Housing rules need change
Our rules around investment in residential housing need to change, Nick Loughnan writes.
AROUND a decade ago, I was surprised to hear a friend speak of her daughter who works as a solicitor in Auckland. She was having a particularly busy time, as an investor client had spotted an opportunity. He was purchasing 80 Dunedin houses, and the solicitor was handling the conveyancing.
I do not know whether that property investor was ultimately successful in his quest for such a large collection of properties. But I do know that loose regulations meant the capital gains so quickly made from the sudden upsurge in New Zealand’s housing market went completely untaxed and helped this type of investor behaviour to mushroom. Extraordinary taxfree fortunes have been made since then and it has been a most rewarding time for many people.
There has also been a historic swing against a longheld ethos of New Zealand’s society. The movement into housing as a fashionable form of investment has opened up a gaping generational rift in our population. Our traditionally high rates of owneroccupied homes are plummeting, possibly to the lowest levels ever seen, as the accepted investor’s target for best rental yields has been areas of lowerpriced housing — the entry level for first home buyers.
The big winners are the investors who hopped into the trend early, the real estate companies and their agents who have been overrun by the continuing investor demand fuelling house prices ever higher, and of course the trading banks, that have been stumping up the cash for this all to happen. The major banks operating in NZ have continually been reporting record profits since this unproductive boom began.
And the big losers? Not hard to spot, unfortunately, along with the reasons why. House prices all over the country are simply unaffordable for so many hundreds of thousands of young New Zealanders, and the surveys around this trend are gloomy. The expectation for so many now is more than discouraging; it is wrong.
Renting for life is becoming the new norm. More than 30% of our population now live in rented accommodation. A disproportionate number of them are young people — our future.
Gone are the stable neighbourhoods that collectively made up strong suburbs and communities. The typical realities for our renters now are insecure tenure, regular rent increases, often unsatisfactory issues related to the physical condition of the dwelling, and for young families the likelihood of having to shift yet again, find another rental somewhere, uproot their kids from school and start over.
Of course, not all tenants are angels and many landlords can get a raw deal from them. But the inarguable fact is that home owners usually look after their dwellings, they don’t kick holes in the walls, are timely spenders on home maintenance, tend their gardens and most importantly they value highly the security of having their own place. They have a stake in their neighbourhood. Sounds OK?
What doesn’t sound OK are the equity issues surrounding all this. As investors have chased the property market up, increasing the median values, their expectation for a return on their investment is continually driven higher. Rents go up, tenants struggle and taxpayers make up the difference.
This year, the cost of the nation’s accommodation supplement is more than $2 billion, straight into landlords’ pockets. What an extraordinary state of affairs we have — taxpayerfunded subsidies for property investors.
What other avenues of financial investment get extra state funding? Of course, these accommodation supplements have distorted the rental market to such an extent that the new government rules around improving house insulation will ultimately have taxpayers funding these expenses, as landlords cry poor and recoup their outlay with rent hikes.
And the news gets worse. As values have increased to a point where market forces have begun to stabilise the madness, investors are seeking more profitable rental streams. Enter AirBnB, with 37,000 accommodation listings on offer within NZ. With their premium rates, these are not for standard rentals, but shortterm stays pitched at tourists. Great for improving rental yields — terrible for having removed this number of properties from the market in an already stretched rental sector, alongside a chronic shortage of houses for our resident population.
Wide open stable doors can mean horses long bolted are difficult animals to retrieve, but one thing is certain. The market alone will not address the unjust disparity that has so quickly changed the once enviable levels of financial wellbeing that for so long had characterised our country, based around affordable home ownership.
We all possess an innate sense of fairness; it is no coincidence that some of our most successful and best loved politicians have been those who have recognised this, and enacted policies to achieve it.
With housing, our undisputed champion was Michael Savage who proposed radical measures to address some pressing issues around NZ’s dreadful housing stock and poverty in the 1930s, following a protracted global recession. In an interesting parallel with today’s Government, Savage delayed the necessary legislation for his signalled social reforms until after the next election. He was returned convincingly in 1938 and his legacy began. His untimely death in office in 1940 from bowel cancer was widely mourned.
He did not need a knighthood conferred by his colleagues for New Zealanders to appreciate and recognise how important the issues of social justice, opportunity and fairness are, and how much he had done to achieve these outcomes.
Best wishes to those politicians today who at the very least have acknowledged our housing crisis, and are attempting to find solutions. A society with such stark contrasts in levels of wealth, with much of it attributed to housing affordability, ultimately costs us all.
Our rules around investment in residential housing need to change, and while a market correction will bring some alarm to those privileged enough to have been able to make such investments, the gains made by the growing and financially vulnerable younger generation of NZers will be worth it. They have paid more than their share for too long already — any prosperity from investment in housing has truly been at their expense.