Farmland restrictions likely to hurt

Foreign investment has been good for ordinary New Zealanders, argues Cathy Quinn.

IT’S ELECTION year, and the issue of foreigners acquiring farmland and residential housing has arisen again.

The implication is that foreign investment in these assets is harmful to New Zealanders, and we’d be better off without it.

There’s a phrase in life that bears thinking about here: ‘‘Be careful what you wish for.’’ What would New Zealand look like without foreign investment? And what would it mean for the ordinary New Zealander?

Take our telecommunications market as an example. If it had remained under Crown ownership, would we have the competitive and dynamic market that exists today? A market where consumers have choices of provider as well as a multitude of services and offerings to choose from to fit different budgets. The foreign capital and foreign companies that invested in our telecommunications market brought new ideas and benefits to New Zealand. Would these benefits have happened otherwise? Perhaps, but maybe not as quickly or to the same extent.

So what of land and housing? Proponents of banning foreign ownership imply housing prices would fall, making it easier for Kiwis to achieve home ownership. That could be correct, but many questions remain. What impact would it have on all those Kiwis who already own homes? Let’s say the impact of bringing this new policy in is to cut the value of existing housing stock by 10 or 20 per cent. Is slashing ordinary Kiwis’ biggest asset by this much equitable? Would it wipe out or seriously erode the equity many Kiwis have saved as their deposit? Would it mean realising that nest egg and retiring are no longer affordable or need to be considerably delayed?

What impact would it have on the strength of our banks, who find the value of their mortgage portfolio slashed? It is noted by some that many banks are foreign-owned and their profits are sent offshore. Correct – the owners of banks are entitled to their profits but it should be noted that these same banks employ many New Zealanders and contribute to our economy in numerous ways. The strength of the Australian banks undoubtedly assisted New Zealand through the global financial crisis without the same degree of collapse and collateral economic damage that occurred elsewhere around the world. Banks are not evil. They are key participants in a stable and growing economy. If banks are negatively impacted by the reduced value of households, what are the flow-on effects to interest rates that Kiwis pay for mortgages or business loans?

So perhaps the approach is only to target the farming community rather than urban dwellers, because farmland is somehow more sensitive than urban land. Is it fair to impose a restriction or discount on rural assets that a city dweller avoids? Wouldn’t this be a case of ‘‘Not in my backyard but fine in yours’’?

These questions and the potential impacts suggest that banning foreign investment – even of houses and farm land – would likely have negative effects and create inequity for ordinary New Zealanders. We have a regulatory framework for foreign investment in New Zealand. In relation to farmland, foreign buyers must show their investment can add to the New Zealand economy, over and above what a New Zealand investor could bring. The question of foreign ownership of land is a convenient political football that creates headlines and feeds on people’s fears, when in reality much good has come from foreign investment in New Zealand.