An International Monetary Fund staff report has expressed doubt that New Zealand’s much-debated ban on the sale of certain homes to “non-residents” would have “a significant impact on housing affordability”.
The IMF’s statement was published on the Washington-based organisation’s website yesterday, following a routine annual mission by its staff to the Southeast Asian country.
As reported here in February, New Zealand lawmakers have sought to address the country’s serious housing crisis by introducing a number of measures, one of which would ban overseas buyers from purchasing existing homes at all in the country. The proposed legislation, known as the Overseas Investment Amendment Bill, was introduced in December, and would look to ensure that only citizens and permanent residents of New Zealand and Australia would have an automatic right to buy existing homes in the country. Non-residents would be able to apply for permission to buy such properties from the Overseas Investment Office, or simply stick to buying newly-built properties.
“The proposed ban in the draft amendment to the Overseas Investment Act is a capital flow management measure, under the IMF’s Institutional View on capital flows,” the IMF says in its analysis of the legislation.
“The measure is unlikely to be temporary or targeted, and foreign buyers seem to have played a minor role in New Zealand’s residential real estate markets recently.”
It says other policies included under what it calls “an ambitious policy agenda to restore housing affordability”, if they were to be fully implemented, “would address most of the potential problems associated with foreign buyers on a less discriminatory basis”.
These include increasing the housing supply at affordable price points, addressing “regulatory, planning and other policies that reduce development capacity for growth” as well as “the under-funding of local infrastructure development and maintenance”.
Tax reforms are also being considered.
The measures are seen as important by the country’s new Labor-led government in the wake of a more than 60% rise in house prices over the past decade, fuelled at least in part, many believe, by a wave of wealthy foreign buyers.
They come as a number of countries, including Australia, Canada and Hong Kong have sought to cool certain areas of their housing markets by targeting foreign buyers, particularly those buying homes as investments rather than to live in, typically by adding tax that locals don’t have to pay. The UK is betting on the introduction of beneficial ownership rules to discourage the use of UK property for money-laundering purposes by foreigners, a practice some say has been widespread.
NZ economic growth ‘expected to remain strong’
The rest of the IMF’s report is largely positive, and notes, for example, that “economic growth is expected to remain strong, close to or slightly above potential”.
“Housing-related macro-financial vulnerabilities have stabilised recently, but household debt remains high. Macroeconomic and macro-prudential policy settings are broadly appropriate.”
To see the IMF’s staff report on the organisation’s website, click here.