Auckland is by far New Zealand’s biggest city. It’s metropolitan area is home to around 1.5 million residents, or roughly one-third of New Zealand’s population. It also has by far the most expensive housing in the country, with its stratified median house price hitting an all-time high of $572,825 in October 2012 according to the Real Estate Institute of New Zealand (REINZ), compared with a national median of $394,000 (see below chart).
I have written previously on how Auckland has amongst the poorest housing policy in the world, whereby emergency low interest rates (the official cash rate has sat at just 2.5% since April 2009) has been met with extreme restrictions on land supply by Auckland Council, which have combined to push-up house prices.
Another factor adding to the squeeze on Auckland housing, which I had not considered at the time, was New Zealand’s lax laws on foreign ownership. Unlike in Australia, where there are restrictions on foreign ownership of pre-existing dwellings, New Zealand openly permits foreign ownership of property – both new and pre-existing dwellings – and even offers an easier path to residency for foreigners that own New Zealand land. From the New Zealand Herald:
An Auckland developer building houses for under $400,000 says Chinese are using property as a ticket into this country because owning real estate increases immigration visa points.
Grant La Hood of Citywide Homes said Chinese buying Auckland houses had pushed up prices and he wants deterrent measures.
He backed a Herald article last Tuesday about the high number of Auckland house sales to non-resident and migrant Chinese.
He said that was the first story in the debate that dealt with the real issue behind rapidly rising prices.
“I spend my days looking for suitable development sites and it is almost impossible to compete,” he said of wealthy Chinese.
He completes about 10 to 15 houses a year and said the housing market should represent the domestic economy, but that instead it represented the wealth of people from much larger economies.
“Let’s remember housing is a necessity and not just a commodity to be bought, sold and traded. Politicians need to spend some time in the auction rooms and see the demoralised faces of first-home buyers to truly understand why Kiwis are fleeing to Australia. Aucklanders would be shocked to know how much of our rental stock is owned by investors living in places like Hong Kong and China.”
One real estate agent told him 60 per cent of his agency’s rent roll was non-resident Asian investors.
“The investor category allows foreigners to buy land to secure points for their visa application. Buying property is like buying a ticket into this country,” La Hood said.
Let’s also remember that New Zealand has similar negative gearing laws to Australia and no capital gains tax. As long as it continues to pump demand and choke supply, housing will remain seriously unaffordable for younger households. What should be a competitive advantage for New Zealand – abundant and affordable land/housing – has instead been turned into a disadvantage that has encouraged many young New Zealanders to emigrate to greener pastures abroad.
Twitter: Leith van Onselen. Leith is the Chief Economist of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. Click for a free 21 day trial.
