Bryce Edwards’ Political Roundup: The Coalition’s very clever ban on foreign house sales

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Bryce Edwards’ Political Roundup: The Coalition’s very clever ban on foreign house sales

Dr Bryce Edwards.

The new coalition government looks set to record a big political win with its very clever plan to ban house sales to foreigners. Previously Labour’s policy of banning foreigners from buying houses in New Zealand had appeared to be a difficult promise to achieve – mainly because of the government’s responsibilities under existing and upcoming trade deals.

The main problem was with the looming Trans Pacific Partnership (TPP) deal, which Labour may well sign New Zealand up to. But it now seems that the coalition government can avert any conflict between the ban and the trade deal, simply by introducing the ban before the TPP is signed and implemented. Patrick Gower explains it like this: “Ardern has got into power, asked the officials and they have come up with a very simple ‘hack’ – bring in the ban before the trade deal is signed off. If this is true, it was a damn easy fix” – see: Jacinda Ardern goes for 2-for-1 ban and TPP deal.

What will the foreign buyer ban achieve?

Auckland housing market.

Obviously the intention of the ban is to reduce competition for buying houses, therefore limiting price increases. But will this really work?

Not according to former National staffer Gwynn Compton, who says the effect of the ban will be “None. Zilch. Nada” – see: The pointlessness of a foreign buyer ban. He says “Australia implemented the same thing in December 2008 it had no impact there either. In fact, much like New Zealand’s prices, house prices in Sydney and Melbourne have nearly doubled since 2008.”

Referring to the fact that foreigners will still be allowed to buy new houses, Compton says that the only impact of the new rules will be to shift “the two or three per cent of property investment that comes from overseas from existing homes to new builds instead. The small resulting increase in prices there pushes citizens and residents back into the existing home market, and thus increases competition there by the same amount. The overall result? You’re no better off than you were before, unless you’re a property developer.”

Property Institute CEO Ashley Church also emphasises that the main impact will be to push investment towards new builds. He was quoted on TVNZ Breakfast saying, “It’s not a ban, it’s a redirection of investment… Foreign investors who want to invest in New Zealand residential property they can still do so, but they’ve got to invest it in the construction of new buildings. That’s a good thing for the economy, with 40,000 houses in Auckland required almost straight away” – see: Foreign buyer ban ‘more symbolic’, effect on first home buyers ‘almost none’, says Property Institute CEO.

Real estate agents also think the ban will have little impact on their business – see Adriana Weber’s Foreign home-buyer ban: will it make any difference? The same article cites economist Gareth Kiernan saying that “many foreigners had already been squeezed out of the market by the banks toughening up restrictions on foreign investors.”

Kiernan is also quoted on the slowdown of overseas investment in housing in Susan Edmunds’ article, Foreign buyer ban will affect small proportion of property sales. He says “the major banks have stopped approving mortgages based on overseas income” and the “Chinese government has also tightened the restrictions around the ability of Chinese nationals to move money out of China”.

In the same article BNZ chief economist Tony Alexander warns “we don’t know to what extent buyers will find ways around the rules, such as getting friends and relations already here to purchase on their behalf, as has apparently been happening in the Asian communities, according to anecdotes”.

The foreign buyer ban is politically powerful

David Parker, New Zealand’s Minister for Economic Development, Minister for the Environment, Minister for Trade and Export Growth, and Attorney-General.

The coalition government has stepped back from suggesting that the change will make a huge difference to housing affordability. Instead, David Parker is emphasising that the ban is an “important point of principle” – see Laura Walters’ How much of a difference will the foreign house buyers ban make?

Parker has been focusing on the more ideological aspect of how the ban fits into the fight against inequality, saying the ban is aimed at the rich elite and will affect the “one per cent” – see Sarah Robson’s Foreign home buyers to be banned – PM. Parker explains: “Just about everyone who buys who’s a foreign person buying into New Zealand – they’re a very very wealthy ‘1 percenter’… And I think that’s one of the excesses of global capital, when you allow those sorts of interests to influence your housing market.”

Therefore, this big first move of the coalition government can be seen as symbolically very important. And that’s what Patrick Gower argued this morning, saying “It sends the symbol that this Government is different to the last one, on housing in particular” – see Newshub’s Labour’s foreign housing ban ‘symbolism’ – Patrick Gower. And he says it will be politically powerful: “Gower argued the ban is supported by two-thirds of the public, and the Government will get credit from voters for instituting it.”

An even more sceptical view is that this big announcement can be seen as a sop to leftwing coalition supporters who are soon going to have to accept the Government signing up to the TPP. This is the argument made by Rob Hosking in the NBR: “So this week’s announcement was part distortion – the foreign buyers announcement is good crowd-pleasing stuff but it won’t mean much at this point in the housing cycle – and part the start of a softening process” – see: Ardern drops ‘sovereignty’ concerns over TPP (paywalled).

To go even further, here’s Mike Hosking’s view that the housing buying ban is entirely pragmatic: “This so-called ban is window dressing, it’s xenophobic, made-up political bollocks for expediency purposes and nothing else. It’s the move you make to make you look like you’re doing something, when in reality it’s for headlines and coalition promises – not for any real effect. It’s the work of inexperienced amateurs” – see: Foreign house buyer ban ‘xenophobic bollocks’.

Labour’s beef with National

Patrick Gower says this could be a big win for the prime minister, and predicts “It will be extremely embarrassing for National, if she pulls this off, as it said it could never be done.” And National’s prior role in trying to prevent Labour from achieving a ban is now in the spotlight.

Ardern herself has come out and criticised the former National Government, saying that it now seems they didn’t even ask their officials for advice on whether a ban on foreigners buying houses was possible. Some speculate that National actually went out of their way to “wedge” Labour on the issue.

Vernon Small explains that when the former government was negotiating the TPP, it deliberately chose not to include the possibility for a future government to implement a foreigner ban on house buying. He asks: “Was National’s decision to exclude a ban on foreign buyers of Kiwi homes from free trade deals a poison pill left for Labour to swallow?” – see: Foreign buyers ban in, Labour points finger at Nats for ‘misleading’ over free trade clash.

Small reports that “there has been speculation that former prime minister John Key and his team were explicit – leave it out. If they were so weasel-cunning it’s easy to see how the logic would flow; create an irreconcilable clash between Labour’s policy on foreign house buyers and the TPP so they can have one but not the other.”

Labour clearly blames National and its former trade negotiator, Tim Groser for the problem. New minister for trade negotiations, David Parker, has expressed bitter disappointment that National wouldn’t cooperate with Labour, so as to maintain a bi-partisan consensus on trade agreements. In an interview with the Herald, Parker says: “It has absolutely been clear for many, many years that the Labour Party in terms of trying to maintain bipartisan consensus around this has been strong on this ability to have New Zealand markets for our land, not international markets, and therefore how the last government chose to do that was an attempt to wedge us” – see Audrey Young’s David Parker targets trade deal and bar on house sales to overseas buyers.

Of course, now Groser is the Government’s diplomatic representative in Washington, and the question of his re-call is therefore on the agenda. Parker says this is a matter for Winston Peters, as Foreign Minister, to decide, but adds: “He is one of the people who wedged us on this issue” and “He was pretty central to those decisions.”

The AgriHQ publication has recently put across the view that in the previous National Government, “Tim Groser tried and failed to persuade Cabinet colleagues to accommodate the Labour Party’s previous policy of restricting house purchases by non-residents to preserve a long-standing consensus on trade policy between the two major parties” – see Nigel Stirling’s Groser backed trade policy. However, according to this account, “the recommendation never saw the light of day after a ‘captain’s call’ from then Prime Minister John Key and National campaign manager Steven Joyce in the middle of the Korean talks meant Groser was forced to back down.”

This is also covered by Richard Harman in his column, Did National play politics with MFAT’s TPP advice? Harman says this account reinforces the “suspicion that National played partisan politics with the TPP.” But he points to a briefing paper produced by the Ministry of Foreign Affairs and Trade, which also appears to give poor advice on these issues. Harman says: “That calls into question the quality of the advice given to the previous Government on the TPP and raises the question as to whether it was advice tailored to be acceptable to the National Government”.

Finally, for satire on this issue, see my blog post, Cartoons about foreign house sales and TPP.

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Dr Bryce Edwards is a political scientist and a lecturer in Politics.

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