Rental housing market risk

Many people rely on rental accommodation, through choice or financial necessity (they can’t afford to but their own house). People who buy houses and rent them out provide a vital service. The Government cannot provide homes for everyone.

The rental market and landlords have received a lot of attention from politicians over the last few years as housing prices escalated again after recovery from the Global Financial Crisis – property values had already doubled when the Clark government was in power.

A lot of that attention has been negative, in part for political and campaign purposes.

The Government is set to make changes that will significantly affect housing investments. This poses a risk to the whole housing market if it deters too many people from staying in or getting into property investment.

RNZ:  Landlords bail on rental market: ‘It is just not worth it’

Many private landlords are bailing out of the rental market because they are worried about the new government’s housing policies, say property experts.

If too many landlords sell up, and not enough new investors step in, housing values are at risk of dropping, and there could be a shortage of rental housing.

The experts say landlords are being tempted to take their capital gain and run, before harsh new rules undermine the value of their investments.

The concerns have arisen as the government moves to implement dramatic reforms of the housing market.

The looming changes include:

* A capital gains tax on second homes, depending on the outcome of a special tax inquiry.

* The imposition of ‘ring-fencing rules’, which would reduce tax deductibility for rental houses, by ensuring losses cannot be set off against other income.

* An extension of the ‘bright line test’, under which anyone selling a rental home within five years would be deemed a trader and would therefore be taxed.

Property Investors Federation executive officer Andrew King said these planned changes were scaring off investors from the property market.

He said the personal hostility directed against landlords was another issue.

“There’s been a lot of animosity against rental property owners. There is a lot of misinformation about their tax situation, a lot of people think it is easy money when it is not.

“There are also changes to the how the property can be managed, and there are a lot of increased costs.

“A lot of people are thinking it is just not worth it and are looking at getting out.”

If too many do get out of property investment it will create different problems for the Government – and potentially for for people who have purchased high valued property with large mortgages.

The government has dismissed criticism of its policies as anecdotal.

It said its housing policies were aimed at overcoming accommodation shortages.

Landlords are an essential part of providing accommodation – and that’s not anecdotal.

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62 Comments

  1. Blazer

     /  January 5, 2018

    typical nonsense from King and co.They are just greedy fucks.The capital gain is what they chase and leverage that to buy more properties.’People who buy houses and rent them out provide a vital service. The Government cannot provide homes for everyone.’….this argument collapses when you realise that this so called ‘vital’ service exists only because of massive accomodation supplements by Govt.Take that away,prices drop,you kneecap the parasites and homes for people to live in become …available.Property as an investment vehicle with all its tax advantages has eroded the kiwi dream.

    • Alan Wilkinson

       /  January 5, 2018

      Typical Lefty garbage from those too gutless to actually be a landlord and face reality. Try building a house and see what your costs and revenue are, B.

      • Blazer

         /  January 5, 2018

        they very rarely build Al…too tough,easier to leverage and buy existing,and wait for the Govt to subsidise their…venture.

        • Alan Wilkinson

           /  January 5, 2018

          The costs of building new houses escalate the prices of existing houses. Cause -> Effect. Half-witted Lefty politicians causing mahem with ideological ignorance. We are in for a rough ride as unintended consequences avalanche.

          • PartisanZ

             /  January 5, 2018

            This seems as if to say that the existing “housing crisis” consequences are INTENDED …?

            Why should the cost of building new houses escalate?

            • Alan Wilkinson

               /  January 5, 2018

              The prices escalated when the Government allowed the courts to make Councils responsible for the quality and durability of new houses. The consequence was a huge increase in costs and delays together with a huge loss of flexibility and innovation.

              The most brain-dead stupid face-slapping part of that is that the market had already made leaky homes unsaleable.

      • sorethumb

         /  January 5, 2018

        Motivated reasoning.

    • artcroft

       /  January 5, 2018

      Its not greedy to chase capital gain, its sensible. That’s what developers and builders chase when they build new houses. But the govt risks damaging the market which means less private new builds. Then Cindy and co really will have to build their promised 10,000 new homes a year.

      • PartisanZ

         /  January 5, 2018

        Notwithstanding that ‘property in the soil’ itself is ethically untenable – it’s arguably sensible to chase reasonable capital gains income, upon which one pays tax like any other income.

        What’s “greedy” is developers and land-bankers who chase obscene capital gains – mainly earned through political favour and the input of public money for infrastructure and services – and avoid paying tax on their income or substantial portions of it.

        While this is “opportunistic” – because our political economy and tax regime creates the opportunity – [and arguably they own this] – it can really only be described as “greed” pure and simple. Differential advantage at the expense of others.

        Even 1930s through 50s ‘state housing’ and the major housing boom of the 50s through 70s – ‘group housing’ and state advances corp – were really forms public-private partnership to suit their era.

        Individual human greed requires collective human regulation.

        • “Notwithstanding that ‘property in the soil’ itself is ethically untenable “. Property is THEFT!!, I believe is the classic communist phrasing no?, but I like the way you have phrased your property is theft meme Partizan its much more elegant than the old fist in the face phrasing….

          Developers pay tax Partizan. FACT.

          Land bankers – if the property was bought to resell, pay tax Partizan. FACT.

          The IRD target developers and land bankers via a special unit to ensure tax is paid. Google it an you will see successive Governments have invested growing funding in to this target, audit and tax unit….

          The IRD also target people who buy, do up and sell repeatedly when its multiple times a year. Because they are obviously traders.

  2. PartisanZ

     /  January 5, 2018

    ” … housing prices escalated again after recovery from the Global Financial Crisis”

    Translation: We did not recover from the Global Financial Crisis, we simply perpetuated it.

    “If too many landlords sell up, and not enough new investors step in – housing values are at risk of dropping” – BIG DEAL – “and there could be a shortage of rental housing” – [which there won’t be if prices fall] – IN FAVOUR OF MORE AFFORDABLE HOME OWNERSHIP … That’s a f#cking terrible thing to happen!

    And rents will drop … and the government saves money on accommodation supplement … and the government saves money on motels for the homeless …

    And the economy could get on a footing other than rampant land speculation [FIIRE] …

    Far out! We’re talking multifarious WIN WIN WIN !!!

    • So what about the 25-35% of the population who have historically NEVER owned their own house Partizan? Who houses them if all the evil investors get out of the rental market?

      https://teara.govt.nz/en/graph/30207/rates-of-home-ownership

      Even at the absolute peak of unsustainable economic government subsidy of housing purchase the ownership rate was 76% [1976] – and that after 25 years of targeted government assistance based off one of the biggest economic booms this country has ever seen [50’s and 60’s in NZ farming made massive money which by 76 was fading fast in the face of Oil price rises and the UK’s entry in to the European Common Market]

      The simple solution is RMA reform to free up land and make land banking not worth the effort coupled with some simple incentives to build large scale affordable housing.

      Want to end speculation – then don’t put in place structural barriers like the RMA as currently constituted to create market failure opportunities that speculators seek to earn excessive profits…

      • Blazer

         /  January 5, 2018

        why would it be unsustainable?-‘Even at the absolute peak of unsustainable economic government subsidy of housing purchase the ownership rate was 76% [1976]’

        • What happen to Government spending from 1976 to 1984 – how was it funded? Debt and lots of it, plus stifling regulations and stifling tax rates.

          NZ was close to broke when Lange ascended the PM throne… all because of the borrow and spend to maintain a lifestyle NZ couldn’t afford mentality prevailing in the mid 70’s ….
          It was UNSUSTAINABLE in 1976 and it certainly is now..

          • Blazer

             /  January 6, 2018

            Lange inherited a mess from the outgoing National GOVT(NOTHING NEW THERE).A Govt sold to the people as ‘sound financial managers’…Muldoon was supposedly a ‘financial wizard’.The Key Govt borrowed more in their first 2 terms than the total amount of NZ’s borrowing since the country was formed.Sovereign credit fed into the economy to provide housing is always sustainable,thats a..fact.Today private debt…’put it on your house’ is a factor that will lead to catastrophy if and when recession…bites.

            • YAWWNNNN… “Key Govt borrowed…” You never let up with taht BS Blazer – and you never offer a credible alternative to what Keys govt did… I can only assume since you won’t provide an answer on what the alternative was that you would have supported massive government cutbacks instead of sinful borrowing…

      • PartisanZ

         /  January 6, 2018

        Fairly typical Dave1924 “all or nothing” response … Let me quote myself …

        “And rents will drop …” Gee, this assumes renting will continue!!!

        “And the government saves on accommodation supplement … et al” … as above …

        But no, I must be talking Soviet-style communism, eh Dave?

        Certainly some RMA reform is worth considering, along with asset and wealth tax including the family home, which will also be a disincentive to land banking and rampant speculation, offset by reduction in income tax …

        • Parti – what ever – as you always propose deep socialist bordering on communist approaches don’t be surprised when you get tarred with the brush….

          And here in your response, you go straight to Fabian style gradulist, soft pedaling of communism and the old Property is Theft meme “along with asset and wealth tax including the family home”.. I mean people have no rights to their own home without paying ever increasing taxes on that home now do they?

          Walks like a duck, quacks like a duck – its a duck…

          • PartisanZ

             /  January 7, 2018

            Yours is such an empty argument Dave, people already have limited rights to their own home due to a) bank debt, b) local government rates, c) possible public works … and there may be other reasons too …

            And people are already paying ever increasing taxes on their homes … based on their speculative value!

            And all this takes place WITHIN the existing FIIRE economy system which builds an entire economic citadel on this nefarious exchange of speculative land rights … It’s dubious ethically, indefensible morally and only legal because the legal system is itself based upon it …

            Empty, hollow and shallow all at the same time …

            Why do we have any common land at all?

            • “It’s dubious ethically, indefensible morally and only legal because the legal system is itself based upon it ” this is the biggest fallacy you promote.

              Property rights have existed for millennia. They existed before the law was codified. They are the main reason laws exist at all.

              Yes we pay taxes related to our homes – called rates but those are for SERVICES to the household – ya know the 3 waters, roading etc… Not a tax to own a property.

              IF you want to live we everything is owned in common – go join a commune, give up all your personal possessions. But that i snot what you appear to want – you want to take others property and redistriubute either directly or by taxing it to generate redistribution funding.

              NZers are taxed more than enough right now. Enough of the never ending socialism which is nothing but Communism in stealth.

  3. Griff

     /  January 5, 2018

    Yesss
    When landlords no longer make a return based only on rampant capital gains and tax advantages of negative gearing all the houses will evaporate and we will have no where to live.
    Anyone spot the error?
    Here is a hint.
    Many rent because house prices are so high they can not afford to buy.
    Very few landlords are making a real return on their investment other than capital gains.

    • sorethumb

       /  January 5, 2018

      Ten points.

    • Alan Wilkinson

       /  January 5, 2018

      Do you think the taxpayer is making a real return on their housing investments? Get ready for bigger taxpayer investments and bigger losses. The housing shortage in Auckland is real and penalising private investment will perpetuate it and move the loss-equation to the taxpayer.

      • PartisanZ

         /  January 5, 2018

        Lets count, shall we, the ways in which the taxpayer is already losing … ? The taxpayer picks up the pieces anyhow in the neoliberal game of “profits privatized, losses socialized” …

        And how exactly is the Labour-led government “penalizing private investment” anyway?

        If all governments simply bowed to phantom ‘corporate-and-investor confidence’ figures we’d be ruled by corporations … and investors ………………. Oooops …

      • Blazer

         /  January 5, 2018

        Private investment in rental property does not compute without Govt assistance…that’s the…reality.

  4. sorethumb

     /  January 5, 2018

    Landlords are an essential part of providing accommodation – and that’s not anecdotal.
    …….
    If landlords get out of rental housing prices will fall and people will buy to live in.

    • Alan Wilkinson

       /  January 5, 2018

      When prices fall landlords will not sell. They simply will not invest in new developments. The only houses people will buy to live in will be at the higher prices landlords will actually sell at.

      • PartisanZ

         /  January 5, 2018

        I have to concur with you here Alan. The unfortunate truth of the New Zeal Land property market is that prices never really fall.

        We are, in other words, economically and socially confined in the vice-like grip of “landlords and developers” or, in many cases, the ethically blind aspiration to be one of them …

        • Alan Wilkinson

           /  January 5, 2018

          Prices would fall if it was cheaper and easier to build new houses. Cause -> effect. That is all.

          • RMA Reform!!!!

            • Alan Wilkinson

               /  January 5, 2018

              It needs to be repealed and replaced by tradeable property rights. It is a socialist concept from top to bottom and is irreparable.

            • Blazer

               /  January 5, 2018

              as if you care…you don’t invest in property…remember,shares is your go.

            • Really… asset allocation never changes ay Blazer…. lightweight…

            • Blazer

               /  January 5, 2018

              Asset allocation most certainly does change….heavyweight .

            • PartisanZ

               /  January 5, 2018

              @Alan – “It needs to be repealed and replaced by tradeable property rights. It is a socialist concept from top to bottom and is irreparable.”

              I think you might mean irreproachable Alan?

              I did some searching and found little or nothing about land – other than it’s already covered by property rights and is tradable – although tradable property rights in resources especially water are discussed widely, viz, “has an economic rationale and, according to opponents, largely ignores water-related sciences, engineering, technology, law and social sciences” – ‘The unintended consequences of tradable property rights to water’ – Stephen E Draper

              Can you please explain briefly how the concept is socialist and how it might work in relation to land?

            • Alan Wilkinson

               /  January 5, 2018

              The RMA is socialist/fascist since it amounts to the Government and its minions deciding everything you are allowed to do on your land and charging you money to let you do it as well as telling you how you must do it if indeed you are allowed to do it.

              Tradeable property rights assign a land owner the right to do what ever they like on and with their property without interference from their neighbours in the form of noise, pollution, blocking of sunlight, invasion of privacy, destabilisation of land. The Government’s role is to set the standards for those criteria. Anyone who wishes to infringe those standards must negotiate compensation for the infringement of that standard with those directly affected. That is where the rights become tradeable. No bureaucracy other than normal judicial recourse is necessary.

            • PartisanZ

               /  January 6, 2018

              I believe you are naive to think this wouldn’t simply transfer current RMA ‘administration’ into a milieu of Tradable Land Rights ‘litigation’, serving a the legal community’s empire in much the same way the current system serves local authority bureaucratic empires …

              Those without recourse to costly lawyers would be further disadvantaged. Add more inequality to the system …

              What has perhaps gone too far ‘socialist’ (and I hate misusing the word which you do all the f*cking time), you would turn into a kind of ‘Wild West’ …

            • ? is this for Al or for Me?

          • Blazer

             /  January 5, 2018

            yet the cost of building materials means it costs TWICE as much per sq ft to build in NZ as in…Aussie!

            • Alan Wilkinson

               /  January 5, 2018

              Yes, that’s also a factor. But as ever over-regulation of suppliers creates and maintains monopolistic practices.

            • Griff

               /  January 5, 2018

              We finished our batch at Xmas.
              140sqm not including decking difficult site modern fittings 4bed unique design.
              Long and narrow , pole foundations , all ss fixing due to being less than 400m from the ocean very high wind zone, decks and glass balustrading all increased the cost compared to building on simple flat suburban site.
              Cost was $360,000 inclusive.

              https://www.bmtqs.com.au/construction-cost-table
              Au costs are directly comparable to what we paid per sq meter .

            • PartisanZ

               /  January 5, 2018

              You found a builder who isn’t a cowboy … *sarc* … What’s their name?

            • Blazer

               /  January 5, 2018

              completely the opposite Al…’But as ever over-regulation of suppliers creates and maintains monopolistic practices.’

          • Blazer

             /  January 5, 2018

            if you’re talking supply and demand,of course.To curb demand,disqualify overseas buyers and close tax loopholes,tax unutilised land,build more state …houses.There is no free market in…evidence.

            • Alan Wilkinson

               /  January 5, 2018

              I.e: Don’t build houses. The socialist solution.

  5. sorethumb

     /  January 5, 2018

    Tonight, a pumped de Roos tells his audience that he wants people to invest in property and write to him 12 months down the track and tell him they’ve “made one million or three million, or you’ve got 16 properties, or we’re taking six months off because our cash flow now exceeds our outflow!” He says, “I don’t know any other activity where the rewards are so huge. If you want to invest a million dollars in the sharemarket, you need a million dollars. If you want to invest a million in real estate, you only need $100,000.”

    You can buy one property, get it revalued, use the equity to buy another property and then buy another and another. “And you do it all with OPM. Other people’s money. OPM. It’s like being high on drugs!” What’s more, the wonder of depreciation claims on the building and contents means “the government subsidises your investment! It’s delightful!”

    House of The Rising Sum -Pamela Stirling Listener.

    From The Landlord Says:
    Meanwhile the National Party released its immigration policy. You may wonder what this means for the property market. It is clear from research that immigration is one of the key drivers of house price growth.
    The logic is simple. If you import more people into the country, then you need more houses. Supply and demand means that prices are then pushed up, this is particularly so in Auckland.
    While the latest immigration numbers show the number of people coming into New Zealand is starting to rise, the Nat’s policy looks like it wants to increase immigration levels even further. (Although it is unclear what sort of number they are targeting.)
    This policy is, arguably, a plus for people who want house prices to rise. (But may be not so good for first home owners wanting to buy.)
    My guess has always been that property investors lean heavily towards the right rather than the left. (This was made clear in an email newsletter I saw from one developer this week.)

  6. Blazer

     /  January 5, 2018

    spending other peoples money…the raison d’etre of rightwingers…subsidised land lords ,are parasites on society.As for..’When prices fall landlords will not sell.’….they bloody well will,if the banks make them,and competition drives rents down as well.

    • Alan Wilkinson

       /  January 5, 2018

      When prices fall rents will be more profitable so it won’t make any sense to sell for either banks or landlords.

      • Blazer

         /  January 5, 2018

        more homes for sale,more homeowners not paying rent.Banks monitor equity…if prices recede 20%,banks want more eq to cover their risk.Rents reflect demand(and accom sup=welfare for landlords)and when demand falls,obviously so do…rents.

        • Alan Wilkinson

           /  January 5, 2018

          Except there won’t be more homes for sale. Sellers take their homes off the market when prices fall. Fewer houses for rent because investment will stop -> rent rises. Banks will only force sale if the RB forces them to since that will realise an immediate loss rather than the ongoing return on their investment. I think the RB will have learnt from the US experience that unnecessary foreclosures amount to banks shooting themselves in the forehead.

          • Blazer

             /  January 5, 2018

            There is no evidence to suggest the banks learned anything at all from the GFC.Their exposure to property is an indictment on their one trick pony business platform….their off balance sheet liabilities are colossal.

            • Alan Wilkinson

               /  January 5, 2018

              There is no evidence that Lefty politicians learnt anything from the GFC but here is plenty of evidence that surviving banks did.

            • PartisanZ

               /  January 5, 2018

              “plenty of evidence that surviving banks did [learn].”

              Like the housing crisis? Or was that “Lefty politicians” like John Key, Bill English & Co?

            • Alan Wilkinson

               /  January 5, 2018

              The critical two were Peters and Dunne. They removed National’s ability to reform the RMA over the block vote of all the other Lefty politicians.

            • Dunne supported RMA reform, but wanted to retain more environmental protections than National were willing to concede, and National chose nothing over substantial reform.

            • PartisanZ

               /  January 5, 2018

              “National chose nothing over substantial reform”.

              I wonder why?

              Some might say to appease the Maori Party? If so, fat lot of good protecting the environment did the Maori Party.

              I doubt it would have mattered though Pete. I doubt even National’s “substantial reforms” would have been enough for Alan and his ilk …

          • Griff

             /  January 5, 2018

            Investors default more than occupiers.
            https://www.rbnz.govt.nz/financial-stability/financial-stability-report/fsr2015-05/investors-and-the-new-zealand-housing-market
            Get a 20% correction in pricing and a few fold .
            Domino effect pushes price lower and more collapse.
            I can not find the ratio between owner occupy and investors for new housing but doubt it as high as Allans economics would need.

            As to rents going up in a down turn
            Nope they fall or at best maintain …

            Many borrow against and spend some of their increasing equity in an expanding market. The inverse Housing market contracting results in rescission .

            • PartisanZ

               /  January 5, 2018

              … results in recession only if the economy is basically founded upon the housing market …

              When you think about the basic necessities of human life, food, shelter, clothing and ‘interaction’ – sometimes called ‘love’ – why would we make one of these, shelter, the foundation of a boom-and-bust economy?

              When you think that higher human development – ie Maslow’s hierarchy – can only occur if basic needs are met, a boom-and-bust ‘human shelter’ economy looks even more stupid … Why would we do this to ourselves?

              Well, one possibility is that some of us want the rest of us – our fellow human beings – to be permanently trapped in the acquisition/satisfaction of basic human needs and not rise beyond them …

            • Alan Wilkinson

               /  January 5, 2018

              I agree about the recession. This wouldn’t be a normal downturn since it will be selectively focused on rental properties. A rent rise would be a slow process after the initial shock of landlords leaving the market before prices fell significantly. Because it would be selectively aimed at the rental properties the fall would affect the bottom end of the market more than the top. In fact the upper end will see growth as ex-landlords and would-be investors put their cash into upgrading their own untaxed family home to realise capital gains there instead.

            • PartisanZ

               /  January 5, 2018

              Hence the need for a TOP-style ‘asset tax’ including the family home …

            • Blazer

               /  January 5, 2018

              good link Griff..I found this part ,particularly interesting…’In New Zealand, a significant proportion of property investors have large portfolios, implying a large degree of gearing relative to their underlying labour income. For example, the 2014 ANZ Residential Property Investment Survey shows that 26 percent of surveyed investors held seven or more investment properties (figure A2).6 Around half of investor commitments are at LVRs of more than 70 percent. Preliminary Reserve Bank survey data suggests that investors tend to make greater use of interest-only loans, which may partly reflect investors’ ability to offset mortgage expenses against personal income for tax purposes. As a result, investor loans are likely to retain a higher level of gearing over the long term than their owner-occupier counterparts.’

  7. oldlaker

     /  January 5, 2018

    I notice that the RNZ article starts off stating investors are bailing but as you read on it is entirely speculative…basically it is the Property Investors Federation and Real Estate Institute predicting woe in the housing market without a shred of evidence that this is actually happening. I have come to expect this from the NZ Herald but it’s shameful cod-journalism from RNZ.