Housing ban may breach trade agreements
Labour's proposal to restrict foreigners buying New Zealand property could clash with the country's free trade agreements, including its multibillion-dollar arrangement with China, an expert says.
Labour's proposal to ban all foreign non-residents except Australians from buying existing houses is aimed at reducing house prices. It is also a response to claims that foreign buyers are contributing to soaring house prices.
Labour leader David Shearer said the move was part of a package of measures including a capital gains tax excluding the family home, and a plan to build and onsell 10,000 affordable houses a year to first-time buyers.
The proposal has been dubbed by some as xenophobic and desperate.
Commercial lawyer and former Act MP Stephen Franks says it could directly contravene the FTA with China, under which New Zealand exported goods valued at $6.9 billion to China last year.
A Labour Party spokesman said the claims were being investigated but the party was "confident it's not a problem". China restricted foreigners from buying property.
Franks said it appeared the proposed New Zealand restriction would clash with the 2008 agreement, signed by then prime minister Helen Clark, which says the signatories cannot discriminate between local and Chinese investors.
Franks conceded there might be exemptions he was not aware of.
"And it says that the exception to that is for existing restrictions.
"We don't have them so bringing this in appears to run straight bang into Helen Clark's free trade agreement," he said.
While China could theoretically allow an exemption, governments did not usually allow other signatories to waive such clauses because that could set a precedent for any time there was "uncomfortable effect".
"In this case where China itself has significant restrictions on investing in land it would be very harsh of them to get too upset but we just don't know.
"Their attitude to our meat imports shows, and their reaction to the Crafar farms debate shows that they are pretty hard-nosed ... and they want you to adhere to it."
The clause was the same in most FTAs, he said.
"When we sign FTA agreements people are unaware of how much sovereignty you are potentially signing away."
Labour leader David Shearer announced the policy yesterday, saying it was about making homes more affordable.
"I will restore the Kiwi dream of home ownership that has slipped out of reach for tens of thousands of Kiwis. I don't want to see our kids become a generation of renters," Shearer said.
The next Labour government would ban non-residents from buying any existing house, flat or apartment, he said
New Zealanders were "muggins" to allow overseas speculators to buy in our market.
Shearer said his plan was in line with the one operating in Australia.
Australians would be exempt from the rule, under reciprocal arrangements in place, and foreigners who were building new homes would be exempt, because that added to the existing housing stock.
NZ First leader Winston Peters upped the ante, calling for an immediate freeze on property sales to foreign buyers.
Labour had only belatedly come to realise there was a problem with foreigners buying up houses in Auckland, he said.
His party had repeatedly called for restrictions on property sales to foreign interests and written a draft law to set up a register of all foreign-owned land.
Shearer said New Zealand's lack of regulation left the door wide open to international speculators.
Inland Revenue records showed more than 11,000 overseas investors own properties they do not live in. An estimated 2600 homes were bought last year by overseas property speculators with no intention of living here, he said.
"That's a big chunk, given that just 4700 new homes were built in Auckland last year."
The policy would reduce demand and help take some of the heat out of the market.
"By itself this is not a silver bullet for housing affordability - but it is part of the solution."
But speaking from Seoul, Prime Minister John Key said Labour's policy would capture only a tiny portion of home buyers.
The group of people who fit within that category at the moment is very small."
Many of those believed to be "foreign" buyers were actually citizens, permanent residents, or buyers who could find someone to align the property to.
"Some people see buyers from certain ethnicities at auctions for instance, and assume that they're foreigners; that's a very heroic assumption on their front, it almost certainly won't be correct."
There were ways to get around Labour's plan - a point also made by property investor and commentator Olly Newland.
But a Labour spokesman rejected that. He said a similar policy had been in place in Australia and worked well. There would be safeguards in place to close loopholes.
Green co-leader Russel Norman welcomed the move as sensible and said Labour was "getting on board with another Green Party solution" on affordable housing.
"Housing shouldn't be a place for speculators, it is a place where people live."
The Dominion Post