Foreign Influence Continues to Play Key Role in Housing Debate
By Jamie Neikrie
At his weekly press conference in Wellington last week, Prime Minister John Key was questioned about the idea of reducing or slowing the rate of
housing prices by limiting foreign purchases.
This isn’t the first time Mr Key has fielded the idea. But prices are currently rising at an annualised pace of about 14
percent, led by Auckland with a pace of 27 percent, and foreign investments continue to weigh on the public
consciousness.
Mr Key replied, “In terms of foreigners buying, I think we all accept that there isn’t great data there. But in terms of
the data we do have, it doesn’t support that view….The sales that are going to offshore are, at best…maybe about 2
percent.”
Mr Key was highlighting the BNZ-REINZ survey conducted last year, which showed that just 3.6 percent of people buying houses in New Zealand intended not to live in
the country. The study also concluded that the only 4.5 percent of venders selling houses in New Zealand were based
offshore.
However, in the end the survey reached the same conclusion as the Prime Minister. “"Further study is needed to verify
this result especially in the context of the development of any government policy regarding controls on foreign
purchasing of NZ property”, the survey summarized.
In pointing to BNZ economist Tony Alexander, Mr Key claimed that enacting legislation to control foreign interests would
have little net effect. However, the Prime Minister left out that Mr Alexander himself said that he would support the
ban of house sales to non-residents, as well as a tax on all houses owned by Kiwis offshore. These are points five and
six on Mr Alexander’s eight-point plan for tackling the housing market.
How can Mr Alexander call for such sweeping regulation when his statistics show that the foreign purchases are having
such a negligible effect on New Zealand housing prices.
Because he thinks that this is just the beginning of New Zealand’s burgeoning relationship with China. And he is right.
According to the 2013 New Zealand Census, the percentage of Asian groups doubled between 2006 and 2013, now making up 12 percent of the population. As
Statistics New Zealand’s international travel data shows, much of the influx consists of people from China, which ranks second in the most common country of birth for
foreign-born citizens.
In 2006, the New Zealand government predicted that the country’s Asian population would reach 790,000 by 2026, increasingly by a rate of 3.4 percent a year.
Considering the Asian population increased by a rate of more than 100 percent from 2006-2013, I’m sure the government is
rethinking their projections.
In large part, this massive influx of immigrants is due to China’s rapid economic growth.
Despite the fact that its GDP has grown at a preposterously fast rate of 10 percent for most of the last decade, in 2011
China boasted a Gross National Income per capita of only $4,940, which ranked 114th in the world, just behind Tuvalu. Over 170 million people in China still live below the $1.25-a-day international poverty line. Not exactly the type of statistics you would expect from a world super
power.
So far, China has managed to counter this economic inequality with massive growth of their economy, success that is
slowly trickling down to the masses. Right now, China’s middle class, defined by the Organization for Economic
Cooperation and Development as “those with the means to make spending decisions beyond just subsistence,” consists of
roughly ten percent of the population but is on pace to represent 40 percent by 2020.
As more and more Chinese find themselves with economic means to travel, or buy commodities overseas, thy will continue
to look toward New Zealand. In 2011, China passed the U.S as New Zealand’s second-most most common exporter and importer.
The potential social, political, environmental, and economic ramifications of China’s rise are huge for New Zealand. But
for now, let’s stick with housing.
Last year, Mr Alexander wanted to determine how concerned the New Zealand people really are about rising housing prices.
He concluded that only 29 percent of responders were unhappy, with 42 percent indifferent and 29 percent happy.
However, financial website interest.co.nz decided to figure out which aspect of the housing crisis New Zealanders find the most concerning, using Alexander’s own
eight-step plan.
In response to being asked which of the eight suggestions they most favored, 34 percent of the 880 readers who responded
thought that banning house sales to non-residents was the best idea. This represented the largest block of supporters
for any one plan.
It is likely that this opinion is founded in the gossip and paranoia surrounding foreign investors, not in fact. But New
Zealander’s continue to think that foreign influence has played a significant role in the country’s skyrocketing housing
prices. And statistics can’t say otherwise.
Mr Key’s response that, “there isn’t great data there,” is unacceptable. The Prime Minister can continue to point to
Australia’s legislation against foreign housing purchases for evidence. But China’s rise hasn’t happened overnight, and
the New Zealand government’s lack of response to Asia’s growing influence represents a much greater concern than simply
a lack of quality data.
ENDS