Jacinda Ardern, New Zealand’s new Prime Minister, announced a plan to ban foreign purchases of existing homes in late October to ‘make housing and home ownership more accessible for New Zealanders’. Ardern plans to introduce an amendment to New Zealand’s Overseas Investment Act to classify residential housing as ‘sensitive’, thereby restricting non-citizens and non-residents from purchasing existing residential dwellings.
However, as much as the word ‘ban’ has been making international headlines as of late, this proposed method of tackling New Zealand’s rapid increase in housing prices since 2012 is very far from being an outright ban. Foreign investors will still be capable of purchasing new and off-the-plan dwellings, and the restriction on non-citizens/residents purchasing existing dwellings will not apply to Australian purchasers. Really, when one stops to consider that Australia has extended the same courtesy to New Zealand investors, it does seem quite fair that New Zealand should return the favour to Australian investors as it cherry picks residential purchasing restrictions from Australia’s Foreign Investment Framework.
Although Ardern’s announcement might be a fresh and novel proposal for New Zealand, the measure is nothing new to Australia, which already restricts non-resident foreign purchases of established dwellings. Through Australia’s Foreign Investment Review Board and the Foreign Investment Division of the Treasury, foreign persons generally need to apply for approval before purchasing residential real estate in Australia. An example of this that New Zealand is seeking to replicate includes temporary Australian residents being required to apply for, and receive, approval before purchasing an established dwelling, which they then must sell once the dwelling ceases to be their principal place of residence.
Restrictions such as this have effectively established a very surmountable bureaucratic hurdle to foreign investors looking to purchase residential real estate in Australia. However, given the continued surge in housing prices in Sydney and Melbourne, following Australia’s lead is far from a guaranteed method of cooling down New Zealand’s housing market.
With Sydney and Melbourne being the 2nd and 6th least affordable housing markets in the world respectively, Australia’s restrictions on foreign purchases of residential real estate have proved to be no barrier to rapid price growth. To further complicate matters regarding the impact of permissible foreign investment into Australia, an Australian Parliamentary Inquiry concluded that ‘no-one really knows how much foreign investment there is in residential real estate’. With Australia’s high housing prices and with little data to link foreign investment to these prices, Ardern’s proposed partial mimicry of Australia’s Foreign Investment Framework stands on shaky ground if it truly aims to make housing more accessible to New Zealanders.
This provides food for thought that this proposal may be more political tactic than a measure truly looking to address housing affordability, particularly given New Zealand Labour’s history of making a political point out of this area. Ardern’s party previously released figures claiming that 40% of houses sold in Auckland between February and April 2015 went to people with Chinese-identified surnames, a measured labelled as ‘half-baked’ by one of the kinder critics at the time. Regardless of the intent, if New Zealand is looking to combat housing prices, it could choose a much more effective role model than Australia.
As the Ardern government embarks upon its first year in power, its ability to prevent rising house prices and make housing more affordable for New Zealanders will be the subject of close scrutiny. It’s worth noting that although Auckland—ranked the 4th least affordable housing market in the world—has recently experienced its first drop in housing prices in six years, it would be a mistake to pin this drop on a ban that won’t be put to the New Zealand parliament for another few weeks. Instead, this drop in pricing has primarily been a result of New Zealand’s Reserve Bank introducing a requirement for property investors to have a 40% deposit before being able to borrow from a bank. This has led to fewer housing loans being taken out, a slowdown in the number of housing purchases being made, and a stress relief for New Zealand’s limited housing supply.
Measures such as this are much more likely to address New Zealand’s housing issues than Ardern’s planned ‘ban’, but there are thus far no signs if further measures of this nature are likely to see the light of day anytime soon. It’s likely that New Zealanders will have to wait to see whether following in Australia’s footsteps will lead them to a different housing destination.
Dylan Hubbard is the International Trade and Economy Fellow at Young Australians in International Affairs.