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All seems perfectly consistent with the OPs point to me.

Speculative real estate investment is a direct result of restrictive zoning. Consider for example an already developed area of a city that is zoned for single family residential. This makes it illegal for a developer to increase supply in this region by building, say a duplex. A developer is allowed to rebuild a house, but not increase supply.

So of course there is speculative investment! Owners have a legal guarantee of resource scarcity. It’s the reason governments everywhere try to avoid deflation; it causes everyone to hold onto their cash.

Now contrast the situation when a developer can turn a house into a duplex. Supply is elastic. There’s no legal guarantee of scarcity. Of course real estate is still an investment vehicle, but there is no longer the artificial constraint on supply.

I also think it’s weird to lump this in with environmental protection. Preserving natural areas is an unassailably important priority for any nation. What does that have to do with home owners that feel they have a legal right to not live next to a condo? I don’t think the parent (or really anyone here) is advocating we develop undeveloped land.

Finally, I wonder if this is all moot, because the issue at hand is a restriction of foreign ownwers. Won’t native NZ real estate companies be glad to step in to fill the void? Can’t these companies then just shell shares to international investors?

> Speculative real estate investment is a direct result of restrictive zoning.

By definition, it's not. It's a term coined to separate out the impact on prices of people buying-to-live vs people buying-to-sell/rent-and-profit. And if foreigners are more likely to buy for speculative purposes, barring them from doing so will decrease speculative increases in house prices.

Right, but things with fixed supply make perfect investment vehicles, and when people investment in real estate that is speculation.

Imagine if the stocks of public companies were not fixed in supply. The company at any time could simply decide to have shares for 200%, 300%, or 1000% without compensating existing shareholders in any way. If that was the case, stocks would be total garbage as an investment. Prices would plummet to 0.

The reason metro real estate is so attractive as an investment is because supply is inelastic. If we want to encourage usage, as oppose to hoarding, we should do like we do with fiat currencies and allow more of it to be made.

Banning foreigners might have some tiny effect, but honestly seems a bit like arranging deck chairs on the Titanic. We can check in after a year, but all my money is on Auckland continuing to have an expensive housing market (unless they allow more rezoning). Further, banning foreigners of course is also banning a valuable export and will cut off a stream of foreign money that was previously flowing into the local economy.

> when people investment in real estate that is speculation.

Investing in real estate would be purchasing property for its income earning potential.

Speculating would be purchasing for capital gains potential.

You might argue that people do both at once but if you would only make the purchase if there is a potential for capital gains and not otherwise, then you are speculating.

Investment and speculation are not different things, all investment is speculation.

From the definition of financial speculation cited elsewhere in Merriam-Webster:

> Speculation is a method of short-term investing whereby traders essentially bet on the direction an asset's price will move.

This is what most people would assume speculation to mean in the context of this discussion. It is quite normal to compare this type of speculative investment with other - especially productive - investment.

I'm very well aware of what he means, that's obvious from my response, one can be clear without misusing words and it's entirely appropriate to correct someone who's using those words wrong as if they're unrelated when they're actually both a type of investing. Try understating what's going on before you start quoting a dictionary.

> rent-and-profit

Rent and profit is a great investment for the general public. Thats not speculation, thats straight down investment.

Buy to sell is speculation, in the sense that it might not be representing the underlying risks. But even then its doubtful: if you think construction materials will rise 20% in the next year, buying your house to day and sitting on it is a sound investment, one that benefits the whole.

Speculator is an overused word to depict an enemy that kills itself.

> Thats not speculation, thats straight down investment.

You make no sense, all investment is speculation.

By what definition of investment?

The words are literally synonyms, see any dictionary.

I always think of investment as chasing the dividends and speculation as chasing the capital gains. Investors prioritize Sharpe's and alpha, while speculators are more interested in beta. Investors want to grow a business, while speculators want to make money from their money.

While they may have the same meaning in a general sense, and are synonyms from a distance, once you get up close, you can distinguish meaning between them.

That's just how English works. Huge and colossal are the same until you pull out the D&D sourcebook, and then it turns out that colossal is bigger than huge.

You can't chase dividends without risk, it's all speculation. You're making a distinction without a real difference. All investment involves risk, all investment is thus speculation. Not all speculation is investment, gambling is speculating but not investing. That's just how English works.

Those words are different in my mind. They can be the same in yours, if that's the way you prefer it. We are not beholden to the Academy of English to use words only in an officially sanctioned manner.

https://www.merriam-webster.com/dictionary/investment

https://www.merriam-webster.com/dictionary/speculation#legal...

First hit.

There was no zoning at all in the United States when this occurred:

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

""" As a result of these factors, prices for land in the Chicago Loop rose from essentially nothing in 1830 ($800 per acre in 2012 dollars) to New York levels by 1836 ($327,000 per acre in 2012 dollars), a 40,775% increase, with even higher prices around Dearborn Avenue and the Chicago River.[3] Furthermore, Illinois in general experienced a huge boom in real estate prices and town foundations. Walters estimates that the foundations of 1/3 of all towns ever created in central Illinois occurred between 1835 and 1837.[4]

In 1837, there was widespread panic due to credit tightening from England. On May 29, 1837, as depositors began to withdraw money en masse, Illinois banks suspended payments. As these banks fell into bankruptcy, Illinois’ internal improvements, like the canals that were supposed to be financed by the banks, stopped. This led to considerable uncertainty as to Chicago's future, and combined with a general lack of credit, caused Chicago real estate prices to fall approximately 88% from their peak by 1841.[3] """

And now Ireland is experiencing a housing shortage, with rental prices soaring and house purchase prices heading in that direction.

Market failure, policy failure, awful planning.

Living here, it's hugely disheartening to see a similar pattern emerging so shortly after a massive crash.

I live in Cork, population ~200k. In 2012, I rented a 2 bed apartment in the city centre for €750 a month. Now, I would be lucky to get a decent 1 bed apartment for €1000. And because bank lending rules tightened after 2008, opportunities to purchase a house/apartment have narrowed. Therefore, those (and families in particular) who cannot purchase have been on the receiving end of the spiraling rents. It took the government till late 2016 to put the brakes on the rent increases by creating "rental pressure zones".

https://www.reuters.com/article/ireland-economy-housing/irel...

Wow. I had no idea the prices had increased so much. I'm paying just under double what you paid in 2012 for a 2 bed in the city centre.

The OP is hardly advocating encroachment on green spaces. The OP was pointing out the folly in attempting to mitigate one class of house buyers, when the zoning is egregiously sparse for a metropolitan area.

Auckland is adding apartments, albeit not at a sufficient rate. Their rents are high enough to make building them profitable. What does that say? It means that local resident demand is high enough to support investment of high-density residential areas.

Auckland's demand is significantly fueled by speculative investors, to be sure. What props up the house prices are the Kiwi families moving to Auckland for better work opportunities.

What Sydney and Melbourne are experiencing is a lack of rental support for their high house prices. That cannot be sustainable.

> Docklands has a vacancy rate of ~25%

I'm amazed it was that low. I was inspecting recently and I was blown away, it was like a ghost town. I checked out the carparks of these massive buildings and they were basically completely empty, it was crazy.

This data is more accurate than the typical media-reported 'vacancy rate' arrived at by surveying real estate agents and asking "what percentage of the properties on your books are currently vacant?" - which usually results in a figure somewhere around 3%.

The methodology of the Speculative Vacancies Report involves gathering water usage data for all properties. That can mean that if a property is occupied for a single month it isn't counted. A lot of the Docklands apartments appear to be not only vacant investments, but also short-term rentals and 'city pads', so I'm not at all surprised that it appears more like a ghost town than the figures suggest it might.

Very well argued, bravo! I was about to suggest the same but had no data to support this interpretation, just anecdotal that IMHO it’s the lack of profitable investments opportunities and tonnes of cheap capital sloshing around that’s fueling these bubbles all over the world

" just anecdotal that IMHO it’s the lack of profitable investments opportunities and tonnes of cheap capital sloshing around that’s fueling these bubbles all over the world"

If there is excess capital, it's the fault of the central banks.

No.

The issue is corruption and lack of distribution of surpluses in developing economies, specifically China.

Think: China is poor on a per-capita basis. So why are so many Chinese trying to hard to get their $$$ out of there? Mass corruption etc..

Westerners send a lot of $$$ to China - and if there were labour laws, environmental laws (i.e. democracy) then those surpluses would be spread more evenly across China. 'Regular' chinese people want to buy a home, a car a TV - but since the money is so heavily focused on a small portion of citizens - they have 'mass surpluses' and want to get their money out. So it comes back to the West.

You mentioned 'lack of investment' - this can't be the case - as there are still hundreds of millions of Chinese people who still don't have proper homes and are way behind in terms of material standards of living.

If they were paid more - they'd have more surplus $ to spend on 'homes and stuff' and guess what? Local investments would make more sense.

We can't have free trade with nations that regulate their economies in fundamentally different ways than ours. If a country for example, allows mass pollution - well - that externalization is a massive economic advantage, kind of like a 'government subsidy'.

The best way to deflate the Western housing bubble - and to fix the internal problems in China is to spread the wealth in China. Arguably US needs a little more of this as well.

It does not matter if houses are priced in dollars or donuts, they are increasing in value because of an oversupply of capital sloshing around looking for investments.

Wealth is not currency wealth is things of value, and we have systemic issues with profits from investments being reinvested instead of being spent, as everyone is looking for returns. This inflates the value of things that create future income streams.

No, not an 'oversupply of capital' , rather a lot of capital in the hands of a few. And low interest rates.

It only takes about 5% of home buyers to be foreign buyers who are 'price inelastic' (i.e. they will pay above market/any price) to create a housing bubble.

If the capital were not in their hands, but more distributed through the NZ economy, I suggest that capital would be deployed differently than just in real estate.

Housing without renters is not a productive investment.* If it seems appealing it's only because there is a dearth of productive investments available.

*Like gold it can act as a hedge, but long term inflation they has negative returns when you include maintenance costs aka vaults are not free.

> If it seems appealing it's only because there is a dearth of productive investments available.

...or perhaps property investment is encouraged by the tax system, is favoured by lenders, etc.

"Housing without renters is not a productive investment."

Agreed.

And guess what - many of the foreign buyers leave the homes empty.

That they would even do this is evidence of how crazy the economic mismatch is.

Which is why foreigners should not be able to buy property. Doubly important if they are not going to live in it.

Hi, we here did you get that 5% figure? Just curious

From the number of Toronto buyers of property who are foreign.

Ireland built a bunch of single family homes a million miles from anything with no transport connections bar already crowded roads. Now (for Dublin at least, where I live) rents are extremely high in the city centre and along the Luas and Dart, though I generally try not to mention too loudly that it still feels reasonable compared to urban California. There are still cheap homes in the middle of nowhere with shit transport connections, tbf (also Tallaght, which has other problems). It's a real shame they didn't try building housing that wouldn't effectively destroy the cities with cars. I'm not a big fan of Leo but hopefully relaxing height restrictions will help with getting more flats built.

Homes in Dublin under €175 (asking, at least) http://www.daft.ie/dublin-city/houses-for-sale/?s%5Bmxp%5D=1...

Also, green space is nice but it is worth considering that the actual natural environment of this island was lost between 1000 and 500 years ago. It used to be nearly all forest, but grazing animals are death to forest as they eat the saplings.

I like forests also but Ireland has never had a natural (free of human intervention) landscape since it was scoured down to bedrock by glaciers about 15-20,000 years ago.

Naturally occurring glaciers presumably?

Why not tax vacancies then? Do we know how that has worked in places like Paris or Vancouver?

Considering a) the price b) the number of empty flats bought by foreigner that stays empty most of the year c) the available supply

I don't think it works

Thanks for putting the report.

Oversupply is a problem for owners, not for renters and newcomers. The very people buying property and parking it are not making a sound investment, and they will naturally pay the price for it.

If what is happening is that speculators are dumping all this cash to make properties, then the best course of action is to do nothing. Eventually they will lose, but the buildings are still there. And there is plenty of space to build around. Housing is not a limited asset like its often portrayed. Its truly unlimited, thats why you can find land almost for free.

My main concern is that all of this is setting us up for an even harder correction, and that the people currently taking great speculative gambles are prepared only to own the reward but not the risk - we will all end up paying for that.

If properties crash, how do speculators not lose money?