Mike Hosking: Foreign buyer ban could be this Government's biggest mistake

COMMENT: By the end of today I am told the Government's foreign buyer ban will be passed through Parliament - and with it one of the biggest mistakes they have made to date, and most probably will make in their time in office.

It all began in those crazy days not so long ago when there were those who believed that a variety of things were driving the fact that house prices were rising very quickly.

One of those things was foreigners - they were snapping up our properties and locking first-home buyers out of the market.
It wasn't true, isn't true, the two are not connected.

The Labour Party salivated when the first numbers were produced as to just how many of these so-called foreigners we had. There were wild guesses as to what that number might be, Labour suggested it could be 30 per cent.

It turned out to be three per cent - and each time new figures have been produced it's remained at roughly at 3 per cent.

And as time has passed we have seen that the market is no longer the mad cauldron it was. Prices have settled.

The Reserve Bank Governor, this week, even suggested they might fall.

And is that because we have banned foreigners? No, it is not.

It is because this is what markets do, eventually reality and the market meet. People no longer borrow because debt levels rise, mechanisms get put in place like loan-to-value-ratios (LVRs) that flush investors out.

New governments arrive and suppress speculative expectation as business confidence falls. By banning foreign buyers today, not one young couple locked out of the housing market will suddenly be able to afford their new home.

And the really sad thing about the move, having exposed it as dishonest, is they went through the charade of asking people what they thought.

And people lined up, from Spark, to Queenstown as a region, to investors, the tourism sector, it was a cross-section of wider New Zealand business who see every day the benefits of having New Zealand open for business.

They put forward tangible cogent arguments - so much so that the Government, in fact, loosened their grip slightly on large-scale investment for projects, and there were one or two exceptions like Australia and Singapore.

But fundamentally this was driven all along by ideology, and the ideology is seriously flawed.

A small country at the bottom of the world needs foreign investment, and the Government's line was always about it meaning more New Zealanders could own a home.

Well the fact Katy Perry will now miss out on her multi-million dollar bolt hole doesn't get your young couple one step closer to their first house.
And nor was it ever going to.