Foreign buyers will need to spend about $5 billion buying Kiwi property each year - the equivalent of snapping up almost half of all the $2m-plus homes that sold last year - for the National Party to generate $740m in promised tax income.
National yesterday said that, if elected, it will allow foreign buyers to buy any Kiwi home at $2m or more so long as the buyer pays a 15 per cent tax on the sale price.
It predicts the policy will raise $740m each year. At a 15 per cent tax rate that will require $4.9b worth of annual sales to foreign buyers.
Last year, the overall sale of $2m-plus homes in New Zealand totalled $11.5b, while in 2021 such sales totalled a record high $17.2b, according to property analysts Valocity.
That suggests foreign buyers will need to each year buy between 30 and 50 per cent of all high-end homes for sales to meet National’s goals.
But before the Government banned foreign buyers in 2018, they typically only took part in less than 3 per cent of all house sales across New Zealand.
Brad Olsen, principal economist at Infometrics, said National’s numbers sound optimistic but it’s hard to judge because it hasn’t released details about how it came up with them.
“It’s plausible but whether or not they are likely to come to fruition is the next question,” he said.
National’s plan to allow foreign buyers back into New Zealand, along with other property-investor friendly tax cuts it has proposed, threaten to put housing issues back into the limelight ahead of October’s election.
The party said it has had the foreign buyer tax plan is independently costed and downplayed concerns by suggesting increased foreign demand will only affect the upper end of the housing market and not push prices up for the entire market.
But Finance Minister Grant Robertson called National’s calculations “voodoo costings”, saying it’s “impossible” to see where so many foreign buyers are going to suddenly spring from.
Labour also claimed National won’t be able to hit Chinese buyers with the 15 per cent tax because it will fall foul of a Double Tax Agreement that New Zealand signed with China in 2019.
Under one scenario modelled by the Herald, National’s policy might also have only netted $64m in tax in 2021 even though the country was in the middle of a record sales boom.
Auckland University tax specialist, Professor Craig Elliffe, said that as with all election promises, it was important for National to release more details about its costings.
If National leads a government after the election and fails to raise the promised $740m in taxes, it might be forced to introduce other taxes or make cost cuttings elsewhere, he said.
National’s finance spokeswoman Nicola Willis told the Herald the tax plan was formed by looking at “statistics of foreign buyers before and after Labour’s ban”.
It also estimated changes in “behavioural responses” by looking at how similar taxes have played out in other countries.
“This modelling approach was verified by our external reviewer, Castalia,” Willis said.
However, National’s belief it can pull in big tax income from foreign buyers seems at odds with comments made in the past.
Former National finance spokeswoman Amy Adams was among the politicians opposing the introduction of the ban in 2018.
In 2018, she said buyers made up a “very small proportion” of the real estate market.
National also argues allowing foreign buyers to buy in New Zealand means wealthy people will then invest in the country and spend money elsewhere on services.
Former prime minister Sir John Key put it more bluntly in 2020 when he called for the “crazy foreign buyer ban” to be ended.
“Why do we care if someone who lives in New York wants to spend $10m building a house in Auckland, using NZ craftsmen and NZ tradespeople?”
Key sold his Parnell home to a Chinese buyer for $23.5m. The buyer sold the house for a more than $7m loss just a few years later.
Luxury real estate agent Ollie Wall, whose family has been involved in some of the biggest house sales in the country, called National’s plan “fantastic”.
“These people are bringing their own money with them so it’s not taking any money out of your pocket,” he said.
They’re hiring Kiwis, spending in the economy and paying tax, he said.
When asked why they need to be allowed to buy a home to do that, he gave the example of a US man, who has made his money in tech.
He said after the man bought a $4m-$5m holiday home in New Zealand, he went on to start a company that now employs more than 100 Kiwis.
“You give people a taste of this country ... they see what it’s all about and then they spend more time and more money here,” Wall said.
Olsen said that on the face of it, these arguments seemed to make sense, but he had not seen any study showing that foreign home buyers bring large amounts of investment with them.
University of Auckland property lecturer Michael Rehm said while it is questionable whether lifting the foreign buyer ban would help ordinary Kiwis, it would benefit the likes of real estate agents and potentially property investors.
Rehm viewed the lifting of the ban as part of a suite of broader suite of proposals that National announced yesterday.
These also included large tax cuts to landlords, who will be able to deduct interest costs from their tax bills and will only be subject to a two-year bright line test rather than 10 years (removing a de facto capital gains tax).
Rehm believed letting foreign buyers back in was less about bringing in investment and more about National wanting to bring “steel and flint” to fire up house prices again.
“This is just one of the elements that I see of them trying to reignite this bubble and gain favour from those who would benefit from a higher property bubble,” Rehm said.
Using a back-of-the-envelope calculation, the Herald found National’s plan might only have netted $64m in taxes in 2021.
A record $17.2b worth of homes valued $2m-plus sold that year, making it the year most likely to net the biggest tax gain. Using the latest foreign buyer statistics from 2018, the Herald found 2.5 per cent of house buyers who were required to state which country they paid tax in declared they were from a country other than New Zealand, Australia or Singapore.
Using this, the Herald found that a 15 per cent tax rate levied on 2.5 per cent of $17.2b worth of sales would equate to $64m.
However, there are no accurate ways to gauge how many foreign buyers would buy in the current market if allowed to do so.
Ben Leahy is an Auckland-based journalist covering property. He has worked as a journalist for more than a decade in India, Australia and New Zealand.
They allege the Crown ignored Treaty obligations by not engaging with them.