House-buying patterns in Auckland

See also: Keith Ng's Twyford's offshore buyer claims made up

As people will have seen, Labour has obtained real estate data, scrutinized and published by the New Zealand Herald, showing 39.5% of the Auckland houses sold went to people who appear to be ethnically Chinese. This is a large discrepancy from the 9% of the Auckland population who are ethnically Chinese.

Labour believes this analysis illustrates the large scale of foreign investment in the Auckland real estate market, particularly from China, pushing up prices and denying New Zealand families of any ethnicity the opportunity to own the roof over their heads. 

Critics – including PA’s own Keith Ng – believe the data show nothing at all and argue Labour is showing racism or xenophobia.

I did the quantitative analysis for Labour on this, and I think critics are operating under some misconceptions.

First, and to get it out of the way, these data to not – repeat, not – 100% prove the residency status of any particular buyer. Everyone agrees on that.

But the standard for using data in policy debates has never been: “you’ve got 100% proof at an individual level, or you’ve got nothing.” If it were, then we would have nothing pretty much all the time. Opinion polls, for example, never prove anything at the individual level, but it’s quite the nihilist who says they don’t provide any helpful information.

As always, the aim is to reasonably know more today than we reasonably knew yesterday. We, collectively, triangulate on the truth.

So, what are the objections to what Labour did? There are two main alternative explanations offered for the statistics Labour uncovered:

• Resident ethnically Chinese Aucklanders buy much more property than members of other ethnic groups; or
• The data are biased.

Do Chinese Aucklanders just like buying houses?
Of course that is possible that 126,000 Chinese Aucklanders bought the 1500 or so houses in this data set.   But it is plausible given these data?

First, Chinese Aucklanders tend to be young, and tend to have low incomes. While the ethnically Chinese population makes up 9% of Aucklanders, it makes up only 5% of Aucklanders on high incomes.

Second, the leaked data show that the ethnically Chinese house buyers tended to purchase flash houses. While ethnically Chinese buyers made up 39.5% of all sales, they made up over 49% of all sales worth over $1 million. That is another striking discrepancy.

This explanation now requires a small, relatively low income percentage of the population to be buying a very large percentage of the most expensive houses. At face value, that sounds unlikely.

Critics, however, believe this discrepancy can be explained because the Chinese population is growing strongly through immigration, meaning lots of people coming in with cash in hand due to the migration rules, and with the need to find somewhere to live, explaining disproportionate house buying.

Well, we have a good comparison case to test this idea: the ethnically Indian population in Auckland. It has 8% of the population, 6% of the high-earning population, and it is growing even more quickly than the ethnic Chinese population, including through immigration at similar rates. That means the Indian population is subject to similar dynamics of incoming capital for new residents, and has the same need to find new places to live.

So what proportion of Auckland homes are being bought by the ethnically Indian population? The data show they are buying 8.6% of the houses, more or less in line with their population share. Again, the discrepancy between ethnic Indians and ethnic Chinese is striking.

The “resident Chinese Aucklanders on a real estate bender” theory now additionally requires that population to buy homes at about four times the rate of another ethnic group in broadly the same socioeconomic and immigration position.

I think you have to string a pretty long bow to believe all those things at once. The explanation, while possible, is implausible.

Are the data just biased?
The short answer here is that nobody knows, because nobody has the proper industry-wide information. Actually, Labour has been calling for those data for years now. But we can glean clues from elsewhere:

First, the Herald says sales from this firm account for 45% of all house sales in Auckland. That’s a substantial segment of the market. It’s a bit like doing a non-random opinion poll on around 2 million New Zealanders – while it won’t be perfect, it’s likely to tell you something pretty helpful.

Second, further – previously unpublished – analysis of the leaked data show that there is a strong correlation between the ethnicity of the sales agent and the ethnicity of the buyer. From the data:

• Ethnically Chinese agents make about 71% of their sales to ethnically Chinese buyers;
• Ethnically European agents make about 13% of their sales to ethnically Chinese buyers.

This means if there are multiple real estate firms in Auckland with large numbers of ethnically Chinese agents, they are also likely making large numbers of sales to ethnically Chinese purchasers.

One such firm is Harcourts, whose market share is less than 45% meaning it is likely not the subject of the leak. This morning I found no fewer than 89 Auckland-based Harcourts agents with common, ethnically Chinese names. This suggests at a minimum that a second large Auckland real estate firm is making large numbers of sales to ethnic Chinese buyers, whether resident or not.

The combination of the size of the leaked dataset and the presence of agents likely to target the ethnic Chinese market in at least one other large firm suggest that any bias in these data is likely to be modest.

 In sum, the large disconnect between the ethnic distribution of Aucklanders and the ethnic distribution of Auckland house buyers has three explanations. The prima facie explanation is that the two groups draw from different populations, with non-resident ethnic Chinese making a large impact. The alternative explanations are both not “contradicted” but certainly “contra-indicated” by other analysis of the leaked data, and by other relevant data.

Can Labour prove that any individual buyer is foreign? No. All we have is their last name.

But can Labour conclude on the preponderance of all available evidencefrom the aggregate data that there is likely a large impact of offshore investment from China in Auckland’s real estate market? Yes

Dr Rob Salmond owns and posts at Polity, a Wellington communications and data analytics consultancy. His current clients include the Labour leadership.

This piece was first published on the Public Address.