Is foreign ownership of land so bad?
Those opposed to foreign investment and ownership of New Zealand land, assets and businesses need to think carefully about why they do so, writes STEPHEN HICKSON.
Foreign ownership of New Zealand assets and businesses is moving up the list of issues people want to discuss. Many are opposed to foreign ownership of New Zealand businesses but the discussion is loudest and at its most heated when it comes to foreign ownership of New Zealand land.
As New Zealanders we feel deeply attached to the land and a large amount of our work and leisure is connected to it. Statements such as land amounting to "122 rugby fields a day" being sold into foreign ownership make for attention- grabbing headlines.
There have always been those who have raised a voice against foreign ownership but the recent high-profile proposed sale of the Crafar Dairy farms to Chinese interests has focused our attention on this issue more than ever before.
It is not just land that gets onto the agenda. In 2008 Michael Cullen blocked the sale of Auckland Airport shares to a Canadian pension fund claiming that Auckland Airport is a strategic asset.
Many New Zealanders also object to the inevitable consequence of foreign ownership of any New Zealand asset or business which is "profits going overseas". In August of this year, Winston Peters declared that he would ban the foreign ownership of rest homes. No doubt Mr Peters would strike a sympathetic chord with many when he says that in foreign ownership he sees "foreign owners getting rich at the expense of the elderly".
The amount and type of foreign ownership that New Zealand allows is a political choice that we make as a society via the ballot box but there are consequences to the decisions that we make.
If we are to restrict or, in some cases, ban foreign ownership then we should be fully informed and understand the consequences. We might not find some of those consequences appealing.
Why do we have foreign investment in New Zealand?
New Zealand is a great place to do business and there are lots of good opportunities to grow businesses and create jobs. To grow requires funds and so businesses either borrow money or issue shares in order to finance that growth. This requires someone who is a saver to lend the money or buy the shares.
However, the pool of savings in New Zealand is too small to fund this expansion and so we use the savings of people overseas who are willing to invest in a great place with great prospects.
Naturally, those overseas who lend us money or buy shares in our businesses need to be paid interest or dividends - hence profits going overseas.
Take rest homes as an example and suppose we do not allow foreigners to own New Zealand rest homes. If we want the same number of rest homes to be built then we will have to build them with New Zealand savings.
To do this might mean building less of something else, perhaps schools, shops, roads or wind farms. Or maybe we could increase our own savings to pay for those rest homes.
To increase our savings is very simple - as a nation we just need to consume less. Of course the reality is never as simple as all that.
Are we prepared to reduce expenditure on health and education in order to save more? Remember the Government is a consumer and a saver as well. Are we prepared to reduce our standard of living in some other way? New Zealanders don't appear to be very willing to do so.
Alternatively we could just build fewer rest homes. That will reduce choice for New Zealanders looking to use rest homes and most likely push up the price of going into a rest home.
If none of these consequences are appealing then using savings from the rest of the world is our best and only option.
The most obvious impact of restricting foreign ownership in New Zealand is that we restrict the opportunities for business growth and job creation.
While some profits head overseas as a result of foreign investment, much does not and of course the wages, businesses and land stay right here.
Foreign owners, just like any business owner, want to see their investments perform as well as possible so they are also likely to reinvest and create even more value for New Zealand.
When we restrict foreign investment some New Zealand worker now finds it just that little bit harder to find a job than they otherwise would have.
There are other impacts as well.
New Zealand is a small trading nation in a much bigger world.
That bigger world has a lot to offer us and every time we restrict foreign ownership we also reduce our access to the best knowhow that the world has to offer.
For every foreign buyer looking to buy there is a New Zealander looking to sell. By restricting or preventing foreign ownership we are preventing a fellow New Zealander from selling what they themselves own for the best that they can get.
New Zealand is a nation that values freedom and choice.
One of the cornerstones of our society is that we are all free to buy, sell and own land and businesses.
When we impose restrictions on some people in society we tread dangerously on that freedom.
When it comes to private businesses, assets and land it is odd to think that "we" own them. On the day before a New Zealand farm is sold to a foreign owner, I didn't own it and I had no right to say how that farm should be used.
The day after it is sold I still don't own it and I still don't have any rights to say how it is used.
The new foreign owner is also subject to the laws of the land just as much as the previous owner. If a piece of land is important for, say, access to a river or beach then that should be written explicitly into the title of the land. Who owns it is then irrelevant.
Those opposed to foreign investment and ownership need to think carefully about why they are so. Such opposition comes at a cost to all New Zealanders.
* Stephen Hickson teaches in the Department of Economics and the MBA programme at the University of Canterbury.