prices/investments to drop in relative price or to return to closer relationships with local use.

Which leads us to the policy/political pantomime game so often involved in these areas where people want to have their cake and eat it too: "I want afforable housing for my children that doesn't make my property prices drop!"

I would need numbers to be able to agree with you that foreign investment isn't a driving factor in housing costs.

Wouldn't you also need numbers to arrive at the implication that foreign investment is?

The numbers, at least historically, have always been hard to find, but the macro economic theory and indicators are generally quite boring and straight forward: employment stays high and household incomes improve, interest rates drop, lending and leveraging increases to household, supply is inelastic, house prices rise.

Everything lines up pretty well, so why look to blame foreigners (who, even at the most generous estimates on what data does exist, are still a minority).

If the numbers are hard to get, then it’s difficult for you to say whether foreign investment is or isn’t part of the problem.

That's literally what your parent commenter is getting at...

Well, one can use ockhams razor and plug the aggregate finance stats and household numbers in for each country: foreign investment will likely be related to the residual. That is, whatever amount is left over after domestic statistics and aggregate lending are taken into account. We don't have an accurate primary source for foreign investment, but we can reason.

The rba website would be my first stop in aus for aggregate finance stats available publicly. The Abs has some construction/hiding investment data, but there are some issues with definitions you'd need to take into account. And our neighbors across the pond, although I'm not a kiwi, I imagine will have very similar structures and data.

Additionally, such a simple model explains house prices quite well since the 1990s, across various markets with various levels of foreign investment, so we would need very good reasons to insert a "foreign investor" cause in there.

People in Canada blame foreigners too for house prices in Vancouver and Toronto but recent surveys show that foreigners only make up about 10% of purchasers. We've had low interest rates too and a vibrant economy. The federal government raised interest rates, changed mortgage terms and increased fitness requirements to stop people acquiring mortgages they can't afford.

yeah but 10% is huge when you consider that's all inflow, not people selling one house to purchase another, not to mention historically low vacancy rates in both cities.

You might be right. Parent OP doesn't specify if it's 10% per year. Compound growth would be huge over several years.

Also, Auckland has had probably more immigration than Australia, at least for the last few years.

That said, dropping prices by 10-20% would mean absolutely nothing for an average labourer.

It's per year. Before the foreign buyer tax in Vancouver, there were parts of the city where 20% of purchases were made by foreigners (Burnaby and Richmond).

10% is a lot for driving market prices.

10% is a lot for driving market prices only if they live in those houses or leave them empty or massively overpay.

But most foreign buyers in these markets are buying to profit, and rent out the properties, and so only really contribute to balancing rental and sale prices.

Not sure I understand what you said.

Example: I want to hire 10 developers. There are no places to live with price tags less than 1.5 mln in 1 hour commute radii from here. What would be my options? To pay them enough salary so they can afford mortgages? Cheaper to move the whole business to Eastern Europe / Russia then.

I don't understand what you think the relevance of that is to the effect foreign buyers have on house prices.

The house market is split between people buying and renting. When people buy as an investment, it does drive up purchase prices, but unless they leave it empty rather than rent out, it drives down rental prices by increasing supply. Rental properties also tends to provide more density, as they are more likely to be occupied by sharers, and so increasing the rental supply is likely to soak up more demand than the reduction in purchase opportunities. Eventually the prices reach some degree of equilibrium, because bidding up the purchase prices much quickly becomes unprofitable as rental prices are pushed down.

Ultimately what is driving the cost up is mainly down to more people with enough money who wants to live in a given location, not investors, as if there wasn't demand to live there it'd quickly prove a bad investment.

A lot of them are not buying to rent out, especially if they are Chinese where in china renting out doesn't make sense. They sit on the properties empty as pure speculative plays.

I don't know Australia or New Zealand, but in London that is demonstrably not true: The proportion of empty properties in the areas that are attractive for investment is the same as elsewhere, and the proportion of empty council housing is pretty much the same as empty luxury housing. As it happens, most long term empty properties are empty for other reasons, such as waiting for re-development of the property, or large scale renovations and the like, or issues with sorting out ownership following death etc..

Sure, a few are left empty by owners who just don't care, but there's very little indication this number is high. Especially as in most countries there are rental management companies that makes it trivial to rent out a property even if you're an absentee landlord.

I don't know about London, but in lots of these places, occupancy is determined on the honor system. They don't check power/water consumption or lights on at night like other places. In china, you just need to count the lights on at night to see how big the problem is, or peep through the door to see that the unit is still not even renovated. They did a study a while back using power consumption stastistics that was quickly hushed up as a state secret.

In Vancouver, the problem is so bad that local shops are going out of business for popular speculative properties because their just isn't enough residents to use them, even though prices are sky high and the developments are all bought out.

Speculation always drives empty units.

If you’re well capitalized it is often cheaper and less hassle to leave them empty. Renting is a pain in the ass and makes unloading the property harder.

That's true.

Yet I've heard from one realtor that in some suburbs of Great Vancouver 15% of properties stay empty - pure investment.

Vancouver is not the city to live in anymore. Problem is that it is not the city to work in too. Too long commutes - 2 hours to spend on road. That means work day is not 8 hours but effectively 10. That means people asking and company offering higher salaries.

That housing situation hurts all other businesses except of real estate quite a lot.

The 10% figure that is constantly tossed around is garbage, it was calculated by counting number of owners that voluntarily declared they were foreigners.

Many new condo developments in Vancouver and Toronto are offered for sale in Asian countries exclusively before Canadian citizens can even make an offer on them. If you drive around Toronto there are real estate signs openly advertising areas that don't have a 15% foreign buyer tax.

The RCMP recently busted an elaborate Chinese money laundering ring in Vancouver that was processing $500 million/year in foreign cash alone. Much of it was being used to purchase real estate in Canada. The last article I read mentioned Canadas laws are so lax the authorities couldn't even seize the real estate directly involved in the scam because it was owned by Chinese citizens through shell corps.

There are a lot of weird arguments about this that seem to work of the idea that because there aren't really that many foreign buyers, ergo they don't have much effect on the market.

Agreed that capital gains and leverage have a lot more do to with it, but I don't think Australians are necessarily ready for "zone/invest appropriately" (and fair enough - so we have to watch our cities transformed to megacities?)

Nailed it.

I would hate to be agreeable on the internet but I think you've covered this from an Australian perspective fairly accurately.

Simply removing the capital gains tax discount would help to prevent speculative investments.

There has been much talk of negative gearing being the issue but those with a short memory don't realise it has been around since the 80s and operating with out much fuss. It was the CGT discount combined with negative gearing that really got the property snowball rolling.

Further, I believe a land tax would help to cool the market in perhaps a more controlled manner.

I talked to my accountant and he suggested CGT + lower personal income tax.

So, someone who owns O(1) house, pays CGT, but that's compensated by O(1) less income tax.

Someone who is flipping houses is paying CGT but in the end, it's not offset by less income tax if they are flipping lots of houses. They pay tax O(N) on it just like everyone else, and they gain O(1) less income tax.

Would something like this work?

(Forgive my bastardisation of the O-notation :)

Why allow the compensation at all?

Currently when you sell a house, you are not taxed on the profit that you make.

It's one of the few forms of income which is not taxed. Everyone else pays income tax.

I think the point of introducing CGT is to tax people who are buying and selling houses as their sole form of income.

Given two people, if one person earns 100k through hard work, and another earns 100k through flicking property, the first person would be at a major tax disadvantage, currently.

However, introducing CGT would essentially mean less money in everyone's pocket. It's possible by reducing income tax, that in the above scenario, hard work is encouraged over being a property middle-man while still maintaining some semblance of balance. I guess you could leave income tax where it is at, but that would make it even harder for people to climb up the property ladder after CGT was introduced, IMHO.

> However, introducing CGT would essentially mean less money in everyone's pocket.

On board with you up until this point, but this is where I disagree with you; by smashing property prices you'd actually end up with more money in (almost) everyone's pocket. By pushing prices down and implementing policies that keep them there you're having no impact on most home owners and massively benefiting all non home owners (which is all future generations), as well as stimulating the economy by pushing money away from non productive real estate speculation and into other areas.

Putting income tax and CGT on the same level seems like the sane place to start to me. A CGT should be assessed annually on paper gains at the marginal income tax rate, then any corrections should be made when a transfer of ownership is made by calculating the total profit over the number of years held. This would mean that income from capital gains would be treated the same as income from other means and seems like a fair way to start.

I agree with you. Thanks for taking the time to reply with something meaningful. It's not an area I'm really familiar with so it's great to hear other opinions and learn about different perspective.

I think by adding CGT, you increase everyones tax liability a bit, so by reducing income tax, you'd ensure that everyone was basically in the same place, except for people who were abusing the system in the first place.

I'm not an accountant so I should just defer to those who know better :)

Yeah, that's a fair enough approach. I don't necessarily want to increase the overall tax burden, just distribute it more fairly. Ideally the policy mix should put such downward pressure on prices that people end up paying very little in capital gains taxes.

I don't think offering an offset for capital gains tax is the right thing to do though; you're still essentially taxing capital gains at a lower rate, e.g. someone that earned a 100k from their job would pay more than someone that earned 50k from their job and 50k from capital gains. Instead the income tax brackets could be adjusted to account for the new income stream such that the total tax take remained the same, then both 100k earners would pay the same rate but on average nobody would be paying more.

Not sure if you're Kiwi or not, but TOP had a very interesting tax policy this election - http://www.top.org.nz/top1 - along those lines, no increase in tax take but a massive change to where it comes from, which would have meant large income tax reductions.

+1 just for the bastardisation of the O notation

Just one element missing, it's CGT + neg-gearing + low interest rates.

Not that I can really complain, as we just managed to do really quite well for ourselves off a single year's speculation. But I still think the system's broken.

Aucklander here: you're right. One of the effective political tactics against the Labour Party was to suggest they'd threaten house prices: most of Auckland home owners need high real estate prices, either to keep rents (investment cashflow) up, to continue to leverage their retirement real estate Ponzi scheme, or for the simple reason that nobody wants to have to move for work and lose money when they sell their house. These all make it hard for a government to be effective at lowering house prices without the needed-but-deeply-unpopular introduction of a Capital Gains Tax.

The "no sales to foreigners, let's curb immigration" is a sop to affronted New Zealanders of European and Māori descent, who are increasingly finding themselves outbid by recent (last 20-years) Chinese migrants who not only want a house for themselves but also want to participate in the only economically thriving part of the NZ economy that doesn't require a dairy farm: real estate.

I don't see any issue with NZ putting up that block to keep out Chinese 'investors', considering the roadblocks foreigners have to face to do business in China.

Seems fair to me.

There's not going to be any change in money coming in to buy property from foreign buyers.

What you're actually going to see is a cottage industry of lawyers setting up citizen-owned shell corporations to funnel this money through -- minus their fees of course.

Welp, then, a law will be erected that forces lawyers to report info of shell companies if they are involved in real estate deal.

Just a few months ago, US govt started a program where if a foreigner buys real estate of a certain value ($4 million?) in certain hot markets like Los Angeles, NYC, they have to report it to Treasure or IRS. As of now, that value is too high to be effective imo, but there are ways.

So my family had a house in Forest Hills Gardens (NYC) that we were selling in early '07 listed at $4.5mil. August-September of that year happened and we had to take an immediate $2mil haircut (eventually more like a $2.4mil one). Luckily it was owned since the 50s and not some crazy leveraged investment vehicle.

It still took an additional 6 years (roughly) to sell, but throughout that whole process, 99% of the potential buyers, including the eventual purchasers, were Chinese nationals. I lived in that house and met everyone that came through (including the time Anna Chapman came through to show the house...wow).

There's an entire class of real estate here that just has no market without Chinese money coming in.

Isn’t another way of looking at this to say that the presence of Chinese money artificially inflates the prices of some classes of real estate past what the rest of the market will bear?

It's possible. It's also just possible that the average American family in New York doesn't have much need for a house with 5 bedrooms. I don't have enough data points to draw conclusions here.

Ya, try buying a house as a foreigner in china (first tier city). It isn't impossible, but they put up a lot of obstacles to do it (lots of residency requirements, which seem fair enough).

To be fair, Chinese non-residents of first tier cities also face restrictions, and even residents may face limits on e.g. the number of houses they're allowed to own.

Yes, though foreigners have additional hoops to go through to show residency. Also, foreigners can never obtain hukou even if they are resident for a long time and own property, nor do they get school benefits. so there is little incentive for us to buy rather than rent.

> the solution to high house prices is ... tax capital gains, limit leveraging ability, implement a land based tax

Your solution to high real estate prices is to make the investment less attractive by increasing taxes? What does this gain for the new buyer?

> What does this gain for the new buyer?

Less competition from landlords

You left out my other measures :p

Obviously, it's very hard for me to be specific to each market, so those are high level principals.

It gains for the new buyer an average falling of house prices, under the assumption that we are talking about a later period market that has seen asset prices rise due to leveraged investment by primarily high net worth holding entities looking primarily for capital gains of of asset price movements in an illiquid and inelastic-supply market, rather than fundamental connections to longer term investment/income flows and local income opportunities. The logic is that this disproportionately targets the leveraged investors regressively compared to the local home buyers.

Now there's also an argument to be made that if you encounter a market that is not in such a state, it could be individually rational for a new buyer to buy into said market, then lobby for policies which increase demand while removing said policies/barriers for themselves, thus trying to turn such a market into our common current situation now they have become a property holder, but in short, we have to try for policies that allow openness for sensible new investment while still tying values to local incomes, services and infrastructure funding, and long run returns.

Well yeah, obviously. Anything that reduces the profitability reduces the appeal to investors, which decreases price pressure, which leads to price falls, which ideally falls into a virtuous cycle of falling prices and falling investor demand until you have sane prices again. You'd have to hit it pretty hard to actually get that going though; this policy won't do it alone.

For new home buyers lower prices is great. For the economy lower prices is great (the initial massive losses will be rough, but going forward it means far less overhead on all Kiwis with that interest money going elsewhere in the economy, and in general the money going into non productive real estate speculation will go to more productive areas of the economy).

> For new home buyers lower prices is great

Increases taxes to "lower" the price doesn't lower the total cost of ownership, it just hides it by reducing the potential gains (which are _priced into_ the sale price).

I wonder how society functions at all, with the "solutions" I see ...

> Increases taxes to "lower" the price doesn't lower the total cost of ownership, it just hides it by reducing the potential gains (which are _priced into_ the sale price).

That is true, but you're missing the point. Given that the reduction in potential gains means that speculators will (to some extent) exit the market this means that demand and therefore prices will drop further.

Additionally non-investors cannot typically realise their "gains" (they don't exit the market to cash them in, they move to other houses which have had similar gains and so have no net gain) and so they're useless to them. Losing those gains doesn't harm them, but the lower price does help them.

I wonder how society functions at all, with all of the poorly "thought" out criticisms of solutions that I see...

Consider negative gearing: This is a tax break given to investors who do not live in the house. Eliminating this tax break would be beneficial to people who want to buy a house to live in because they would suddenly be competing with fewer investors.

More generally, harmonising the tax rates between real estate and other asset classes would also lead to more efficient allocation of resources, benefitting everyone.

> "I want afforable housing for my children that doesn't make my property prices drop!"

There is actually a very simple solution to this problem: build up.

There's reasons for these sorts of policies that go beyond housing prices. For instance, too many vacation/investment properties makes it harder for cities to provide services. How do you forecast demand for electricity, gas, water, trash removal and schools when non-resident owners are using those services sporadically or not at all? These kinds of services all benefit from higher population density and ownership by absentees makes it harder for city governments.

It would be nice if these laws were written in a less xenophobic fashion (i.e. allow ownership for citizens and permanent residents who've lived a certain number of years in country), but these kinds of policies have their purpose, even if they don't solve the housing affordability problem. It's in the interests of a city/country to have the people who own property in it be people who are committed to living there and caring about the community.

As another Australian, our housing prices is broken for multiple reasons but foreign investment is a _major_ contributor.

Credit Suisse research indicates that "foreigners are acquiring 25 per cent of newly completed supply in NSW and 16 per cent in Melbourne, or 21 per cent if we combine the two states". The total value of new houses in both states was $39 billion over the relevant 12 months.

After the Chinese government cracked down on monetary restrictions (i.e. Citizens of China can normally only convert US$50,000 a year in foreign currency and have long been barred from buying property overseas), Lend Lease reported 30 to 40% of foreign purchases now being cash settled.

Transparency International consider Australia the worst money laundering property market in the world.

Foreign investment, especially for countries which avoided the 2007 housing bubble such as Australia, is a major issue.

A friend will be posting an article on the multiple bubbles he sees in the Australian economy, and property is potentially the most concerning of all given how exposed our banks are to housing loans. We may find Australia finally seeing their house bubble pop like the US in 2007.

http://www.smh.com.au/business/property/australian-property-...

https://www.transparency.org/whatwedo/publication/doors_wide...

Updated to include direct link to Credit Suisse: https://research-doc.credit-suisse.com/docView?language=ENG&...

Can hacker news link me to the credit suisse research? I only ask because I work a bit in this area, and I've gotten into the habit of ignoring all reporting in the press because they neither link to or critically engage with their sources.

Incidentally, I'm not saying foreign investment plays no part in such markets, but that its relative contribution has always been overstated. Adittionally, the policy responses I suggest which address house prices work irrespective of foreign/local mixes for most markets.

> I'm not saying foreign investment plays no part in such markets, but that its relative contribution has always been overstated.

If anything it has been understated.

1) House pricing is incredibly demand sensitive. A sustained 10% drop in demand would crash house prices.

2) Local buyers expect capital gains. It is the reason they buy.

Rental returns on Sydney property for example are roughly the same as fixed deposit rates.

Where do buyers expect these capital gains to come from? For the most part from rich foreign investors (and to a lesser degree very wealthy immigrants).

This means a large fraction of the local investment market is also driven by foreign actors.

The Credit Suisse doc says foreign investment is 25% of the state of NSW, and 16% of Victoria.

But I wonder what the percentages are for Sydney and Melbourne. My anecdotal evidence is that foreigners don't really buy outside the capitals, so I expect it to be much higher.

Which would have a stronger effect on property prices, as the capitals tend to drive prices for the smaller towns.

The figures are specifically for newly completed supply, the vast majority of which is also in Sydney and Melbourne. They aren't building teetering 30-story apartment towers in Dubbo or Wagga Wagga.

> But I wonder what the percentages are for Sydney and Melbourne. My anecdotal evidence is that foreigners don't really buy outside the capitals, so I expect it to be much higher.

They might not be interested in country towns but they are very interested in booming coastal towns like Gold/Sunshine Coast in Queensland, I'd assume the some would hold in places like Byron Bay and Coffs Harbor.

hi dcw303, i have a blockchain related question for you, is there a more private way to reach you? I followed you on twitter, I'm @zippyferguson.

Not to mention that the skilled migration program that the Federal Government is running (while we have some of the lowest wage growth, and some of the highest levels of underemployment and labour underutilisation in our history mind you) is absolutely massive - one of the largest in the developed world in proportion of our population. NZ is right up there with us in that too.

Nothing like huge population growth to keep the demand for housing up. Sadly the discussion has been so poisoned by the racists and xenophobes (like One Nation etc.) that we can no longer have a rational conversation about it...

I think you're correct on the large scale but anecdotally, the first 3 houses I put an offer on were purchased by the same Chinese couple at a price much higher than I'd have expected. I stopped putting offers on house when I saw them at the open homes. I have nothing against them they are acting in their own interests and good on them for having the money to buy property. I just can't compete with them and am glad that our government will manipulate the market in favour of people living in the country. I suspect that foreign ownership of land could have a negative impact on our economy as it only extracts money from our economy.

For another anecdote, we were regularly outbid by young couples with large deposits offering way over valuation prices helped by parents gifting them large deposits.

This is the thing, why does one person need multiple houses when other folks can't afford one house. As someone that hasn't bought their first home, I'd be happy to see a tax on non-primary residences.

This is how we get such a complex tax code that is abused by special interests. It's so easy to say, "go tax that person over there. He can afford it"

It could be a tax, meaning it is still possible it just costs more. Or could be made outright illegal.

In the US this is already pretty common and often known as the homestead exemption. A primary residence gets a much reduced tax rate.

In California you get $7,000 off the assessed value of your home with the homestead exemption. So ~$70 off your yearly taxes. Must have been much more important value when this was passed into law but almost nothing now on the usual $10,000/yr prop tax bill.

I think parentnis referring to the federal income tax deduction on interest, which most definitely is significant if you are able to itemize.

Where I live it’s a straight property tax reduction. In my current house I pay 1500/year in property taxes. If it was not my primary residence the property tax would be between 6k-8k.

Instead of changing the assessed value, it lowers the percentage of tax paid on the value.

You can add value by being a good landlord. Some people want to rent. If you provide a service great. But housing is funny as it's seen as such a safe investment and seems to be inflating too quickly.

You were outbid by people who don't look like traditional NZ inhabitants (Māori or European) but that doesn't mean they're foreign purchasers. If they've emigrated to NZ, then they're not foreigners any more, and that couple was just doing what plenty of European New Zealanders I know are doing. Namely, buying a bunch of houses as rentals. (Whether investment properties should be a thing, and whether Capital Gains Tax would curb that, are left to a different discussion)

No, they are foreign nationals. They have a child studying here are and are investing in property while they're over here settling their child in. I agree that once you emigrate they're as much a New Zealander as I. But these people have not.

The only problem I have with foreigners buying property here is that they are not in our economy they take any gains out of our economy. It increases the cost of living here without adding value.

But they add cash value because the native seller now has whatever amount extra coming from a different economy. It will raise the prices of homes in the area as well. This will fuel growth.

I’m totes down with blocking foreign buyers, for the same reasons as you. I just wanted to note that not every Chinese home buyer is a foreigner. Sounds like you were already aware of that. Awesome!

>"There's limited evidence available that it's foreign buyers primarily responsible for our high house prices"

There's actually lots of evidence that hot foreign money is driving the prices up. There's also been a trend by developers to develop properties to attract this type of buyer.

See:

https://www.nytimes.com/news-event/shell-company-towers-of-s...

and

https://www.theguardian.com/commentisfree/2015/jan/25/planne...

and

http://www.miamiherald.com/news/business/real-estate-news/ar...

There is lots of anecdata that Chinese real estate speculation that is obviously rampant in china is spilling out into international markets, like it did with Japan 30 years ago. When I was living in china, I knew people who were looking abroad for real estate investments. But anyways, vested interests in those target markets don't want it to go beyond anecdata, so they operate under a "don't ask, don't tell" policy.

New Zealand is a classic case where housing prices have far exceeded normal incomes. When asked to consider NZ for a job, I ask is the pay better (no); is the cost of living cheaper (also no....). It definitely isn't tech salaries driving the housing bubble there!

Yeah, NZ national living in Melbourne, there's not much that could tempt me back to NZ. Property prices in Melbourne are more reasonable than Auckland, and salaries are far higher. Cost of living not much lower either.

Salaries didn't seem much higher when I was looking - I found a job in provincial NZ for the same salary inner city melbourn jobs seemed to be offering. How many years experience before you break 100k AUD in Melbourne? And where's the ceiling in terms of non management position?

I have no idea about entry level rates, but I wouldn't think it would take many years to break 100k in IT. I know many non-management people making well over 100k/year.

The cost of living calculator they put up[1] suggested that I'd be losing money as a single income earner for my wife and daughter in Auckland, while I can support them here and bank literally 1000s on top of my living costs and mortgage here.

I don't know exactly what I'd get in Auckland though, I assume it's estimates are middle of the range, so it's not quite a fair comparison but the general picture fits; in general living costs in NZ are a bit lower (excluding Auckland housing, which is more expensive than anywhere in AU except for Sydney) and the median salary is _far_ lower.

Also, preferences may differ, but I grew up in rural NZ and inner Melbourne is a much more interesting place to live as an adult; the country was pretty fun as a kid though.

[1] https://www.newzealandnow.govt.nz/living-in-nz/money-tax/com...

From who I've spoken to, depending on the company entry level is between 50k and 80k for a junior level software engineering role.

That sounds about right. I can't imagine many on 50k, unless you're entering the role with no qualifications and no experience at all.

The issue is it's extremely easy to hide foreign ownership through trusts, companies and relatives who are Australian residents. Anyone with a the means to pay top dollar for an investment property can easily afford hiring the right people to get around this restriction. Which makes it even more shocking when you see statistics like 21% of supply is purchased by foreigners.

Same thing in London. Foreign buyers is the big bogeyman, but the reality is that prices are sky high even in areas where foreign buyers are not the slightest bit interested in putting their money.

The reality is that most foreign buyers here rent out their properties - it's an investment after all - and it's only on the very, very high end of the market that people leave their properties empty for any amount of time, and that's a very tiny proportion of the total market.

But it is convenient to be able to blame someone else and avoid making the hard policy decisions requires to boost construction.

(while I agree leveraging makes it worse, though, the underlying problem is still competition for a too constrained supply of housing - I don't know about Australia, but in the UK house-building has trailed demand for decades at this point; to a large extent because of short-sighted policies which focuses infrastructure investments in already overheated areas and makes it even more attractive to move there, coupled with lack of willingness to open new areas for construction or relaxing restrictions on new developments in terms of height etc. outside of very small areas)

> prices are sky high even in areas where foreign buyers are not the slightest bit interested in putting their money.

That shouldn't matter. Foreign investors bidding up property in place A forces English buyers into place B, and prices naturally rise there as a result.

It's the same in Canada. Everyone blamed the Chinese for the increase in housing prices. When they actually got the data, non-resident purchases of residential real estate in metro Vancouver barely broke 10%. It's much lower than that in the suburbs of Vancouver and Toronto.

It's the 90% of Canadians with access to cheap debt and fueled by "real estate never goes down! It's now or never" that pushed prices so high.

Then why did your real-estate prices go down when they disallowed foreign investor's?

Coincidental. Vancouver was poised for a massive correction after prices increased 30% in the past 12 months.

My understanding is that condo sales and prices are still strong. So I'd ask if foreign purchases were the cause, why are condo sales still going up?

Toronto homes in certain neighborhoods lost nearly 25% compared their peak value in April. There were no restrictions on foreign investors.

To clarify for those not versed in Canadian tax policy, April is when the foreign investor tax was announced in Toronto: https://www.theguardian.com/world/2017/apr/20/toronto-foreig...

And after they were kicked out from Toronto they moved to Montreal. Prices/Sales in Mtl had increased by highest percentage on record (and that after 5 years being flat)

That 10% is new demand. It’s a big deal.

That new demand is on top of already high demand. It’s probably magnified as foreign investors want premium property and drive the top of the market up.

What's the steady state foreign purchase percentage? 5%?

Note that the 10% was in the hottest Vancouver neighborhoods. It was much lower in the suburbs and those prices were still ridiculous.

I'm not arguing foreign purchases had zero impact on prices. I'm just arguing compared to domestic purchases, they are pretty small.

First, your numbers are incorrect: https://beta.theglobeandmail.com/real-estate/bcs-foreign-buy...

10-14% of buyers SELF REPORTED as foreign, across METRO VANCOUVER, not some fancy neighbourhoods. That's the base minimum possible percentage of foreign buyers.

Then the 15% tax was introduced and dropped foreign purchases down to to 3-4%. Do you really think the ~8% stopped buying? No, they just used one of the trivially available loopholes like sending in their astronaut family or buying through a trust company. And many buyers were doing that even before the tax was introduced.

So if they are using loopholes to continue to buy, why are housing prices dropping? Maybe because foreign buyers don't have that much of an impact on the market?

http://www.chpc.biz/uploads/9/7/9/5/9795010/chart-canada_10_...

I would love a portal to that universe in which Vancouver housing prices are dropping.

There was a short drop due to uncertainty around the tax and the elections / new government, but it is over, and it was tiny compared to insane price increases that immediately preceded it.

I don't know why you keep saying things that aren't true and yet can be checked online in under a minute.

You agree that prices dropped and yet claim I said something incorrect? Sounds like we agree.

Oh please, no one can genuinely fail reading comprehension that hard.

I've shown very clearly that a temp drop in prices does not support your narrative. And that the prices are now back to an all time high.

You can stop pretending that you opinion is based on facts now, not fooling anyone.

Australia's policy is weak with regards to enforcement and penalties; NZ's may or may not end up being more effective.

Agreed that foreign speculation is at most only part of the problem and that the drivers you mention are a large part of it, but you missed out the other significant factor in the "cultural" inclination to invest in property, which is that the favourable taxation policies (CGT discount, negative gearing, family home CGT exemption) and benefit policies (family home exemption from pension means tests) drive money into property.

In NZ's case it's even worse as there's close to no capital gains tax on any property speculation (no requirement to actually live in a property to claim it as an owner/occupier style non-investment property).

> no requirement to actually live in a property to claim

But how do you enforce it?

I wouldn't bother, because my preference is to tax capital gains on all property including family homes (and to apply this tax annually based on paper profits too).

That said, occupancy requirements are reasonably common elsewhere (e.g. to claim first home buyer benefits in AU, to prove that it's your primary residence to avoid capital gains taxes in AU, to get owner/occupier interest rates in AU) so I assume that they have some means of enforcement, but haven't really looked.

Property taxes already tax based on the paper value of the house (well, an assessed value, which may or may not be fair).

Tying it to appreciation and paper profits could quickly drive someone out of their home (e.g. Seniors). Heck, this is why prop 13 was initiated in the first place, for all the damage it did.

In Australia there is no taxes on the family home and it isn't counted as an asset for welfare purposes.

So we end up with this bizarre situation where people in multimillion dollar houses can and do claim the aged pension.

Different situation here in AU, but the idea would be that you put so many dampeners on capital growth that there isn't really any (and so nobody gets driven out of their home).

See the other comment re: multi millionaires collecting the pension; my taxes paying for benefits with far more wealth than I'll ever have, it's a frustrating situation.

Pensions and SS aren't considered welfare in the states so it wouldn't matter how much wealth they had. The problem that the USA Californian seniors were having is that they had a fixed income (SS, pension) and couldn't keep up with rising property taxes (problem when your taxes go up but your income doesn't).

I don't know that they're generally considered "benefits" here, but that's what they are. There is a means test (i.e. if you have enough in the way of assets then you don't get the pension) but it totally omits the family home; someone with a million dollar house vs a million in cash have the same assets, but one will get a full pension and one will get none.

Tie tax discounts to residency and register those applications centrally.

This is a different issue, establishing the difference between someone that buys a property to live in vs buys it as an investment.

It is, but tax policy can drive behavior. No residential exemption == higher carrying cost.

Speaking as an Australian as well. I'd say 1 house per person and no negative gearing in addition to stopping overseas investment in residential property would be a better policy.

I lament that lack of business in Australia because everyone is fighting over the scraps of our property market.

Acow_Adonis, I think you've failed to consider a few factors.

A quarter of new NSW properties were sold to foreigners the past year and 89% of those foreigners are Chinese [1]

70% of Chinese are buying property with 100% cash [2]

$3.8 TRILLION USD of "capital flight" escaped from China in the past decade [3]

Australia's property prices doubled this past decade, from an already high base [4]

Australia has no Anti Money Laundering laws for Realestate Agents, Lawyers and Accountants, despite a committee "considering" implementation every two years for over a decade. Transparency International ranks Australia as having the weakest anti-money laundering (AML) laws in the Anglosphere, failing all 10 priority areas [5]

Prices for property are set at the margins (recent sales are used for valuation of upcoming sales) [6]

[1] http://mobile.abc.net.au/news/2017-10-11/foreign-buyers-not-...

[2] https://amp.afr.com/real-estate/residential/70pc-of-chinese-...

[3] https://www.forbes.com/sites/insideasia/2017/02/22/china-cap...

[4] https://about.homely.com.au/blog/2017/3/23/what-we-can-learn...

[5] https://www.macrobusiness.com.au/2017/03/report-australia-wo...

[6] https://www.macrobusiness.com.au/2017/04/foreign-buying-can-...

As per another comment in this thread, I really want/like links to original sources for figures, not second hand reporting.

But let's accept some of those reports on face value. In Australia, you have to take into account both that we have laws that limit foreign purchasing of established properties, and that those figures are commonly for newly established properties.

Firstly, that's exactly what the policies were supposed to cause.

Secondly, new sales need to be measured relative to turnover and funding within the local established market. This gives you an idea as to the relative scales. Under the observation that many of these investments will be in high rise inner city apartments, again, it's not necessarily such an alarming figure, and arguably, might even be what policy was set out to achieve.

The most feasible take away I think is your link no 6:pointing out that the price set in a market is a complex play of expectations and marginal prices.

But, as with most of these articles and points, this all had to be taken in context of the behavior of locals and he size of their operations.

I don't say that foreign investment plays no part. While no rain drop considers itself responsible for the flood, I think it's a curious analysis and interpretation that focuses on the 10% and blames them, when there is enough explanation to be found in the behavior of the local 90%, given that obviously market outcomes are in truth an interplay of both.

> There's limited evidence available that it's foreign buyers primarily responsible for our high house prices :/

It doesn't matter if it is the primary cause, it is one of the causes. And it is the one to change that causes the least problems to the people of the country you represent.

In Australia, things are compounded by the incredibly greedy negative gearing rule, which also needs to be banned.

What's the negative gearing rule?

Edit: from an American

Negative gearing is when the house is run at a loss and the loss taken against regular employment income.

That would be when the rent doesn't cover the mortgage interest + maintenance costs.

The benefit is that the dominant form of income in the investment is the capital gains, which is under your control to take at a later date when you'll pay a lower tax rate.

https://en.wikipedia.org/wiki/Negative_gearing

Quickly: income tax deductions on investment losses into property.

The general strategy is to pump money into a property at a technical loss and make it up the difference on capital gains later.

Wait, so you can get paid to renovate a place above what the market will pay in rent and deduct the difference from your taxes, but then eventually sell the palace later and make cap gains on that?

No, you can't deduct capital expenses like a renovation from your personal income, but you can deduct those capital expenses from the eventual capital gain so that the capital gains tax is only paid on the net profit.

The negative gearing only applies to ongoing expenses (e.g. maintenance, interest, depreciation) not to capital expenses.

No, but you can claim interest and repair costs as a means of lowering your income and other taxes. Taken to an extreme there are some people who pay net zero tax on millions in net income (they don't mind the loss as there is no tax and the long term plan is to make a capital gain on sale).

The original idea was that people would lower the rent to make renting more affordable. This rarely ever happens in practice because tweaks to the law mean that you can claim interest and expenses without actually renting the property (set the rental at an unaffordable price point and leave the house vacant).

Which has the added benefit of reducing supply, driving up prices and raising the future resale value!

That’s really not the case. The issue, however, is broader - there are so many people speculating on property in Any Arrakis we are heading for an absolutely enormous crash. Chinese investors are getting targeted because there have been quite a few of them in an already incredibly overheated market.

That doesn’t mean that overseas speculators aren’t part of the cause this problem.

A house with an absent owner overseas is usually still occupied by somebody, so still contributes to housing supply. I don't really think the measure will have much if any affect.

There may be some houses that are left vacant, the owner could be in NZ or somewhere else. Perhaps it would have been more useful to take measures against that instead.

This wasn't and isn't true in Vancouver.

OK, so take measures against that instead.

There's limited evidence available that it's foreign buyers primarily responsible for our high house prices :/

Correct.

The primary cause has always been local steady employment, low interest rates combined with liberal access to debt with households culturally disposed to pumping that into housing.

This part is incorrect; the primary cause in the last 40 years has been supply restrictions: https://jakeseliger.com/2015/09/24/do-millennials-have-a-fut...

Tokyo is a notable exception: https://www.vox.com/2016/8/8/12390048/san-francisco-housing-...

Partly correct....

If you access the ABS web-site and download the house price index for each state and capital and map out long term growth excluding the years after 2000. Then calculate the growth of housing that has been typically matching inflation or 3.3% per year (depending on state).

Then you over-lay immigration, births, deaths, and interest rates. You will find that that most of them don't really correlate with the boom in house prices.

Even accounting for the Negative gearing introduction it didn't have `that` much of a impact.

The only correlation I have found that triggered the whole entire cluster f we have now. Is if you go back and look at the introduction of Capital Gains Tax Discount.

After the introduction of CGT Discount that is when the vast majority of high to middle income earners turned to housing as a investment stream to avoid tax. Then on-top of this you had the Howard Government introducing the `User Pay` system where instead of the tax payer fitting the bill for new suburbs and infrastructure for housing, the developer and home owner now has to pay for housing infrastructure.

I live in Darwin, and did recently purchase a house.

Yes good :) that's the kind of data driven analysis we should build on.

Additionally, we have to explain why house price rises correlated strongly across particular international areas at particular times (and that's one area where international investment should not be struck off the initially unfeasible list of options until our data/theory suggests otherwise).

And additionally, if house prices are increasing, why these cities/areas and not others. If there is a reason money and investment is flowing to these places, do these policies address those fundamental reasons. If not, policies may just have to watch effects flow around policy like water flows around obstructions.

The "supply argument", and I start by admitting I cannot do this debate justice in the space of a HN comment, reminds me of the futurama joke: "you are technically correct, the best kind of correct".

If budgets/demand increases, and supply does not adjust, then prices rise. It's Econ 101, and it's technically true. But like most technically true answers, there something unsatisfyingly unhelpful about it.

Tokyo is likely strange due to the particular timing and history of housing and economic bubbles in Japan, vis a vis the millenium bubble and post gfc story that's been playing out for most English speaking nations.

From a later year Economics point of view though, we can start asking some bigger questions:

-what factors contribute to increased demand -should supply increase to match demand? -could any market have increased supply sufficiently to avoid price increases in any meaningful way given the relative liquidity and elasticity of funds and demand increasing policies vs the structural inelastic nature of housing supply - are lagged over/under supply problems possible? - from a public policy and prudential perspective, what should we be doing to manage these issues? should policy be set by locals or by money flows (and I don't think there's an easy or universal answer to that last one)

Forgive my ignorance, but if it's easy to build homes (as has been for a number of years) due to low-interest rates and steady employment wouldn't that lead in an increased supply hence dropping prices?

You're correct, but missing one major factor. The price of land. If you have a look the countries with housing market bubbles have high regulation with zoning and release of land to build houses on.

Take for example Australia. We have one of the most highly regulated land zoning regulations in the world. That and the high price of land where you can build a house on. If you track construction cost vs land prices you will find that land is one of the major contributing factor's to the price of houses.

For example, the house I recently purchase I purchased for $330,000 AUD, but the land is worth valuation is $315,000.

Anecdata: as a first time Oz home buyer relying on a bank loan, I was consistently excluded from house sales by foreign investors who could pay cash up front.

is not just chinese money btw.

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