What is the difference between a capitalist and an ‘offshore Chinese investor’?

A week ago Phil Twyford, New Zealand Labour Party spokesman on housing, presented the evidence for his claim that the ongoing inflation in house prices in Auckland is due to the housing stock being bought up by wealthy “property speculators and investors based in mainland China” who are “driving up house prices beyond the reach of hard-working Kiwi first home buyers.” “Property speculation is rampant, and I believe on the strength of these numbers that offshore Chinese investors are a very significant part of what’s going on,” Twyford said in an interview on The Nation.

Twyford’s evidence? Taking the leaked sales records of an unnamed real estate agency, he examined the list for “Chinese-sounding” names. He then compared the proportion of sales to buyers with Chinese-sounding names (39.5%) and compared it to the proportion of Auckland’s population that is Chinese (9%). The difference in these figures must be sales to offshore Chinese investors. Twyford swears by the scientific accuracy of this method.

New Auckland housing development. Photo: Grahame Cox, Fairfax NZ

New Auckland housing development. Photo: Grahame Cox, Fairfax NZ

There have been many critics of Twyford’s campaign, who accuse him of racism in singling out Chinese buyers and making assumptions about their residency and citizenship status on the basis of dubious information derived from surnames. Does the name Lee – as in Bruce Lee, Harper Lee, and Robert E Lee – sound Chinese? (See, among others, Keith Ng on Public Address here. Kiwese links Twyford’s campaign to past anti-Chinese campaigns, showing the similarity between racist cartoons from New Zealand newspapers in 1905 and 2015 here). Even the ruling National Party politicians are enjoying the moment, with MP Judith Collins accusing Twyford of ‘playing the race card.’

But Twyford has stuck to his guns. He has the backing of Andrew Little, the Labour leader, and his campaign is gaining support from many quarters.

Twyford returns to his numbers: 39.5% of the house sales in Auckland were to Chinese people. Only 9% of the population of Auckland is Chinese. Therefore, the difference can only be accounted for by sales to offshore Chinese investors. He predicts a ‘tsunami’ of Chinese investment in coming years. “Forget racism,” Twyford admonishes his critics (having initiated the discussion with a racial stereotype). “We need to have a serious discussion about this question.”

I can agree that there is a need for a serious discussion about the housing crisis in Auckland, which is a broader issue than the question of rising house prices. The housing question can’t simply be dismissed by charges of racism against Twyford, even if the charges are justified.

Let us suppose, for the purposes of argument, that the data are real, that Twyford’s Chinese-o-meter has been perfectly calibrated, and is 100% accurate. And let us also exclude from consideration the special characteristics of the Chinese population of Auckland (which include having a much higher proportion of recent immigrants in need of housing, and, thanks to immigration rules that favour immigrants with ‘capital to invest,’ having greater than average means to buy a house rather than rent). Then let us suppose that after accounting for these factors, there is still a difference between the number of houses bought by Chinese people and the number that Chinese residents of Auckland could reasonably be expected to buy for their own use. Would we then have to admit that Twyford is onto something?

In order to answer that question, we need to look at the housing question itself, beginning with some basic facts.

Fact number one is that a house, like every other thing produced by human labour in the capitalist mode of production, is a commodity. That is to say, it is produced not to meet the human need for housing, but in order to sell for a profit. If there is a human need for housing, yet no prospect for making a profit by building and selling it, the house will not be built. That is how the capitalist market regulates the flow of capital from one branch of production to another.

home loan advertisement

home loan advertisement

Fact number two: The house-commodity has some characteristics that distinguish it from most other commodities, however. A house is a much larger thing than the food, clothing, furniture, appliances, entertainments etc that workers spend their wages on daily. A house might cost the equivalent of several years wages. Therefore, for a worker to buy a house almost always requires a bank loan. Banks make home loans on a roughly equivalent basis as they make loans to small businesses, namely, the expectation that the loan will be repaid with interest, normally out of the income of the occupier of the house.

A house also takes longer to consume than, say, a loaf of bread, which lasts a matter of days, or a T-shirt, which might take a few months or a year before it needs to be replaced. A house might last longer than a human lifespan before it needs to be replaced. This opens the possibility that it could be sold piecemeal, that is, rented out for finite periods of time.

Fact number three: Housing, especially the detached single or double-storey house that predominates in New Zealand even in the cities, also requires a portion of land, and the land is a major component of the price of a house. Land in itself is not the product of human labour, and is therefore not a commodity. However, once the capitalist monopoly over land has been established, land is traded, and thus has a certain market value.

If the market price of a commodity is determined ultimately by the quantity of labour needed to produce it, what determines the price of land? Ultimately, the price of land is determined by the income that can be expected from that land. For rural land, this usually means the income that could be gained by farming the land; for urban house sections, the income that could be gained by renting the house. The land component of the price of a house is just capitalised rent.

Frederick Engels

Frederick Engels

As Frederick Engels points out in his pamphlet The Housing Question, when a house is rented to a tenant, the transaction is essentially just a sale of a commodity, which takes place, on average, at the value of the house and land. The price can be above or below that value, but the landlord only makes a profit from the transaction if it is rented above the value. (To a limited degree, capitalist governments at national and local level can regulate such things as the residential zoning of land in such a way as to maintain a permanent shortage of rental housing, thereby artificially creating this situation.)

Profits from housing are thus made chiefly by speculation in the price of housing and land – in short, by buying cheap and selling dear. This has in fact become one of the favourite capitalist investments for small investors in New Zealand, partly because investment in ‘bricks and mortar’ is widely seen as a safer investment than the paper values of the stock market. It is especially popular in fast-growing cities, where the growth of cities tends constantly to make land that was once peripheral, more central, and thereby increase its rent-value. Hence the particular acuteness of the problem in Auckland.

(Some of the biggest capitalist fortunes in New Zealand have been accumulated largely through property speculation, such as that of Robert Jones – in his case, mostly commercial property. In an earlier period, some of the capitalist ‘farming families’ owe their original fortunes more to speculation in rural land prices than to profits from farming itself. Smaller players include current Prime Minister John Key, whose property portfolio was valued at $13.5 million in November 2013, not including homes he owns in Hawai’i and London.)

The last fact is the key to the current crisis: we are living through a period of the long-term capitalist decline. The monetary crisis in the Eurozone (particularly acute in relation to Greece, but far wider and deeper than Greece alone) is one manifestation of that crisis, the plunging prices in the dairy industry another, the worldwide refugee crisis another, and the housing crisis yet another. At the root of this crisis is the long-term decline in the rate of industrial profit, an inherent tendency of capitalist economy, but one which was masked for a long time by the long post-Second World War capitalist expansion.

The declining rate of profit in industrial production makes industry – that is, productive economic activity – a less attractive arena for capitalist investment. Higher profits can be made in unproductive forms of investment, such as trading in various kinds of paper values on the stock exchange, loan-sharking in various forms, gambling on fluctuations in exchange rates of currencies, and… speculating on real estate prices.

subprime cartoon

Increased speculative activity de-stabilises capitalist sysytem worldwide. Cartoon: The Hindu Business Line

This is a worldwide phenomenon, in consequence of which the whole capitalist system has become more unstable, and increasingly prone to wild and destructive paroxysms of speculation. Even the largest banks and financial institutions are driven to engage in these risky and parasitic activities. The North American ‘sub-prime’ mortgage crisis of 2007-09 was just one example – itself triggered by a spasm of real estate speculation – and the destructive drag of that event is still being felt worldwide. But speculation in the price of land, both rural and urban, also has a long history in New Zealand.

China, until recently, appeared to be something of an exception to this general trend. Riding on a historic migration of peasants to the cities and the high rate of profit this migration made possible, over the last several decades China’s industrial growth has been rapid and almost uninterrupted. In China, capitalists were still investing in industry and manufacturing, and in varying degrees the same was true of other parts of Asia. That is coming to an end now. China’s economy is in recession, and capital is looking for more profitable fields of investment, including, I have no doubt, real estate speculation. I have no proof of this, any more than Twyford has, but I am quite willing to believe that there may be Chinese capital speculating in the New Zealand real estate market. As the Chinese economy slumps further, it may increase.

So then, does that make Twyford at least partly correct? No, it does not. Because whatever the degree of Chinese capital in the New Zealand real estate market, it is dwarfed by the much larger role of New Zealand capital in property speculation. By sounding the alarm about the minnow in the pond, Twyford is obscuring the danger of the crocodile.

Asked how he proposed to deal with the problem, Twyford said Labour “would ban foreign buyers from buying New Zealand houses, end of story. That’s what the Australians have done.”  He also pointed to capital gains taxes as a means to “crack down on speculators generally.” “I believe that the Kiwi dream of homeownership is worth fighting for” he said. John Minto, a leader of the left-leaning Mana Party, also called for a total ban on sales of housing to foreigners.

But the problem of real estate speculation is not one of nationality, nor even one of citizenship or residency, but one of class. It is this reality above all that Twyford seeks to obscure, and it is this which renders his and Minto’s solutions futile, as well as chauvinist and reactionary. The utter fatuousness of capital gains taxes and restrictions on foreign ownership they propose is shown by the fact that there is a similar house-price bubble growing in Sydney and Melbourne, despite the ‘controls on foreign ownership’ introduced by the Australian government in 2010, and despite capital gains taxes which have been in force since 1985.


Engels’ pamphlet The Housing Question is a polemic against the reactionary idea, raised by bourgeois and petty-bourgeois socialists in his own time, that for workers the “dream of homeownership is worth fighting for.”

The pamphlet was written in 1872, at a time of chronic shortage of housing fit for human beings, especially where workers were migrating to the great industrial cities of Europe. “What is meant today by housing shortage is the peculiar intensification of the bad housing conditions of the workers as the result of the sudden rush of population to the big towns; a colossal increase in rents, a still further aggravation of overcrowding in the individual houses, and, for some, the impossibility of finding a place to live in at all. And this housing shortage gets talked of so much only because it does not limit itself to the working class but has affected the petty bourgeoisie also…

“The growth of the big modern cities gives the land in certain areas, particularly in those which are centrally situated, an artificial and often colossally increasing value …The result is that the workers are forced out of the centre of the towns towards the outskirts; that workers’ dwellings, and small dwellings in general, become rare and expensive and often altogether unobtainable, for under these circumstances the building industry, which is offered a much better field for speculation by more expensive houses, builds workers’ dwellings only by way of exception…


Engels shows that “The essence of both the big bourgeois and petty-bourgeois solutions of the ‘housing question’ is that the worker should own his own dwelling.”

He points out that, while in an earlier historical period ownership of a home and vegetable garden provided rural handicraft workers with a measure of economic security and stability of tenure, in the epoch of modern industry ownership of a house drags the proletarian down by restricting their mobility and hence their ability to sell their labour power to the highest bidder. With the growth of factory production “…the bourgeois and petty-bourgeois utopia which would give each worker the ownership of his own dwelling, and thus chain him in semi-feudal fashion to his own particular capitalist, takes on a very different complexion.”

Anti-rightist demonstration in Greece

Anti-rightist demonstration in Greece

(Consider the workers of Greece in this connection, their urgent need to emigrate to escape the worst effects of the crisis, and the effect of owning an unsellable home would have on this.)

Engels also notes the usefulness to the bourgeoisie of having a layer of workers who see themselves as property-owners. He quotes a Spanish newspaper, La Emancipacion:

“The cleverest leaders of the ruling class have always directed their efforts towards increasing the number of small property owners in order to build an army for themselves against the proletariat. The bourgeois revolutions of the last century divided up the big estates of the nobility and the church into small properties, just as the Spanish republicans propose to do today with the still existing large estates, and created thereby a class of small landowners which has since become the most reactionary element in society and a permanent hindrance to the revolutionary movement of the urban proletariat. Napoleon III aimed at creating a similar class in the towns by reducing the size of the individual bonds of the public debt, and M. Dollfus and his colleagues sought to stifle all revolutionary spirit in their workers by selling them small dwellings to be paid for in annual instalments, and at the same time to chain the workers by this property to the factory in which they work.”

(This is also an important political factor in the housing situation today. For that part of the petty-bourgeoisie and working class which already has their stake in the property market, the spiralling inflation in property prices brings joy – or, for recent buyers, a nervous relief at least. Crisis? What crisis? As former Australian Prime Minister John Howard said during a period of sharply rising house prices in 2003, “I don’t get people stopping me in the street and saying, ‘John you’re outrageous, under your government the value of my house has increased.’”)

All the same, Engels objects when a bourgeois socialist (named Dr Sax) classifies a worker who buys a house as a capitalist.

“Capital is the command over the unpaid labor of others. The house of the worker can only become capital therefore if he rents it to a third person and appropriates a part of the labor product of this third person in the form of rent. By the fact that the worker lives in it himself the house is prevented from becoming capital, just as a coat ceases to be capital the moment I buy it from the tailor and put it on. The worker who owns a little house to the value of a thousand talers is certainly no longer a proletarian, but one must be Dr. Sax to call him a capitalist.”

Engels demonstrates that the housing crisis is a consequence of the normal workings of the capitalist system, and that any attempt to solve it without challenging the underlying laws of capitalist economy is utopian. “Whoever declares that the capitalist mode of production, the “iron laws” of present-day bourgeois society, are inviolable, and yet at the same time would like to abolish their unpleasant but necessary consequences, has no other resource but to deliver moral sermons to the capitalists, moral sermons whose emotional effects immediately evaporate under the influence of private interests and, if necessary, of competition.”

Surveying the end results of a scheme for demolishing slums and building new workers’ housing, he observes: “This is a striking example of how the bourgeoisie solves the housing question in practice. The breeding places of disease, the infamous holes and cellars in which the capitalist mode of production confines our workers night after night, are not abolished; they are merely shifted elsewhere! The same economic necessity which produced them in the first place, produces them in the next place also. As long as the capitalist mode of production continues to exist, it is folly to hope for an isolated solution of the housing question or of any other social question affecting the fate of the workers. The solution lies in the abolition of the capitalist mode of production and the appropriation of all the means of life and labor by the working class itself.”

Engels comments: “But one thing is certain: there are already in existence sufficient buildings for dwellings in the big towns to remedy immediately any real “housing shortage,” given rational utilization of them. This can naturally only take place by the expropriation of the present owners and by quartering in their houses the homeless or those workers excessively overcrowded in their former houses. Immediately the proletariat has conquered political power such a measure dictated in the public interests will be just as easy to carry out as other expropriations and billetings are by the existing state.”

Lurking in the background of Phil Twyford’s anti-Chinese outburst, and equally, of the smug response to it by Twyford’s National Party opponents, lies a deep fear that the deepening of the housing crisis might drive the working class toward just such revolutionary solutions. It would not be the first time in history.

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