STRAIGHT AND TRUE
JOSIE PAGANI
Target the speculation not the foreigners
26/04/16 15:43
The issue is speculation, not who is doing the speculating. So John Key's consideration of a land tax on foreign house buyers is misdirected. Any tax used should apply to anyone.
A land tax is a good idea. Even Milton Friedman called it ‘the least bad tax’. Ok, that’s like a vegan calling chicken the ‘least bad meat’, but when the right wingers admit to liking a tax, it must be really good. But it only works well if you apply it fairly to everyone.
If you try to rule out foreigners from buying homes, what are you going to do about foreigners who own part of a company that buys one? Let's say you have ten houses and three are owned by foreigners. Then you change the rules so that only New Zealanders can buy houses. So the ten house owners sell their houses to a company in exchange for equity. The three foreigners own 30% of the company. If foreign money in our housing market is the issue you are targeting, what is it that has changed?
What are you going to do about foreigners lending money to New Zealanders to buy houses? From an economic point of view, debt and equity are both just capital. So if foreign capital in our housing market is the issue, then you should also be moving against foreigners lending to houses. That would be virtually the entire banking sector, other than Kiwibank.
If you target nationalities instead of speculation, you end up creating loopholes and inconsistencies, missing the real issues and creating unfairness.
The Auckland housing bubble is a real issue with serious problems. It produces unfairness by preventing many New Zealanders being able to buy their own homes; and it is bad for our economy. Bubbles damage the long term growth rate of the economy, and divert capital away from investments that increase our productivity and real wealth.
The way to deal with the bubble is to target the speculation and target the causes, such as supply shortages. There is a case for addressing demand by restricting immigration. (I'm not convinced of the case for reducing immigration but I accept immigration levels into Auckland are unprecedented, and that might be contributing to the price bubble.)
The wrong way to target speculation is to target the nationality of the people speculating.
Tweet
A land tax is a good idea. Even Milton Friedman called it ‘the least bad tax’. Ok, that’s like a vegan calling chicken the ‘least bad meat’, but when the right wingers admit to liking a tax, it must be really good. But it only works well if you apply it fairly to everyone.
If you try to rule out foreigners from buying homes, what are you going to do about foreigners who own part of a company that buys one? Let's say you have ten houses and three are owned by foreigners. Then you change the rules so that only New Zealanders can buy houses. So the ten house owners sell their houses to a company in exchange for equity. The three foreigners own 30% of the company. If foreign money in our housing market is the issue you are targeting, what is it that has changed?
What are you going to do about foreigners lending money to New Zealanders to buy houses? From an economic point of view, debt and equity are both just capital. So if foreign capital in our housing market is the issue, then you should also be moving against foreigners lending to houses. That would be virtually the entire banking sector, other than Kiwibank.
If you target nationalities instead of speculation, you end up creating loopholes and inconsistencies, missing the real issues and creating unfairness.
The Auckland housing bubble is a real issue with serious problems. It produces unfairness by preventing many New Zealanders being able to buy their own homes; and it is bad for our economy. Bubbles damage the long term growth rate of the economy, and divert capital away from investments that increase our productivity and real wealth.
The way to deal with the bubble is to target the speculation and target the causes, such as supply shortages. There is a case for addressing demand by restricting immigration. (I'm not convinced of the case for reducing immigration but I accept immigration levels into Auckland are unprecedented, and that might be contributing to the price bubble.)
The wrong way to target speculation is to target the nationality of the people speculating.
Tweet
