Prime Minister-elect imposes blanket ban for non-resident buyers – but will it help curb runaway home prices?
New Zealand’s new Prime Minister-elect, Jacinda Ardern, has wasted no time in addressing that country’s soaring property prices.
Ardern – who seems to be taking over from Justin Trudeau as the global media’s latest, youngest, hippest nation leader du jour – announced October 24 that non-resident buyers will not be permitted to purchase existing homes anywhere in New Zealand (while also announcing a crackdown on immigration).
Just like in Metro Vancouver and Greater Toronto, New Zealand’s larger cities have seen a severe housing supply shortage and home prices have soared in the past decade, rising around 18% year over year in its capital, Wellington. Only a quarter of adults in New Zealand own their own home, compared with half in 1991, according to a Guardian report (and compared with 63.7% in Metro Vancouver and 66.5% in Toronto, according to Canada’s 2016 Census).
And, just like in BC’s provincial election, affordability, lack of supply and foreign ownership and speculation (particularly from China) were key issues in the country’s general election in September. So Ardern was duty-bound to make a big move once in office.
The policy is bound to be popular among New Zealanders, many of whom feel they have been pushed out of the housing market. But the question is, will the ban make a difference?
The Guardian report says, “Official statistics show that of the 48,603 property transfers registered by the government in the three months to June, just 3% were buyers with an overseas tax residency. The bulk of those were Chinese.”
This suggests that an outright ban would remove only 3% of New Zealand’s property buyers, which is hardly likely to make a huge difference to the market. (In Metro Vancouver, the official non-domestic buyer percentage was most recently pegged at around the same figure at 2.8%, but this is a dramatic drop from the 16.4% reported pre-foreign buyer tax.)
What might make more of a difference to New Zealand’s housing market – at least in the short term – is a “policy shock” just like the one seen in Metro Vancouver following last year’s introduction of the 15% overseas buyer tax. Which is to say that, rather than only overseas buyers pulling out of the market, the entire system freezes temporarily as locals and non-locals alike wait to see what effect the new policy will have on prices. This has the self-fulfilling effect of halting sales, and price growth, until people get used to the “new normal” and the system unfreezes, as it is bound to do. After all, people still have to buy and sell homes.
The other issue, of course, is that it’s very easy to get around these kinds of bans. Overseas buyers who still want in on New Zealand real estate can find loopholes such as resident proxy buyers, New Zealand-based shell companies, and so on. So it’s reasonable to expect that a chunk of those 3% of banned buyers will still find a way.
Naturally, leaders and industry insiders in BC are watching New Zealand with interest, to see if it will “work” and whether we should follow suit. According to a Global BC report, BC Green Party leader Andrew Weaver said he approved of the policy and hoped BC will impose a similar ban. “It’s not about stopping people from owning homes who live here and pay taxes,” he said. “It’s about ensuring British Columbians can live in homes in British Columbia.”
But the same Global story also reports UBC Sauder School of Business adjunct professor Tom Davidoff as saying that he doubts the ban will be effective. “I tend to believe restrictions [and] bans are hard to enforce at times. We had it here in British Columbia even with the foreign buyer tax.”
My guess? I agree with Davidoff on this one. I think that, like Vancouver, and once any policy shock is out of the way, New Zealand’s desirability and convenient Pacific Rim location will mean that buyers will just keep on buying. If anything, Ardern’s immigration crackdown may have more of a long-term effect on the housing market, if population growth stalls and local demand softens.
In the meantime, the popular new Prime Minister-elect will earn some kudos from her adoring voters for “tackling” the housing issue. We’ll see…