Runaway house prices caused in part by foreign nationals buying up properties. Sound familiar? This isn’t the UK, it’s New Zealand where the Government is banning foreigners from buying homes.
The New Zealand Government last week passed new legislation that bans nearly all foreigners from buying property in the country.
The move has come in response to a belief in the country that residents of other countries are driving up property prices in New Zealand by purchasing second homes there.
There are stories of rich Americans buying ranches as holiday homes or Chinese buyers snapping up properties in Auckland, including a number of 'doomsday preppers'.
The Government has now banned foreigners from buying property in the country in an effort to restore “the great New Zealand dream of homeownership,” says David Parke, the associate finance minister who adds that it is the birthright of New Zealanders to buy homes at a fair price.
The only exceptions are foreigners who have residency status in New Zealand and Australians and people from Singapore due to free-trade agreements.
“This Government believes that New Zealanders should not be outbid by wealthier foreign buyers,” says Parker. “Whether it’s a beautiful lakeside or oceanfront estate, or a modest suburban house, this law ensures that the market for our homes is set in New Zealand, not on the international market.”
The new legislation fulfils a campaign pledge made by the liberal-led Government which helped it win last year’s election.
The country has faced soaring house prices for many years, particularly in Auckland where prices compared to incomes are among the most expensive in the world.
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Are foreigners to blame?
Not everyone thinks the law change will help. The International Monetary Fund tried to persuade the New Zealand Government not to go ahead with the ban as it believed it would do little to affect house prices.
In fact, just 3% of homes in New Zealand are owned by foreigners. The only place with significant foreign ownership is Auckland, where 22% of property is owned by international buyers.
It’s impossible to say right now how the ban will affect New Zealand’s housing affordability problems, but the British Government may be watching it quite closely as there have been calls for a similar ban in the UK.
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Bring the ban to the UK?
New Zealand isn’t the only country to ban foreigners from buying property on its shores.
Switzerland doesn’t allow non-residents from outside the EU to buy property. Meanwhile, Hong Kong, Singapore and British Colombia in Canada impose restrictions or surcharges on foreign buyers.
In the UK, the Labour party pledged to give locals ‘first dibs’ on new properties in its 2017 manifesto.
The Government has also considered restricting property sales to international buyers.
Last December, Conservative MP Chris Philp called for overseas buyers to be barred from buying more than 50% of houses or flats in new developments of more than 20 properties.
In his report, he gave the example of Baltimore Wharf in London’s Docklands area. Of the 2,999 apartments in the development, 87% had been sold to foreigners.
Another development in Manchester saw 94% of 230 flats sold to non-UK residents.
“By snapping up new-build stock off-plan – including cheaper flats that are ideal for first time buyers – non-UK buyers are preventing young Britons from getting onto the housing ladder,” Mr Philps wrote in his report, Homes for Everyone.
One argument against the idea is that you are meddling with free markets, but Mr Philps disagreed.
“First, housing is far from a free market,” he wrote. “The mere existence of the planning system means that the state plays a significant role in shaping its outcomes.
“Second, land is not like other goods. You can always make more iPhones. You cannot create more land – especially not urban land in London and the South East that is suitable for development.
“Third, homeownership is so economically and socially advantageous – and so overwhelmingly popular – there is an imperative for Government to do all it can to support it.”
He’s not the only person who thinks a ban could work in the UK.
“I think the market could certainly benefit from seeing some restrictions introduced for overseas investors, particularly in the capital,” says Paula Higgins, chief executive at the HomeOwners Alliance.
“However, I would hope that this wouldn’t be seen as a panacea for all of the market ills. Overseas investors are just one of a number of issues facing the housing market and would-be buyers.
“It would be wrong to use them as a smokescreen for other issues such as a lack of quality, affordable new builds, a Stamp Duty system that prevents those at the top end of the market from moving and freeing up much-needed homes and, indeed, a lack of suitable properties for downsizers.
“Address the issue of overseas investment by all means but let’s not pretend that’s the biggest problem at play.”
What do you think? Should we bring in an outright ban on foreign property buyers, limit them or continue with a free market? Tell us in the comments below.