Phil Twyford has admitted much-needed housing builds in Auckland are stalling ahead of the introduction of the Government's foreign buyer ban.
The Overseas Investment Amendment Bill would stop anyone who isn't a New Zealand citizen or a permanent resident from buying existing housing stock (Australians exempted). They would still be allowed to invest in new builds.
National housing spokeswoman Judith Collins says if she becomes Housing Minister, she'll do her best to reverse the policy.
"What we would do is to make sure we don't destroy the market like Phil is doing," she told The AM Show on Friday. "The message has gone out to people, 'Don't come into New Zealand.'"
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The Bill is currently at the select committee stage, but appears to be having an impact already - just not the kind the Government wants.
"Developers have said to me they can't get any presales like they used to be able to do even though the law hasn't actually changed yet," Ms Collins said. "That means they can't actually do the buildings - they can't get the funding."
Housing strategist Leonie Freeman told the show she knows of a large affordable housing development that was scrapped because of the difficulty in getting presales - many of which used to come from overseas.
"They've stopped and put their money elsewhere in the world because of this uncertainty."
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Housing Minister Mr Twyford acknowledged the difficulty presently facing the industry.
"There are apartment developments which have stalled all over Auckland that have stalled because of lack of finance," he told The AM Show, sitting next to Ms Collins.
"Our law is about encouraging foreign investment in new builds, new apartment blocks, new development - that will actually deliver extra supply."
The Government's view is that by preventing foreigners from buying up existing stock, they'll instead invest in new builds - so they can still invest in New Zealand real estate, and add to the country's housing supply at the same time.
"Our policy and our law is encouraging foreign direct investment in new builds to add to supply."
Ms Freeman said it's the present uncertainty which is discouraging investment - and once it's cleared up and potential investors know what they're getting into, things may pick up again.
"The logic of what the Government's trying to do, I understand... but the devil is always in the detail when it comes to property, and that's what we've got to get clear."
Statistics released yesterday said in the three months to March, 3.3 percent of all housing transfers went to non-citizens or non-residents. The figures were much higher in Auckland and Queenstown, and up on the previous quarter.