Foreign investment in land

Labour have created quite a stir with their u-turn on foreign investment in land (remember 650,000ha of land was sold overseas under their stewardship), and other moves away from past policies, including some of those espoused by the last Labour government.

We always need to be aware of the tendency of political parties to adopt policies that may gain votes but are not in the overall public interest. The excerpt below from an unrelated letter to the New York Times at Café Hayek makes this point:

Public-choice scholars, such as my (now-retired) George Mason University colleagues James Buchanan and Gordon Tullock, have long argued that politicians’ vision never extends beyond the next election.  The consequence of this political myopia is that, contrary to popular myth, government is not uniquely concerned with the future; instead, politicians too frequently sacrifice the public’s long-run welfare in exchange for the cheap and irresponsible thrill of immediate victory at the polls.

Foreign investment in land is a highly emotive issue in New Zealand, but one that is often not properly understood. It recurs every few years. The last time was 2003: the Sunday-Star Times carried articles headlined ‘New Zealand for sale’, and ‘Land ownership strikes a nerve’. The government of the day introduced tighter rules for sales of ‘iconic’ land.

I wrote an article about this in the ODT a couple of weeks ago. The key points were:

  • New Zealand has a freely floating currency.  A foreigner wanting to acquire a New Zealand asset has to buy New Zealand dollars.  The New Zealand dollar seller will be paid in foreign currency, which will logically be used to acquire some other overseas asset (maybe a farm).  The country’s net asset position is unchanged.
  • For a given balance of payments position, more restrictive rules on purchases by foreigners of some class of asset (say land) will automatically mean greater foreign ownership of some other assets (eg businesses).  Are there sound grounds for biasing overseas investment in this way?
  • The factual position is that farmland sales approved since 2005 amount to 0.6% of total farmland and foreign investment in agriculture is just 1.6% of total foreign investment.
  • The benefits of foreign investment are several fold. It augments the supply of domestic capital available for investment and often brings with it managerial expertise, technology and links to markets.  Foreign investors employ New Zealanders and pay taxes. 
  • It is not as though New Zealand has a particularly liberal foreign investment regime.  The OECD has noted that New Zealand’s restrictions are above member country averages in most sectors.  Screening requirements in New Zealand are some of the highest among OECD countries. 
  • It has been argued that other countries restrict foreign ownership of land, but many, including Germany, France, the United Kingdom, Portugal, the Netherlands and Belgium, have no restrictions at all – they treat foreigners on the same basis as nationals. 
  • You can’t physically take land away, nor can you force any owner to sell to foreigners. The notion that ‘once land is gone it’s gone’ is incorrect. For example Carter Holt Harvey, with forest land interests, was majority owned by US company International Paper.  Then Graeme Hart bought it back (and has purchased land in many other countries). 
  • New Zealand is investing in agriculture abroad.  Fonterra and individual dairy farmers are investing in farms in China, India, Brazil and other countries.  New Zealand Farming Systems owned farms in Uruguay (now being onsold to Singaporean interests). Should other countries ban such New Zealand investment? 
  • If foreign investors are excluded, farmers wishing to sell may see their assets significantly devalued.  As prime minister John Key has noted, this could push some highly indebted dairy farmers into negative equity positions. 
  • Obviously there is a case for ensuring appropriate public access to places such as beaches, but this is a matter for regulation, not ownership.

The current government has a stated goal of catching Australia. Imposing tighter restrictions for non-economic reasons is not going to advance that goal. Let’s hope the debate focuses on the public’s long-run welfare and is not driven by anti-foreigner sentiment.

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