A common argument against new housing supply is that in high-cost cities such as New York, demand from foreign buyers is so overwhelming as to make new supply irrelevant. A recent study (available here) by two business school professors suggests otherwise. The study does show more foreign involvement in the NYC market than I expected: just over 13 percent of Manhattan buyers, and 5 percent of all regional buyers, come from outside metropolitan New York. Even this share is less than in some lower-cost markets: the study notes that 17 percent of Las Vegas buyers are from outside the city.
However, the impact of “out of town” buyers is pretty small: the authors conclude that out-of-town buyers “cause an increase in house prices of 1.1% and an 39 increase in rents by 1.6% in both zones.”
Aren’t foreign buyers a great asset for a city, particularly ones who never set foot in the property?
I ask this because it seems like they are paying significant amounts of property taxes (especially if they are non-owner occupied) while using little to no public services (schools, roads, ambulances, etc.)
It seems like a city would want lots of these buyers so they could funnel the surplus of property taxes into affordable housing for others.
You would think so yes.
But (in a high-demand city) wouldn’t natives be buying the same units and paying the same property taxes instead?
Yes, local residents would likely buy the same units. However, I believe most cities charge higher taxes if you are not using the property for your primary residence. (I believe DC allows owner-occupants to reduce your assessed property value by $30k or so that gives them lower property taxes).
More importantly, local residents would be using city services. They’d likely be driving on the roads, using the library, taking up street parking spots, taxing the water/sewage/electric systems, possibly using police/fire/hospital resources. A foreign absentee buyer would be paying either the same or higher property tax, but not utilizing any city services. This seems to me to be a great way for cities to earn a surplus that they could use to subdize city services or housing for low-income residents.
I’ve often thought about beach communities, for example, that they’ll never be all that affordable no matter how much housing you put in – five miles inland, another matter.