Home is where the heart is, and in the age of globalization the heart can wander. One of the defining characteristics of the modern era has been the rise of foreign home ownership by the ‘multiple-propertied’. For many, the term conjures up notions of wealthy oligarchs, CEOs, and investors. Yet the practice has become far more widespread. The housing boom of the last decade sparked a worldwide scramble for homes, ushering in an era of buy-to-let, restoring, flipping, and a unique form of reality television: the search for the ideal vacation or retirement home.
However, the steady acquisition of property by foreign nationals has stoked a backlash across the developed world. In an age of mobile capital, desirable locations can quickly be the target of hot money, ramping up prices far beyond the reach of those who earn their money in the location itself. Latent frustration with high prices and unaffordable rents is now starting to boil over in key locations, prompting city and national governments to institute a range of measures aimed at tempering international demand.
In 2018, Vancouver instituted a designated property tax on home-owners that don’t pay income tax, a measure purposefully crafted to crack down on overseas purchasing. The move was a response to enormous demand for property by Chinese investors, which has seen the city dubbed ‘Hongcouver‘ in some circles. Authorities claim that regulations are necessary to ‘moderate’ prices rises that have turned the city into the highest-value property market in Canada. Likewise, over the summer, the government of New Zealand moved to institute a ban on all new foreign acquisitions of property, in response to rising tide of international investment that has resulted in 60% increase in house prices over the past decade. The measure, a campaign pledge by the country’s Labour party, was couched in patriotic terms. Addressing its passage, associate finance minister David Parker stated that action was needed to ‘mak[e] the dream of home ownership a reality for more New Zealanders’.
Concern about the effects of foreign purchases on the affordability of housing for domestic populations is likely to prompt similar initiatives in other jurisdictions. One reason is that such measures have a unique appeal to law-makers seeking to boost their nativist bona fides and close budget deficits all at the same time. Targeting foreign owners of property serves to salve anti-foreigner sentiment, without the stigma of adversely impacting the lives of vulnerable economic migrants. As a result, any domestic political backlash is likely to be minimal. In addition, such steps can serve as a promising form of revenue enhancement. A key appeal of property taxes aimed at the homes of foreign owners is that unlike other investment assets – cars, yachts, precious metals or artwork – property cannot be spirited away into another jurisdiction at short notice.
At the same time, the varied motivations for foreign ownership is likely to hinder a stampede of sweeping regulations. For instance, a London penthouse acquired by a foreign official accused of acquiring funds through corruption is unlikely to elicit sympathy from those seeking more concerted action. Yet steps which target acquisitions spurred by capital flight from nations in which the rule of law is under assault, is likely to prove much more complex. Limiting the ability of foreigners to enjoy the same property rights as citizens is likely to be characterized by critics as condoning lawlessness in other parts of the world. Such complexities are compounded by the rise of individuals with a complicated international lifestyle, dubbed as ‘citizens of nowhere‘ by Theresa May, the British Prime Minister. Across the globe, vast numbers of properties have been purchased by dual nationals, and those whose professional endeavors that require them to split their time between multiple locations. Those seeking to institute new regulations will likely be confronted by a panoply of gray areas.
In addition, new regulations are likely to encounter domestic resistance, especially from those who see them as precursors to more general measures that penalize the beneficiaries of rising property values. The UK offers a case in point. During the coalition government era (2010-2015), Business Minister Vince Cable championed a so called ‘mansion tax‘, an annual property tax on all residences valued above a certain threshold. The measure was characterized as one that would encompass ostentatious foreign wealth deposited in Europe’s most desirable real estate market. Yet it floundered due to the punitive impact it would have had on many British citizens caught up in an era of runaway housing demand. For instance, the owner of a small studio in west London, acquired in the late 1990s, would have seen its value surge over the last quarter century. Opponents rightly argued that demand for their property had in no way enhanced the disposable income of such homeowners, or their ability to pay higher taxes. They also pointed out that the proposal failed to take into account the extent to which governmental policies – such as low interest rates and direct support to first time buyers – had distorted the market.
Accordingly, the instances of new housing restrictions are therefore likely to be limited, with the steps taken in Canada and New Zealand likely remaining the exception rather than the rule. Nevertheless, as anti-globalization sentiment continues to rise, debates over who owns what – and where – are likely to become ever more prominent. Property developers, policy-makers, and those mulling a weekend retreat in a more tolerable climate would do well to take notice.