As public entertainment goes, Finance and Expenditure select committee hearings rate well below, say, Game of Thrones.
The Auckland hearings for the Overseas Investment Amendment Bill take place in a dull hotel meeting room. There are a dozen or so MPs sitting in a horseshoe shape, shuffling papers, sometimes tapping at laptops or looking at their phones. To one side are officials doing much the same, and at the front a steady stream of submitters in smartly-dressed twos or threes, using their allotted 15 minutes to sway their elected representatives. Each group moves forward to the table, argues their case, answers any questions, returns to the chairs where they whisper for a while and, within a few minutes, are gone from the room.
In Auckland the committee heard 26 supplicants in one day; they heard dozens more in Wellington on other days, and there are more than 230 written submissions.
Still, watching the select committee hearings was a strangely riveting spectacle – largely because almost everyone said the same thing. The basic political premise of the bill is great, they said. We support stopping foreign speculators buying houses which would otherwise be available for New Zealanders, they said.
But as it stands, they said, the bill itself will end up doing the opposite of what is intended. It will obstruct the building of affordable housing. Oh, and it will also stymie us as we go about our business.
Submitters may not have used the same words as ACT leader and select committee member David Seymour, who summed up the OIAB as “an unworkable disaster of a bill”. But the phrase “unintended consequences” hung heavy over the room.
Alastair Porter, a land and property developer for about 50 years, says he asked one of his staff to search through all the OIAB submissions looking for people supporting the bill. He found almost none.
“The political problem is that what they are suggesting sounds like a good idea. If you stop selling houses overseas somehow there will be more for New Zealanders. But as 95 percent of submissions have said, actually it will have the reverse effect – it will aggravate the shortage of affordable housing.”
The Government’s $2 billion KiwiBuild scheme aims to deliver 100,000 affordable homes over the next decade. The Ministry of Business, Innovation and Employment estimates New Zealand’s total housing shortage was more than 70,000, at the beginning of the year, with more than 45,000 of the shortfall in Auckland. The number is growing by more than 40 houses every day.
“Once this thing is in, it’s going to be very hard to undo. We don’t want to have a terrible piece of policy in there that’s going to muck things up.”
– Shamubeel Eaqub
Here’s why the Overseas Investment Amendment Bill will make the problem worse, taken from a snapshot of arguments from the submissions:
– Overseas capital is vital, particularly if you want to build at scale. We need foreign funds and large investors to put money into big developments. We simply don’t have enough equity at home.
– Forcing overseas investors to on-sell properties within a specific Overseas investment Office-defined period (as the bill does) would be a critical impediment to attracting foreign capital. What if that period is only one year, as many industry people are suggesting? Three years? Put yourself into the position of someone asked to put funds into a big apartment development. What if the property market slumps within that critical period? Instead of being able to hold onto their investment in the hope of a recovery, the foreigner will have to sell at a loss. That’s too much of a risk, and foreign investment will go elsewhere.
– Many residential property developers get the capital they need for bank funding by pre-selling homes to overseas buyers. This can’t happen under the OIAB as it stands. As Jamie Hutchens, a partner with New Zealand’s biggest apartment developer Conrad Properties told the select committee: “Once this bill was proposed, our sales stopped.” Without the option to pre-sell, many housing developments just won’t happen, submitters say.
– In any case, big housing developments often take years to complete – the one at Auckland’s Long Bay is well over 10 years old and still not finished.
– Relying on the Overseas Investment Office to issue exemptions won’t work. OIO processes add 6-18 months of delays to a project, developers say, plus significant expense and uncertainty. Just another reason for overseas investors to put their money elsewhere, submitters said.
– New Zealand is seriously short of rental housing. Not just for families, but everyone from students in Wellington to construction workers in Queenstown. And, as Porter says, New Zealand needs scale – rental housing, not rental houses. But the rental market, by its very nature, isn’t a build-and-flick-quickly activity. Investors are looking long term. The bill as it stands locks foreigners out from the large-scale rental housing developments we need.
– The bill will stymie a nascent interest in New Zealand affordable housing from overseas social investment funds, says property expert Leonie Freeman. She says these social funds can be huge – several hundred million dollars is normal. Moreover, they are often prepared to accept smaller returns. This makes them perfect for social housing development, including rent-to-buy schemes, where someone doesn’t have money for a deposit, but gradually builds up equity in their home, Freeman says. “But [under the OIAB’s sell-in-a-specified-period rule], they couldn’t invest in our shared equity schemes, because the fund would have to own the houses for at least 10 years.”
A spokesman for Associate Finance Minister David Parker says Treasury created a specified sale period to be set on a case-by-case basis so as “to provide flexibility to allow developers sufficient time to complete (and sell) their development, while restricting them from retaining land longer than is necessary to complete (and sell) the development”. Industry players argue that’s too risky and will put foreign investors off.
Another major frustration with the bill, says economist and commentator Shamubeel Eaqub, is it’s not even clear if the underlying problem ostensibly being addressed by the bill – foreign buyers reducing the supply of houses and pushing up prices – even exists.
“We just don’t have any data to know if there is a problem, or how big it is if there is a problem. For something that is going to have wide-ranging impact, it’s important to have good evidence to base it on.”
The Real Estate Institute agrees – this is policy backed more by gut feeling than hard data. Reinz chief executive Bindi Norwell says research from her members suggests foreign buyers are a red herring in terms of over-priced housing: the real problem is the severe shortage of properties. Late last year the institute surveyed residential real estate agents and found less than four percent of buyers were from overseas.
“Given international buyers are such a small part of the market, we’re interested to understand what impact the Government believes the foreign buyer ban will actually have,” Norwell says. “A similar policy in Australia has had little impact, with Australia still the third most unaffordable country in the world.”
Eaqub says the bill was drawn up in a hurry – and it shows. “If the world was perfect, we wouldn’t have such imperfect bills coming to select committee. But that’s the purpose of select committees, and I think they will use that process.”
And if they don’t? New Zealanders looking to buy or rent a house will be the losers in the end, he says.
“Once this thing is in, it’s going to be very hard to undo. We don’t want to have a terrible piece of policy in there that’s going to muck things up.”
“This is one of those bills which sounded good on the hustings, but it isn’t going to work in practice and will have massive unintended consequences in the long term, including slowing down investment in new housing supply.”
– Steven Joyce
So the big question is whether there is the political will to make the changes to ensure the bill is workable.
David Seymour says his experience in politics doesn’t give him much optimism about the select committee process. But then he would say that. Still, it’s true the OIAB is a cornerstone Labour Party policy – any significant changes are guaranteed to bring a potentially embarrassing “u-turn” response from the media.
And keeping out foreign buyers is still a core part of the Government’s plan. Prime Minister Jacinda Ardern squeezed in a comment about the topic in her infamous “conception date” interview with Australian reporter Charles Wooley at the end of February. As for Housing Minister Phil Twyford, a ban on off-shore buyers has been on the cards for a long time. In 2015 he introduced a private members bill, the Overseas Investment (Protection of New Zealand Homebuyers) Amendment Bill, which was defeated.
On the other hand, it’s no secret the OIAB was introduced in a hurry, because any foreign ownership restrictions have to be in place before the revamped/renamed Trans-Pacific Partnership comes into effect. That’s because the CPTPP rules out any new restrictions on foreign ownership. Ironically, since the bill was introduced, CPTPP deadlines have drifted out, meaning there’s more time for the OIAB too. The Government recently tacked a supplementary order paper on forestry rights onto the bill, and submissions for that don’t close until April 10. The select committee is due to deliver its report by May 31.
Recently-resigned National Minister Steven Joyce, who was on the select committee, says he can’t read the mood of the committee in terms of a willingness to consider significant change, and by the time he left discussions hadn’t yet started on revisions. Now it’s up to his replacement, Amy Adams, to push hard.
“It’s incredibly obvious this is one of those bills which sounded good on the hustings, but it isn’t going to work in practice and will have massive unintended consequences in the long term, including slowing down investment in new housing supply. It’s something Labour needs to stop and think about,” Joyce says.
“I have been listening carefully to those submitters who have made strong arguments based around investments that will be of benefit to New Zealand by increasing supply.”
– OIAB chair Michael Wood
Select committee chair Michael Wood, who is Labour’s MP for Mt Roskill, isn’t criticising the bill, but says he’s taking submissions seriously.
“Most of the submissions have been high quality and constructive. I have been listening carefully to those submitters who have made strong arguments based around investments that will be of benefit to New Zealand by increasing supply.
“As a committee we mainly work well together and where issues have been identified by submissions we will work constructively on solutions within the scope of the bill and its purpose.”
And Twyford? What does the Housing Minister think? Steven Joyce claims Twyford told the Real Estate Institute privately he didn’t like the bill – a claim REINZ chair Rosanne Meo vigorously denies.
Twyford himself told Newsroom the bill has two objectives – protecting New Zealand from harmful foreign investment, but also encouraging investment in housing.
“We are serious about both those objectives. [Once the select committee reports back] we need to make sure we have the political will to ensure the bill is effective and delivers on both. I am confident in the process to deliver a good result.”
Property developer Alastair Porter has a message for the Government – get rid of the restrictions on foreign investment in big housing developments, or suffer the consequences. He hopes the select committee were listening.
“What I do know, as a large scale developer, is if we want more affordable housing, this isn’t the way to do it. If it goes through in its current form, I’m absolutely sure it will have the reverse effect.”
A government own goal, as it were.
