Is it time to bar foreign investment in residential property? When BNZ economist Tony Alexander made this suggestion three weeks ago, it was suggested here the measure would hardly be worth the effort. Some of the effort would be political; the Government would need to answer accusations of racism since the most visible "foreign" investors at Auckland house auctions are Asian.
That part of the effort now becomes easier with Labour leader David Shearer's adoption of the idea. Parties of the left are less vulnerable than the right to accusations of racism, if only because left-leaning parties make the accusation more fiercely. National calls this policy "xenophobic" but it is a charge Mr Shearer wears with ease.
He urgently needs a popular policy to call his own and this one will do him no harm. It sounds simple, carries no public expense and he argues it does no more than reciprocate restrictions on residential property ownership in places such as China.
That is a seductive argument, though tit-for-tat is never a good reason to restrict any investment.
To have his policy taken seriously, Mr Shearer first needs to show that foreign-domiciled buyers are a significant force in the housing market. The only available figures, obtained from a survey of agents by the BNZ and the Real Estate Institute, suggests non-residents account for around 9 per cent of sales. The agents say the largest number are Australians, who would be exempt from Labour's ban.
The survey result is generally disbelieved. The agents may have under-reported the proportion of sales to overseas buyers, or many foreign buyers may have someone in their family resident here for at least part of the year. That suggests a residency rule would not be as simple as it sounds. A permanent resident could become a trustee owner for many foreign investors.
What would happen if a home-owning resident emigrated? Labour proposes that migrants who have bought a house must sell it if they leave. Forced sales in these circumstances seem draconian, and discriminatory if New Zealand-born emigrants would be under no obligation to sell their house here.
Would a New Zealander living overseas be allowed to buy a house in this country? Labour has more work to do before this policy can survive scrutiny at an election.
But there is no denying the public interest in the subject. Nobody who attends a house auction in Auckland can fail to be struck by the number of Asians attending and bidding for the limited stock. Many will be immigrants - residency status unknown - with capital to invest and they will have found few other asset classes in this country to be as profitable as property.
Many of them may well find the absence of capital gains tax unusual, and naturally attractive. Labour's intention to tax the gains on non-owner-occupied houses should do more than a ban on foreign investment to bring house prices back within reach of first-home seekers. Would a residential qualification make any discernible difference?
Already the Reserve Bank is worried enough about rising house prices to be considering restricting the number of loans on low deposits, and the Prime Minister now accepts that first-home seekers cannot be exempt from that restriction. The Government's own efforts are limited to urban land zoning which could take a long while to produce lower-priced houses.
Residential property is not an investment important to the economy. Governments should not hesitate to impose social policy on the sector. If foreign restrictions will help first-home seekers - and we should be sure of that first - they could be one of many policy levers used.
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