Foreign Property Investors: The Invaders at the Gates or a Convenient Scapegoat?
Joe Sellman (3L)
In August, New Zealand was in the news for passing a law restricting foreigners from buying real estate. In 2016, British Columbia implemented a 15% foreign buyers tax, and there are numerous other jurisdictions that limit property ownership by foreigners. These laws in both BC and New Zealand aim to increase the affordability of housing. The alleged problem is partially that locals are competing with the international market, and partially that foreign investors are distorting the property market.
The problems that these laws attempt to remedy are real. However, I suggest that the problems have been mischaracterized, and the legislated solutions will therefore be ultimately unsuccessful in remedying the underlying issue. The issue, at its heart, is twofold. Firstly, there are people who want to own real property who cannot afford to do so. And secondly, there are people who are being priced out of affordable rent.
Humanity often seems to buy into the narrative that an outside force is the singular reason for the wrongs facing them. But life is rarely so simple. The problems within usually started before there were invaders at the gates. In this instance, the outside force is foreign investment. However, at least one study reported in the news suggests the impact of foreign investment is modest. Moreover, there might be other factors at play (Duran and Benning, Foreign buyers’ effect on Vancouver’s housing prices is ‘modest’: study, Global News BC, 21 October 2017). For example, factors such as wage stagnation, increased population, availability of new housing, and the rate at which housing and population grow in the same timeframe.
My suggestion is that the underlying conflict that gives rise to the issue is the diverse uses of property different individuals have. Specifically, I suggest the conflict is that, on the one hand, property is a necessity and that, on the other hand, property is a commodity. As a necessity, property provides us with somewhere to live, but more than that property ownership has been linked to concepts such as identity and as a requirement for democracy. As a commodity, investors invest only to get a return on their investment.
Without restrictions on who buys property and for what reason, the property market is part of the wider economic system. I wonder if the low interest rates over the last decade have led to an increase in investment in real property around the world; the speculation being that property prices have continued to rise, providing a return on investment that just cannot be matched elsewhere.
Property law has long recognised that there is some special quality and vulnerability that exists which justifies additional rights and remedies above and beyond what contract law offers. Without offering specifics, I wonder if a solution to the affordability of housing is more likely to be found if legislation recognises the importance of property as a necessity over the importance of property as an investment.
An investment property in a stable country is likely much more desirable than in an unstable one, and perhaps this could be part of the reason for an increase in foreign investment and the increase in prices. However, even if this is true, the issue is not foreign investment. Don’t be distracted by the foreign investor scapegoat. The real issue is property being owned for the purpose of investment only.