The New Government’s Worst Legislation So Far
Parliament’s Finance and Expenditure Committee sat for most of last week, including all day Friday in Auckland. We’re not complaining, but the reason is interesting. The Overseas Investment Amendment Bill has received 220 submissions, mostly very substantial and from the business community, who are outraged at this bill.
What it Does
Currently, any overseas person or organization with more than 25 per cent overseas ownership has to jump through the Overseas Investment Office’s hoops to by more than five (sometimes only 0.4) hectares of land. Six months is considered a good time for getting approval from the OIO. The bill will apply this test to any ‘overseas person’ investing in ‘residential land.’ Treasury predicts the Overseas Investment office will go from processing 150 applications per year to 4700.
Why They’re Doing It
The Government believes they will reduce house prices by reducing foreign investment in housing. That’s bollocks, of course, the housing problem is one of supply, and the Bill will actually make it harder for local and foreign developers to source capital overseas. It is a monumental own goal.
The Fundamental Problem
There are so many possible ways of structuring an organization to shield overseas interests that any effective test must be draconian. Then again, any test that allows people to get on with their lives will have little effect on who has the ultimate interest in a piece of land.
Almost everybody. We’d never realized how many companies and industries have a) overseas investment and b) an interest in owning residential land. Below we list just a sample of the submissions made to the Committee.
Roughly every 1,000 homes require a substation. There are a surprising number of these on residential land. Developing electricity infrastructure requires major investment with up to 20 year time horizons. Adding uncertainty at the outset is fatal to building anything. Electricity companies say they support the bill but want to be exempt from it.
Telcos face basically the same problem as electricity companies. They need to have a cell tower in every suburb at least, and then there are data centres and future technology roll outs such as 5G. They are not necessarily opposed to the bill but would like an industry exemption.
Queenstown Mayor Jim Holt and local man Sir Eion Edgar pointed out just how much wealthy foreigners have contributed to conservation in the Otago region. In at least one case investing $100m and putting the land in trust for everybody to enjoy. They are not necessarily opposed to the bill but would like an exemption for properties over, say, $5m.
Many of the big developers rely on foreign capital. They are developing residential land by definition, trying to meet the silver tsunami before it drowns us all. They are not necessarily opposed to the bill but would like an exemption for operators of registered retirement villages.
New Ground Capital, who specialize in building homes to rent out, think the bill is a good idea but would like to be given a Standing Consent for their type of business.
Mining Companies are often required to buy houses near their sites who might be affected by noise and other pollution, in order to gain resource consent. They may find themselves unable to purchase in time to get consent. They would, of course, like this activity to be exempt.
Banks generally won’t lend to apartment developments, who often depend on presales to as wide a market of buyers as possible, including foreign ones. Shrinking the retail market to domestic buyers only will stop many developments. You guessed it, they’d like an exception for overseas buyers who buy off the plan.
How do you build more houses without building supply stores in residential areas? We don’t know, but the Aussie company made perhaps the cheekiest submission for a customised carve-out, suggesting ASX listed companies with more than 500 employees should be exempt.
Who Polices the Bill?
Working out whether a person is legitimate or not under the bill is a nightmare. The big banks, the real estate institute, and the lawyers all accept the objective of the bill. However, they would prefer the buck didn’t stop with them for checking whether a person has properly declared their status as an overseas person.
All of the requests for exemptions should be taken seriously. All these submitters and more have well-grounded fears that this bill will badly affect their business. But hardly any of them are prepared to say ‘this bill is crap,’ it is wrong and needs to be stopped.
The Government’s Problem
They’re stuck between a rock and two hard places. The Rock is the TPP, which forbids this kind of nonsense and will be in force some time this year if all signatories organize their domestic legislation in time. The first hard place is Labour and New Zealand First’s xenophobic campaigns against foreign investment. The second hard place is the impossibility of designing a law that will cut off some foreign investment without accidentally cutting off the New Zealand economy.
The National Party started this ball rolling when they introduced IRD number and domestic bank account requirements for foreign buyers of residential property in 2016. It took about six months for the industry to come up with work arounds. This legislation is no different in principle from what National did, it’s just far more byzantine.
We stand for a New Zealand that is not afraid of the world but stands proudly as part of it. Foreign investment is essential, and trying to cut us off from it, as every other party has done in the past two years, is offensive to our culture and fatal to our prosperity. The bill should be stopped, and we will repeal it.