John Key says that if we don’t let overseas buyers snap up our farmland then land prices will decrease and some over-leveraged farmers will go underwater. And that’s supposedly a bad thing. Key wants us to believe that foreigners putting our farmland out of the reach of Kiwis and making us borrow more from the Aussie banks is a good thing.
On the weekend Phil Goff announced the next Labour government will block sales of farmland to overseas interests unless there is a significant real investment leading to more jobs and exports.
Key’s probably right about the basic economics of that. Remove (or partially remove) a group of buyers from the market and the average price of farms will probably fall.
But is that a bad thing? Farm prices are currently so high that many of them can’t be farmed profitably. Farmers have to take out huge mortgages and pay huge interest bills to the Aussie banks and pray for capital gain in their property to make a profit.
For farmers that are farming for capital gain or have paid too much for their land, then a price decrease may put them underwater (their mortgage being worth more than the sale price of the land). Someone else will buy the land and that person will be a New Zealander.
The land stays in Kiwi hands, it is priced more realistically, farmers are discouraged from farming for capital gain (which, like being a landlord for capital gain, is obviously an unsustainable business model), and because future mortgages are smaller the amount of interest we’re paying to the Aussie banks is lower.
If a Labour government that had blocked overseas purchases of farmland wanted to ease the impact on farm prices it could get DoC to buy more marginal land or encourage the Cullen Fund to invest in New Zealand farms (something it is doing anyway).
So, Key’s objection to Labour’s plan doesn’t really make any sense, especially since he supposedly wants to prevent our farmland falling into foreign hands too. It’s just desperate political posturing from a do nothing PM who talks about the danger of foreign ownership but doesn’t want to do any about it.