The Bolthole Economy

In Photo: PayPal cofounder Peter Thiel speaks during the Republican National Convention at the Quicken Loans Arena in Cleveland, Ohio, on July 21, 2016.

Many Americans were taken aback when, in January, news broke that Peter Thiel, an internet billionaire and adviser to President Donald Trump, had New Zealand citizenship. For five years this backer of an “America first” president had kept his Kiwi passport quiet. Then the government released details of his $10-million lakeside estate.

A growing horde of rich foreigners see New Zealand as a safe haven. In 2016 overseas investors bought only 3 percent of all properties, but their purchases were concentrated at the expensive end of the market, which is growing fast: Sales involving homes worth more than $690,000 US increased by 21 percent. That helped push prices in the country up by 13 percent during the past year, to lead The Economist’s latest tally of global home-price inflation.

New Zealand is one of several countries where the impact of foreign money on housing is under scrutiny. Prices also have risen rapidly in Australia and Canada. Central bankers fret about the dangers that fickle capital flows pose to financial stability. London’s mayor has ordered a study on foreign ownership in the capital after real-estate prices rose by 54 percent in four years.

Foreign capital also makes itself felt in America, where home prices have recovered to a new nominal high. Canadians once dominated, but now they are outnumbered by Chinese citizens spending some of the $1.3 trillion that has left the country since autumn 2014. The National Association of Realtors estimates that Chinese investors bought 29,000 American homes, for a total of $27 billion, in the year to March 2016. Foreign buyers focus on a handful of cities: San Francisco, Seattle, New York and Miami.

In some places foreign investment has led to a construction boom. In Miami apartments are being built in numbers not seen since the financial crisis, financed in part by Venezuelan money. Australia lets foreigners invest only in new-build properties, and they do: 26,000 new apartments are due on the market in Sydney and Melbourne during the next 18 months. In London 45,000 homes have been built since 2014—the highest rate in 10 years—but locals grumble that many are pads for footloose foreigners.

In many of these countries, affordability looks stretched. The Economist gauges home prices against two measures: rents and income. If, in the long run, prices rise faster than the revenue a property might generate or the household earnings that service a mortgage, they may be unsustainable. By these measures home prices in Australia, Canada and New Zealand look high. In America as a whole, housing is fairly valued, but in San Francisco and Seattle it is 20 percent overpriced.

Haven investors may disregard affordability measures. Real estate can either be a bolthole or earn an income, and in supply-constrained cities its value may rise rapidly. Even if not, the risks may be lower than at home. Investment from China has gone up as its own real-estate market has become stretched, fears of devaluation have risen and a crackdown on corruption has continued. A study in 2016 found that increased political risk in places such as Greece and Syria explained 8 percent of the variation in London’s home prices since 1998.


© 2017 Economist Newspaper Ltd., London (March 11). All rights reserved. Reprinted with permission.


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