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Opinion: Yet more political grandstanding over foreign ownership

GUEST OPINION

Democracy is a very fine thing, yet is worth dying for, and it is humbling to think of all those who have.  

Yet general election campaigns do not bring the populace's best instincts to the fore. Instead we commonly see "what's in it for me" greed, "soak the rich" envy, fear and xenophobia (masquerading variously as compassion), fairness and the national interest. This time we can add disgraceful personal vindictiveness.

New Zealanders' prosperity greatly depends on access to world markets for goods and capital. Both inward and outward foreign investment help strengthen these links, particularly with respect to technology, knowhow and market access. 

Yet last week saw unsavoury grandstanding over the planned sale of a 13,483ha farm near Taupo, Lochinver, to a Chinese firm, Shanghai Pengxin. 

Conservative Party leader, Colin Craig, was reported as saying that it would be "a tragedy to lose it to a foreign business interests."

New Zealand First leader Winston Peters reportedly said he would "put a stop to sales of land and houses to non-residents." 

Labour Party leader David Cunliffe would stop the sale because "we don't believe it would add value to New Zealand." He also said all purchases by foreigners of farmland over five hectares would be restricted but later apparently excluded Australians – at least for the moment.

Green Party leader Russel Norman baldly asserted that selling farmland to foreign investors increases environmental degradation. He introduced a member's bill in 2010 that would rule out overseas ownership of farmland over five hectares.

As one colleague humorously observed, "we" hate foreign money coming into New Zealand and "we" hate it when foreigners take their money out, for example as expatriated profits.

Perhaps it would be judicious here to remind international investors that National Party leader and Prime Minister John Key defended the planned purchase "as long as due process is followed." He has also tried to explain to the electorate the importance for local job prospects of foreign investment generally, whether from "China, Germany, the United States or Australia."

ACT party leader Jamie Whyte also came out in support, pointing out that this was a debate about the right to sell one's own property. "Private property is the foundation of a liberal and prosperous society. All political parties in New Zealand except ACT and National now reject it."

Anyone who thinks this is a bit extreme might note that New Zealand's Legislation Advisory Committee Guidelines unreservedly acknowledge that "the protection of property is generally regarded as one of the fundamental values of a liberal society."

The guidelines also raise the question of the acceptability of legislation that takes away a property right without providing for compensation. The Public Works Act, for example, has always provided for compensation where private property is taken or impaired for public works.

Environmentalists usually support the compensation principle – in the form of the 'polluter-pays' slogan. Another widely-accepted principle is that those who benefit should pay. 

Economists have usually been the strongest advocates of arrangements that confront those who want a resource to be put to a particular use with the forgone benefit to others from alternative uses. 

Competitive bidding situations, such as property auctions, do this. They force each bidder to assess whether the benefits of ownership outweigh the costs of out-bidding everyone else. This is a 'for real' cost-benefit analysis in action. 

Tellingly, none of those clamouring to deprive the owners of Lochinver of the gain from selling their farm to Shanghai Pengxin appear to care a fig about the cost that would impose on the owners. 

People don't have to care about the cost when they are not confronted with it.  Labour has made it clear that it has no intention of addressing the compensation question. That approach favours unfair majoritarian exploitation.

A fair and principled way to stop the sale would be to make the national interest case, invoke the Public Works Act and purchase the property, paying the vendor full market value.

But can such a national interest case be made? At least two commentators have tried – unconvincingly. Rod Oram, in the Sunday Star-Times, ignored the benefit to the New Zealand vendor, effectively assuming the farm was being gifted to the Chinese. No rational commercial or economic analysis would ignore this benefit.

The other commentator, David Atkinson, writing at interest.co.nz, did at least recognise that the seller must benefit but opined that this would only benefit New Zealanders if "most of it will end up being spent in the local economy." Again this makes no commercial or economic sense. New Zealanders' overseas investments do benefit New Zealanders.

Both commentators feared that vertical integration might give Shanghai Pengxin efficiency gains. Neither considered that New Zealand might have captured this benefit in the selling price, because other potential bidders could also see the potential gain.

Unhappily, the criteria for assessing benefits and costs in the Overseas Investment Act also exclude consideration of the primary benefit from any sale – the benefit to the New Zealand vendor.   That makes a recognisable national interest test impossible.

The New Zealand Initiative's 2014 report Open for Business: Removing the Barriers to Foreign Investment addressed this problem. Its recommendations included amending the act to ensure that the New Zealand vendor's gain is counted as a national benefit, creating a presumption in favour of the proposed transaction, and better protection for private property rights.

After all, the proposed transaction must benefit both parties, otherwise it would not occur.  There needs to be a robust case for depriving them of those benefits. Populist prejudice doesn't make the cut.

Bryce Wilkinson is senior research fellow at The New Zealand Initiative.

Comments and questions
29

Logic plays no part in land sales to foreigners. Emotion does, and Winston First, Greens, Cunliffe and even Colin Craig play on it.

It seems the commentators who try to write off all disagreement as populist grandstanding and xenophobia don't do themselves a favour by ignoring the actual points being made by proponents of limits on non-resident / non-citizen land ownership.

Time and again the points are being made:

1. Land ownership is clearly NOT required for foreign investment to occur (see: China, Vietnam, The Philippines et al. Also see the many companies doing business in Auckland using leased offices). Therefore, arguments that it is required have no basis.

2. Foreign land ownership increases the pool of buyers in which NZers must compete for land. Which is lovely, for short term profits for people already holding land, but not great for longer term conditions for upcoming generations. John Key himself said in 2010 that NZers should not become tenants in their own land (caveat: he didn't actually intend to do anything to prevent it).

There are other issues also being highlighted by commentators...but the key thing is that opponents of land ownership limiting need to be honest about the fact people urging NZ to take a longer term, considered view are not engaging in populist grandstanding and xenophobia.

It is xenophobic because the Winston 'NO' Peters, David 'Secret Trust' Cunliffe and Norman 'Ok for me to use petrol' Russell of the world do not say anything when other foreigners of European or American origins buy land and properties in NZ.

That is why it is not a debate - it is ugly xenophobia, racism and total hypocrisy.

Plenty of people do say things about wider foreign ownership! (And the arguments apply equally as well.) And on the other side of the coin, citizens can have any country of origin before they become citizens.

The media is partly at fault for simply not covering other nationalities' purchases as much too.

Xenophobia remains simply a strawman argument so the wider arguments can be ignored or glossed over.

It’s emotive dog whistling because no-one will come out and say really what they are afraid of nor address the inconsistencies in their arguments.

Most of the overseas owned properties I know are owned by kiwis in the UK or Australia, who have no intention of coming back and who are repatriating profits overseas. No-one complains about them, yet the effect is the same as a ‘foreign’ owner. Consistency says we should force them to sell at the exit gate.

To say overseas owners would be worse for the environment ignores our long term history and more recently the crafars’ infamous contribution. I’d rather a good foreign neighbour than a crappy local. I’m yet to see an overseas farm owner prosecuted for RMA breaches.
And there are thousands of unproductive hectares of Maori owned land that can’t be improved because of ownership issues meaning lack of direction. How is that local ownership better for the economy?

But some of our most productive land is in our cities – the office blocks that house Xero or Telecom, or Fletchers or Air NZ, the factories that house ‘our’ manfuacturers. No-one cares a jot if an office block or factory unit is sold offshore. Which just shows the hypocrisy and lack of insight of the xenophobes.

Ahh...I see your anecdotal experience counts for everything. Large numbers of Kiwis do eventually return, and bring a lot of money back with them.

Your last point just proves those I had made earlier. Foreign land ownership is absolutely not required for productive foreign investment, otherwise Kiwi firms wouldn't be able to be productive using their leased assets.

It's simply not required, and it's a short term profit orientation for the current holders, rather than a long-term view orientation taking into account what is best for future generations and the country as a whole.

Accusations of xenophobia are just an attempt to divert attention from the real issues involved.

I'm completely lost with Cunliffe's policy to ban all foreign investment with the exception of Australians. Either he wants investment or doesn't. Or maybe he wants votes more than the benefits of overseas investment.

I don't understand the rationale either. He gave no reason why Australians would be singled out for special treatment if he's seriously against overseas investors. The hogs-wash about being our closest neighbours is irrelevant. . It's just what he thinks will appease the voters I suppose.

It should be obvious that foreign land ownership is NOT a prerequisite of foreign investment. Not sure why so many people are hung up on this erroneous belief.

Bryce Wilkinson just doesn't understand what's really at stake here, and at this stage, we shouldn't hold our breath.

And if there is anything the public is really fed up about, it's being condescended to by the extremely well-off, especially economists who has spent their whole life theorising, without doing any other hands-on trades' and professionals' work that's being done all over the country, in an even tougher environment than ever before - thanks partly to economists' right wing theorising.

I recall Bryce Wilkinson as strongly allied with the New Zealand Business Roundtable's far Right ideology. And what we hearing here is a continuation of the same.

Using words like xenophobia, hypocrisy, etc. simply denigrate opponents with a view to closing down debate, not examining the issues that well-informed commentators and researchers, with a far wider appreciation of what the country is losing, are trying to tell the money boys.

The whole character of this country is changing with the glorification of maximum profit and money, money, money, as considered supreme.

Business may be the lifeblood of the economy (we can't make the same argument for the economists who never even foresaw the 2008 crash!! ) but what makes a country stable, cohesive, and happy is people's views being listened to - not arrogantly dismissed.

We have had enough of a we-know-best attitude that we can do without from people who quite simply have not thought sufficiently well about consequences.

You shouldn't be surprised. The New Zealand Initiative is simply the neo-liberal replacement for the Business Roundtable.

In response to Horse and Cassandra
The article does not dismiss rational argument or dissenting views. To the contrary, it explains why there is a need for a more rational case to be made against the sale than the two lines of argument that I critiqued in the article. If either of you can make a stronger cost-benefit case, lets see it. In the event that you can, you might also comment on what you think would be a fair and principled way of sharing the benefits from stopping the sale.

If you were encouraging any form of rational discussion you would not have laced your opinion so liberally with hyperbole and emotional adjectives.

Some specific restraints on alienation in the United States include: ...
Forfeiture restraints: In the event of a breach the property returns to the grantor or the grantor's heirs. The return happens automatically, hence the argument can be made that there is no state actions. However according to a constitutional argument the mere fact that the state recognizes the validity of an automatic transfer makes it a state action.
To be effective the restraint must be reasonable and the restraint must be the same as a real covenant or equitable servitude.

There are five basic conditions that must be met in order for there to be an effective real covenant and equitable servitude:
1 It must be enforceable. To be enforceable it must not be too vague, it must not violate a statute or the constitution, it must not violate public policy, and it must meet the requirements under the statute of frauds.
2 It must touch and concern the land.
3 It must be intended to run.
4 There must be privity between the successive occupants.
5 There must be notice of the existence of a real covenant/equitable servitude.
(wikipedia)
-> in the case of foreign purchasers, there could be some kind of caveat on the title registering a restraint on alienation.
-> or a blanket law could be passed so that all New Zealand (rural) land titles were subject to such a caveat.

caveat or (restrictive) covenant

A covenant is a type of contract in which the covenantor makes a promise to a covenantee to do (affirmative covenant) or not do some action (negative covenant). In real property law, the term real covenants is used for conditions tied to the use of land. A "covenant running with the land", also imposes duties or restrictions upon the use of that land regardless of the owner. Restrictive covenants are somewhat similar to easements and equitable servitudes, leading to some discussion about whether these concepts should be unified; ... Covenants for title are covenants which come with a deed or title to the property, in which the grantor of the title makes certain guarantees to the grantee. (wikipedia)

>People don't have to care about the cost when they are not confronted with it.

This is clearly the case.

In other countries where land ownership is limited to citizens one of the costs avoided is a disproportionately high cost imposed upon prospective local buyers who must compete with international buyers with far more resources.

The fact that reasonably equitable local property ownership is associated with positive outcomes for local citizens (and the local economy, with more citizens having a capital base from which to partake in capitalism) is why various countries have implemented land reform schemes to achieve such an end.

The "fair and equitable" outcome for one owner right now (who might be deprived of the right to sell at a higher price to an international buyer) means in the longer term imposing costs on future generations of NZers, for that greater benefit to the owner right now. Of course, land banking (seen as a negative for our housing market) also makes great sense when one can expect big gains from that land without needing to actually invest in it.

So once again, to highlight:

1. Foreign land ownership is not a prerequisite of foreign investment. See Fonterra and various in China, and investment in Vietnam, the Philippines etc.

2. Why would we want NZ to become a Luxembourgh or Monaco, with future generations of citizens priced out of land and into apartments? All so some current land owners can get more benefit in the short term? Is that a long term benefit to NZ, for its citizens to become tenants in their own land, just as John Key said they should not (back in 2010)?

I have read the comments with interest and wish to contribute. The discussion has to focus on the merits rather than accusations of hyperbole and emotional adjectives and/or attacking contributors rather than the merits of the views or arguments advanced. Whether or not a contributor to the discussion is (in the words of Casandra) "....extremely well-off, especially [an] economist[s] who has spent their whole life theorising, without doing any other hands-on trades' and professionals' work that's being done all over the country, in an even tougher environment than ever before - thanks partly to economists' right wing theorising..' or was '... strongly allied with the New Zealand Business Roundtable's far Right ideology' does not advance the discussion at all. What advances the discussion is a view on the substance of the contribution.

To my mind the substance of Bryce Wilkinson's contribution is his point that a sale of the Lochinver farm to a Chinese firm must benefit both the seller and the buyer as otherwise the transaction will not occur; and, what is case for depriving both the seller and the buyer of those benefits? Clearly, every contributor needs to be listened to but this point also needs to be listened to and addressed. If stopping the sale makes New Zealanders feel good or, in their mind, is in the country's best interests (for whatever reason), then surely New Zealanders have to compensate the seller and buyer for the loss of their respective benefits that they have freely contracted for.

Foreign ownership of farms is one thing, but do you think the consortia who owns or has investments in NZ but living in Shanghai or Berlin gives a ‘rats arse’ about trying to keep the school bus going up the rural roads to pick up your kids, do you think they give a damn about our rural communities, our rural church’s and halls, the local country footy team and so on. Ownership of the land is fine and should be an evolving process as befits the global demand. In most cases, though the injection of capital which Kiwis don't have, brings benefit at both a community and national level. Ownership of the value chain is a different beast. We should also distinguish between private and corporate interest with an eye on preserving our New Zealandness and not exporting that advantage for the sake of some short term commodity gains.

Can't the Council charge a levy? Should there be a levy on all absentee property-owners?

Land law is the form of law that deals with the rights to use, alienate, or exclude others from land. ... Land use agreements, including renting, are an important intersection of property and contract law. Encumbrance on the land rights of one, such as an easement, may constitute the land rights of another. (wikipedia)
- should the council register an encumbrance on the title to meet this difficulty?
- should farm purchases by foreign owners be approved locally as well as nationally?
- should it be a right to use as with forestry rights?

Land tenure essentially means ownership or occupancy rights in respect of land. This tenure can take many forms from simple, such as outright ownership of the land and everything on it, to more complex, like ownership of trees with implicit access rights, Crown forestry licences and forestry rights. (NZ farm forestry association)

Land Settlement Promotion and Land Acquisition Act 1952: An act to prevent undue aggregation of farm land and to control the acquisition of land by overseas interests.
http://www.justice.govt.nz/publications/global-publications/d/directory-of-official-information-archive/directory-of-official-information-december-1997/alphabetical-list-of-entries-1/l/land-information-new-zealand-toitu-te-whenua

1 The Land Settlement Promotion and Land Acquisition Amendment Act 1955
...
7 The Land Settlement Promotion and Land Acquisition Amendment Act 1972
http://legislation.knowledge-basket.co.nz/gpacts/reprint/text/1952/an/034.html

Response to John McCarthy
Thank you for raising matters capable of furthering constructive discussion as to the substance behind fears over this proposal.
Do you or any readers have any non-anecdotal information that indicates that foreign owners are systematically worse than New Zealand owers at contributing to local communities (or environmental preservation for that matter?
As written, your value chain concern would seem to be applicable to all industries, all foreign investor nationalities and all export destinations. But perhaps, you really have specific concerns about this particular one?

Bryce, I have this inherent belief in the family farm ethic. I am wary of corporate ownership in agriculture as to me it represents a lemming like approach to the dumbing down of what I call the New Zealandness factor which increasingly will be our opportunity and point of difference if we are to maintain a trading advantage from a world awash with commodities This is a discussion which should be elevated to incorporate broader concepts,.retention of what in essence is the very fabric of NZ society. Not just rural folk but for city and townies alike. We need to ensure the mountain bikers, the tramper’s, the fly fishermen, the 4WD enthusiasts and or even the families who just want to picnic and enjoy our rivers understand what we are trying to achieve. But just as importantly is our farming community must understand that for every action there’s a reaction.

Split into nine stations after World War I and balloted for returned servicemen, Lees Valley was a self-contained community until about a decade ago when corporate farmers began merging all but three blocks into one. Only Richon, Glenburn (now run together with Richon) and Cromdale were left separate. ''It's unreal and it just happened so quick. You had a lot more families in here and that's changed. Corporate farming has tended to come and go a bit, so people went and no-one really stayed,'' says Stokes. ''We used to know everyone and you grew up with them all – parents would have been there for 20 or 30 years up till 10 years ago, and all of a sudden it was just gone.'' The other stations are now owned by a US investor and have been renamed Lees Valley Station. In its application for Overseas Investment Office approval the new owner said it planned to convert the land for dairy support. (Stuff/Fairfax/Press)

the new owner said it planned to convert the land for dairy support.
- how feasible was the dairy conversion proposal? it's not a tanker road IMO, though no doubt stock trucks do use it. and what about the short growing season?

And after a good half hour of twisty, barely two-lane gravel road, up and down, through the steep hills that back the plains near Oxford, the curved bridge that spans the Ashley River comes into view. Beyond it, the landscape opens up, revealing a wide, flat valley. ''It is different – you're only 40 minutes away from Oxford but it's just a basin tucked away before you get into the Alps really. Compared with the rest of Canterbury, it's like going through another door,'' says Stokes. The third generation of his family to farm Richon, with its homestead at 480 metres above sea level, Stokes knows how challenging this country is. ''Winter's probably the limiting factor of the whole thing for the access of getting stock out at certain times in the winter. It's such a short growing season that we all farm towards and that ain't going to go away.'' (Press/Fairfax/Stuff)

Response to John McCarthy
Thank you (amongst others) for raising matters capable of furthering constructive discussion as to the substance behind fears over this proposal.
Some foreign owners may get offside with their local communities, some have proven to be notable benefactors, and others might be in between. Do you or any readers have any non-anecdotal information that indicates that foreign owners are systematically worse than New Zealand owers at contributing to local communities, or environmental preservation for that matter?
As written, your value chain concern would seem to be applicable to all industries, all foreign investor nationalities and all export destinations. But perhaps, you really have specific concerns about this particular one?

Response to John McCarthy
I think everyone would agree with your general sentiment, although, no doubt the viability of corporate ownership of farms (as distinct from off-farm processing) would be a contested debate. But if you, Bill English, and many others are right, New Zealanders will be able to buy these farms back more cheaply in future when the corporates paying top prices now want to exit. If so, we make New Zealanders even more worse off if we stop them from taking advantage of current prices.
But to return to your MTB, fishing, picnicking access fear: (1) this is a different argument from your earlier one about protecting the value chain, so it leaves that argument undeveloped, (2) there is always a tension between the private property needs of commercial farmers (closed gates, no rustling of livestock, no vandalism, no theft or destruction of crops or 4-wheel drivers cutting up paddocks, etc) and the desire of the public to roam and trespass. But this tension occurs regardless of the nationality of the owner. The accepted mechanism is courtesy and respect, asking the owner's permission in advance, respecting long-standing practice and with some 'give and take' being benchmarks ; (3) non-local (city slicker) MTBers and picnickers and trampers would usually go to developed MTB tracks, public picnic areas, and marked-out public tramps when escaping to the country. We naturally go to our national parks and beaches for recreation. A large proportion of the most scenic parts of NZ are publicly owned. DoC alone manages 8.5 million hectares, out of a total NZ land area of 28.7 million. Most of us don't customarily seek to invade commercial farm properties for our recreational purposes. Hunters and trout fishermen may be the exception, but we could all understand farmer caution about people with guns roaming around their properties unannounced and unvetted. But, to come to the point on this particular concern, is there evidence that those who take a courteous approach to getting permission to hunt or fish are finding foreign-owned farms systematically more obstructive that NZ-owned farms? (After all, foreign absentee owners surely commonly delegate dealing with these requests to their on-farm managers, who may well be NZers with a good understanding of the value of goodwill.)
As I see it, we are not debating the reality of fear of foreign ownership here; we are trying to see if there is objective evidence as to whether it has a concrete basis.

If John McCarthy is concerned about the corporatization of pastoral agriculture then I imagine he would be a very strong supporter of selling our main corporate farmer, the state owned Landcorp....

The reality is that each form of ownership - family, private company, corporate will find its own level in relation to each of the others as each entity pursues what it considers to be its own opportunities, capacities, skills and overall best interests.

This finding 'its own level' and the experimentation and variety of endeavours is what markets are all about. Not top down guessing what's 'best' or 'right' but grassroots up entrepreneurial vision, effort and risk.

Feels all a bit uncertain and fear-ridden to those who would prefer experts in the form of politicians, bureaucrats and vested interest lobby groups making the calls and overriding the very incentives which give them the variety and choice they have available for breakfast each day.