Housing xenophobia, again

By Matt Nolan 29/07/2013

Update:  Seamus discusses the policy here – appropriately focusing on the mechanism through which speculation (and information) impact upon prices.  Also here is Shamubeel Eaqub in the Dom Post.  The Civilian also posts – oww wait, that’s satire :P

I see the Labour party has joined the Greens housing xenophobia party, fun fun fun!

Obviously, this doesn’t go far enough.  We should ban all non-Aucklander’s from buying in Auckland as well – let’s be honest here, the REAL problem is the South Island … wait, what?

Now, I’ll start this post where I call lots of people xenophobes by answering a common comment to this.  So, before you say “learn to define xenophobia” lets grab the definition off Wikipedia:

Xenophobia is the irrational or unreasoned fear of that which is perceived to be foreign or strange

As banning property sales to non-Australian or New Zealand residents is an unreasoned policy response, and given that it is popular based on people’s irrational and unreasoned fear that foreigners are the cause of the issue (poor housing affordability?) xenophobia does fit here.  People that support the policy are being xenophobic, people coming up with the policy to get themselves votes are being xenophobic.  You might not like the name, but I honestly don’t write to make you feel good about yourself – if the shoe fits you should just wear it ;)

Anyway, I’ll step back from being antagonistic for a second – after all people mean well, but may not have considered the full consequences of such actions.  I wrote about this recently here (with added rant here) and Eric Crampton also touched on it here when discussing LVRs.  So all that is there – I won’t repeat it.

Now, let’s try to find a policy justification.

“I will restore the Kiwi dream of home ownership that has slipped out of reach for tens of thousands of Kiwis.  I don’t want to see our kids become a generation of renters,” says Labour Leader David Shearer.

“House prices in Auckland have risen by 28 per cent since June 2009. The problem is clear – there are just not enough affordable homes.  And overseas speculators are adding to the problem.

“By itself this is not a silver bullet for housing affordability – but it is part of the solution.

Ok ok ok, so from this it looks like they want a relatively long-term ban.  Otherwise “I don’t want to see our kids become a generation of renters” would make little sense.  They are targeting affordability here, not a temporary spike in house prices.  There is a difference.

And as a sidenote, ignore this speculators term – it is being used as ideological rhetoric with no real content.

So they are aiming to reduce the pool of people who may buy property, driving down the price.  So they want a transfer of resources from property owners to the young.  So if I’m reading this correctly they are trying to take on the issue I said people may have some concern about in my Rates Blog article.  Let’s repeat that:

Some may say that a bubble right now makes house prices expensive right now, thereby reducing affordability right now. However, why do we care if someone cannot afford to buy a house at this very second – couldn’t they just wait till the bubble is over?

However the concern here is that, New Zealanders that go out to buy a house during this bubble end up facing all the risk and expected drop in house prices associated with the bubble.

Generally these people are young New Zealanders who intend to start a family, and as a society we feel a bit rough about the fact they are in that position.

Now don’t get me wrong – on a personal level I disagree with this, but if that is where society’s head is at that is that.  But if we actually meant that this was our concern then:

Worst case scenario, one-off tax all property, given money to group who is “hard done by” – if you aren’t willing to do that, you are faking your belief in a distribution issue.

If you aren’t willing to do this, you are actually willing to hurt current property owners by MORE to achieve the same transfer to people who don’t own property.  And you are hurting foreign buyers as well.  This is WHY the policy is only “reasoned” if you actually dislike or irrationally fear foreigners – it is the only way it all adds up.  I am being polite by calling the fans xenophobic instead of straight racist :)

(Note:  Think of it this way, the higher price, if this policy does anything, is indicative of the fact that people overseas have a higher willingness to pay – the surplus above what a resident will pay would be split between the current owner and foreign buyer.  A  broad tax and transfer system will transfer surplus, banning sales will just destroy it).

I’d also point out something else here – this policy isn’t going to suddenly make housing affordable.  Labour admits it isn’t a silver bullet – but it doesn’t even fit in as a tiny part of a solution.