Unintended consequences?

The bill that aims to rein in non-residents buying New Zealand houses - the Overseas Investment Amendment Bill - is currently before the Finance and Expenditure Committee.

It's had a lot of submissions - 239 of them, available here - and hopefully this point will already have been registered by the Committee, but if not I'd like to alert the members to the reality of housing development in our neck of the woods.

We live on Auckland's North Shore. It's an established area, which means that any extra housing comes from infill redevelopment. I can't speak for the whole of the North Shore, still less for Auckland more widely, but in our East Coast Bays the reality is that this redevelopment is largely being done by Asian developers with Asian crews. The typical projects aren't large - an existing house on a large section bowled and replaced with three new ones, two adjoining houses bought at the same time and their combined back gardens used for three new houses (both real examples) - but their aggregate contribution to expanding housing supply is significant.

There is provision in the Bill (sections 16C and 16D) for this sort of activity to continue, by way of approval from the Overseas Investment Office. But how many developers are going to go this route, which involves both uncertainty around an eventually positive vetting outcome and possibly some significant delay in the interim while the OIO mulls the decision?

My guess would be, not many. Maybe New Zealanders will end up better off in some affordability sense if foreign buying demand is taken out of the North Shore equation. But the evidence of my own lying eyes is that foreign supply is also being taken out of the market, and in our area at least it's not obvious that New Zealand will be the winner in any sense at all.

And what's true here may be true more widely. As the submission from the New Zealand Institute of Economic Research puts it

as well as preventing single-purchase investments by overseas persons, the Bill also makes it more difficult for foreign investors, including New Zealand-domiciled companies with more than 25% foreign ownership, to invest in large-scale residential projects. This is at a time when New Zealand has relatively few large-scale property development companies and New Zealand banks are increasingly tightening up on development funding.

This will reduce the supply of housing beneath what it might otherwise have been, pushing up prices for New Zealand resident and citizen buyers, including first home buyers. The Bill could therefore have precisely the opposite effect of what is intended.