Is New Zealand still in love with property?
A survey of mortgage advisers suggests first-home buyers and investors are pulling back from the housing market, Miriam Bell writes.
Property Investors Federation president Sue Harrison is worried that New Zealanders’ well-known love for property as a way of building wealth is waning. She questions whether young people are getting into property investing when conditions have become so difficult that many are not able to buy their first homes.
“I work with people in their 20s who were trying to buy houses, but became so disillusioned they have given up, and instead they are opting for investment funds and Sharesies.”
She is not alone in this observation, with economist Tony Alexander reporting his latest survey of mortgage advisers suggests first-home buyers and investors are pulling back from the already quiet market.
A standalone house on a quarter-acre section is the traditional Kiwi dream, and property has also long been the country’s preferred investment choice.
That focus on property was highlighted during the market boom of 2020 to 2021 when house prices soared to record levels driven by huge buyer demand.
But now, the latest Real Estate Institute figures show that while prices and sales are creeping up, the market is sluggish and struggling to regain its footing after the post-boom downturn, economists say.
The new Government has reinstated interest deductibility, reduced the bright line test down to two years, and announced changes to tenancy law and lending rules to attract investors back to the market.
But data from CoreLogic and Alexander shows the changes have not led to a noticeable increase in the number of active investors.
At the same time, the residential construction sector is currently going through a downturn with demand for new builds down.
And the number of active real estate agents has fallen to 15,418 at the end of March from a record high of 16,692 at the same time in 2022, according to figures from the Real Estate Authority. A fall of over 1200.
So are New Zealanders still in love with property, and building wealth on the back of houses, or is the romance finally over?
Is home ownership still the Kiwi dream?
Home ownership rates have been declining for some years, with the most recent Stats NZ figures showing that 64.5% of households owned their own homes in 2018.
That was down from the peak of 73.8% in the 1990s, and the lowest rate since 1951 when just 61.5% of households owned their homes.
But Ray White chief executive Daniel Coulson says the desire to own a home and have somewhere secure for their family is in the Kiwi DNA.
In recent years, policies have been introduced to give renters more security, but for most Kiwis renting is no substitute for home ownership, he says.
“A big part of that is because a property is an asset and provides a financial base. Sure, with a mortgage you have a debt, and maybe less freedom to pack up and go.
“But you have a home, you have long-term security for your family, and traditionally property has been a wise investment in New Zealand.’’
The desire to own a home has not changed, but the ability to achieve the dream ebbs and flows, depending on broader economic conditions, he says.
“Underlying demand remains constant, but in tougher times less people talk about buying a house now. Most still want to, but it might be further down the track when conditions improve.”
A feature of the last boom, and a trend likely to stay, is people reassessing what they want from a home, and what they need to compromise on to achieve it, he says.
That means buyers think about the location, the property type, or the price point they are willing to be flexible on to secure a home. A buyer might opt to buy an apartment instead of a standalone house, for example.
Coulson says while buyers might need to adapt to achieve home ownership, most people still want to do it.
But does property still build wealth?
Residential property, which includes owner-occupied homes and rental properties, is worth $1.62 trillion, according to CoreLogic’s latest Housing Chart Pack.
CoreLogic chief property economist Kelvin Davidson says that is down from $1.72t at the peak of the market in 2022, but the $100 billion drop tallies with the 10.5% fall in house prices since then.
In every cycle the market goes up and down, and people respond to that, but people still want to buy properties for stability, and as a means to build wealth, he says. “It is not just investors who hope for capital gain, owner-occupiers do too, and paying down a mortgage is forced saving. It builds equity, and creates wealth.”
CoreLogic’s latest buyer classification data shows first home buyers remain a strong presence in the market, with a near record 25.6% share of purchases in March. Mortgaged investors are less of a presence
than they have been, with a 21% market share, but cash investors had another 14% share. That is a 35% share for investors, compared to a high of 40% 10 years ago, and in the first quarter of 2021. In the years prior to Covid, their share hovered around the 36% mark.
Davidson says the figures mean investors have “not shut up shop”, and although sales data is not tracked in the same way there is nothing to suggest investors are selling up en masse. “Despite the huff and puff over certain policies over the years, they don’t sell up in reaction. For most investors, property is a long-term investment.”
But capital gains in the future are unlikely to be as big as they have been in the past, he says. That is because there is a limit on how stretched affordability can get, and debt to income ratios are being introduced, and when those factors kick in capital gains will be lower.
Sales have been rising for 11 months in a row, although from a low base, but people remain cautious about the market, he says.
“Investors might be more active once the tax changes come into force, while owneroccupiers have held back due to a lack of choice. More listings means more choice, and that could prompt more sales activity.”
A meaningful drop in interest rates is not likely till next year, he says. “And until rates get a bit lower it’s hard to see the market surging away again.”
So has anything changed?
Tougher economic times and a different environment means the way people approach property has changed.
Auckland University of Technology construction professor John Tookey says there was a period of time when the size of houses being built just kept getting bigger, and it reached a peak in the early 2010s.
More recently that trend has tailed off, and there has been a transition to smaller footprints and section sizes being consented, due to the rise of terraced and multi-unit homes, he says.
“But the change is less due to a reassessment of aspiration than it is to affordability, and a realisation of demographic change. There are more oneor two-person households, fewer people having kids, people are living longer and downsizing, and so on. And there have been changes in ‘fashion’ too.”
People do not necessarily want a big barn of a house with a large property that needs lots of work to maintain anymore, Tookey says. “Homes with good thermal and energy efficiency, and which are easier to look after have become more popular. The construction market has flexed and changed in response to all those factors.”
The aspiration to buy a property, and make some capital gains, is still very strong, but these days more people realise the property they buy may not be the traditional Kiwi dream house, he says.
That change is evident in the rise in the popularity of apartments for homeowners as well as investors.
Scott Dunn, sales manager for apartment specialist City Sales, says investors dominated the apartment market in the past, but that was partly due to the type of apartment available to buy.
They were usually small and designed for rental returns, but not for long-term tenancies, while the type of apartments available now are bigger, nicer and designed with modern living in mind, he says.
“Newer apartments are built with owner occupiers in mind, and there’s been a shift from apartments being considered simply an investment option to more of a lifestyle choice. They have become more attractive to first-home buyers due to their greater affordability, while downsizers, who sell their homes in the suburbs and don’t have much of a mortgage to clear, are going for higher end apartments.”
Are people still keen to invest in property?
The Government has introduced some more investor-friendly policies, but investors still face challenges, including high mortgage rates and tight lending criteria.
Harrison says her group’s membership has been quite static for several years, and there is a lot of talk of selling down.
Many are baby boomers, so it could be an age thing, she says. “They have worked hard to get and hold their properties, and now they have some capital gain so they want to use it in their retirement.”
She has not observed a noticeable shift away from investing in residential properties to investing in commercial properties, or in property syndicates or funds instead.
Those avenues have their own risks and challenges, and the real question is whether young people are getting into property investment, she says.
“People are still interested, but many are sitting on their hands, and waiting for the market to get better, and lending conditions to ease, before they get in.”
Auckland Property Investors Association general manager Sarina Gibbon’s view says more people are aware there are other investment options, such as shares, out there.
Platforms, such as Sharesies and Hatch, make other options more accessible than previously, and at a time when the returns on property are not great, she says.
“But property has the advantage of leverage, which helps people get into property, and other assets can’t compete with that.
“And even though yields are tight currently, people feel they understand property, and that it is still a safer investment than others.”
But are investors doing things differently?
She has observed differences between the new members signing up, and those of 10 years ago. There are more long-term investors, and fewer traders, she says.
“Most are more considered and strategic, and have taken more advice. They understand property is not a get rich quick scheme, and that it’s not a market for flipping.
“Ten years ago most new members were in their late 40s and had paid off all or most of their own home.
“Now, it’s 50/50, with many being young professionals who still rent, or own a part share in a property, and view property as a long-term investment but also a side-hustle.”
Newer members do not tend to have the singular obsession with property, nor the same hands-on, DIY focus that was evident in the past, Gibbon says.
“It is a more pragmatic interest now. They want to do things like travel, or have a business nomad life, and they understand long-term property investment can help with that.
“There is a broader focus on public good, and less on building a 30 property portfolio. Most want two to three properties, along with other options – they don’t want all their eggs in one basket.”
The way people are choosing to learn about property has changed too, she says.
“Less people are paying for traditional subscription memberships, but we are getting more database sign-ons, and more people consuming our content via digital channels.
“We have higher engagement online, higher click rates, and more people attending our webinars, so we have adapted what we offer to reflect that.”
Veteran investor Nick Gentle agrees the interest in property investment has not waned. He runs a Facebook group for property investors, and the group now has 69,000 members. That is up from 51,400 in April 2021.
But around 80% of the people in the group are not actually property investors, he says.
“They are there to learn. Many might have been left a family property, and they are now renting it out.
“When the market was hot, people were very excited about buying. Now, they are trying to figure out how long to fix their existing mortgages for, and there is a bigger focus on cash flow, and making existing investments work better.”
Does NZ need to rethink its approach to property?
For Sam Stubbs, managing director of KiwiSaver fund Simplicity, it is time for the country to rethink its obsession with property.
The decline in home ownership means around 30% of people are more interested in rental costs and issues than in buying a property, he says.
“What we live in has also shifted massively, with homes getting smaller than 15 years ago and more apartments and townhouses, and these are big changes, so the nature of the obsession is changing too.
“We have relied on property as a vehicle for wealth building, but that is coming to an end. We need to look at how we can save and invest more productively, and how we can build better homes by doing that.”
While there is more interest in other investment options than in the past, KiwiSaver is the financial product most New Zealanders have and trust, and that opens up options, Stubbs says.
“Funds could put money into more productive investments, such as startups, and also invest in building housing and much-needed infrastructure, such as motorways and electricity grids.
“That helps to build intergenerational wealth, and it is also good for the country and the economy. Look at Australia, which has five times the population but 30 times the retirement savings, for an example.”
Australia’s economic resilience is not just because of their mineral resources, it is because their super funds allow the country to keep investing in infrastructure, and enterprise, he says.
“We are only just getting started in this space, but as an investor you can see the importance of KiwiSaver money in the economy at the coalface. It’s a rising tide, but in the long term the impact will be dramatic.”
Simplicity Living, which is financed by funds within Simplicity’s KiwiSaver Scheme and its Investment Fund, has set a goal to build 10,000 new rental homes over 10 years.
But Stubbs says when more KiwiSaver funds start to invest in building longterm rentals or homes to sell, the housing shortage will start to improve, and that will eventually cap house prices, and gains.