There's a saying in physics that nature abhors a vacuum. That saying is even more true at the point where economics meets politics. Without hard data, a debate about policy can slide off into dangerous places that lead to bad decisions.

We're at that point with foreign ownership of homes in Auckland.

The Labour, Green and New Zealand First parties will all campaign on the need to restrict or block non-resident purchases of homes and land, saying it is inflating prices beyond the reach of young New Zealanders and forcing everyone else to pay higher interest rates and cope with a high New Zealand dollar.

The Government's response is that there's not much evidence to say there is a problem.


This month's BNZ-Real Estate Institute survey of estate agents found they thought 6.4 per cent of homes were bought by non-residents and about 25 per cent of the non-resident purchasers were from China. Hence, the implication is that "just" 1.6 per cent of buyers are from China.

But this is not hard data. Even the BNZ-REINZ survey acknowledges that the non-resident purchase percentage is well over 10 per cent in Auckland and higher than 1.6 per cent from China. So we're back to the vacuum.

This is not a situation other developed nations accept. Australia limits non-residents' right to buy existing homes, forcing them to buy new, unoccupied homes and apartments off the plan.

But it still records the numbers and they are huge and growing. Non-resident investors from China bought 18 per cent of all new homes and apartments in Sydney last year and invested A$24 billion in housing over the past seven years. Britain, Canada, Hong Kong and America have had huge increases in demand for property in their cities from investors from China.

Something is going on in Auckland, but no one really knows how much is being invested, where, or by whom. Any government wanting to understand what is happening would start collecting and analysing the data. New Zealand First wants to create a register of ownership, but the Government has said only that it is watching the situation and has no concrete plans for more concrete analysis.

This vacuum is dangerous and needs to be filled with carefully collected data analysed by officials. An election debate based on gossip from auction rooms or the musings of estate agents is no substitute for proper policy analysis.

The Reserve Bank should also be involved in any analysis. It has recently started to deepen its understanding of mortgage borrowing as it introduced its high LVR speed limit.

But more is needed to understand exactly what demand factors are driving Auckland house prices higher, especially as the rest of the country's interest rates and access to high LVR mortgages are determined by those factors.


It may be too late, but a well-documented study of the demand stimulus from non-resident investors would avoid a vacuum that creates an ugly debate before September 20.

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