Labour’s wants to ban foreign buyers but will it solve the housing affordability problem?

Labour is considering banning foreign house buyers from purchasing properties if they get into office.

As quoted in the NZ Herald, Phil Twyford said “National should back Kiwi families and first homebuyers, instead of protecting non-resident foreign buyers, and adopt Labour’s policy of banning foreign buyers from buying existing homes.”

So if Labour gets their way and ban foreign buyers from purchasing properties, what will happen to house prices?

Firstly, the immediate effect will be to dampen housing demand.

supply-and-demand-of-housing-decline

Secondly, assuming supply remains the same, house prices will start levelling off in the short term.

However, it is likely people will start to find loopholes. For instance, suppose a foreigner registered a company in NZ and owns 80% of the company and gives 20% to  a NZ resident lawyer? If that  NZ registered company buys a property, would it be considered a foreigner?

Thirdly, does Labour consider the flow-on effects of a slowing property market?

In fact, 2 factors which is significantly helping the NZ economy is the booming property market (helped by low interest rates) and tourism. Directly, the property sector has contributed to job growth. Indirectly, owners with accumulated equity can borrow money against their property to fund their consumption (new cars, holidays, home improvements). This helps contribute to a growing GDP and is a factor Labour has not taken into account.

 

The real problem Labour wants to solve is housing affordability. On the one hand, house prices are getting out of reach and on the other hand, workers are not enough incomes to save the deposit to buy homes. Labour would be better off it they can solve the harder problem of how to get workers to earn higher incomes (not just by raising the minimum wage) but real solutions which can motivate younger people to find or create higher paying jobs in technology, engineering and science so that they can afford homes.

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