There’s been plenty of discussion of late regarding the impact property investors have on the housing market and how to fix the rental market; both from the renter’s perspective and the property investor/landlord’s. The issue is a very complex one as it’s a social issue that pits our basic human right to housing against a legitimate form of passive income, financial security and for some – a career choice. The government has called for invested parties to make decisions with consideration to their fellow man and the greater good. But in the real world, will this type of selfless decision making ever become widespread while it competes with the prospect of financial gain? Let’s look at some of the ways investors impact the market, for better or for worse.
Who are these property investors, anyway?
The title of property investor generates different things to different people and the truth is that the loose designation encompasses: foreign speculators who help bankroll massive apartment buildings that home thousands of renters in order to sell them for capital gain at the opportune moment; grandmother Doris who complements her pension with income from her rental property which houses a couple on minimum wage; and your mate’s mate – Dave, who works a 40-hour week and does-up his investment property on nights and weekends so he can profit when the newly renovated property increases in value due to modernisation and/or market trends. Whether you see these characters as saints performing a civil service or greedy expletives driving up rents and making it impossible for young couples and families to buy their first home, fact of the matter is they are all property investors and they all impact the market in one way or another.
Why we think property investors are great
The first type of investor we mentioned can be a blessing for urban New Zealand as they facilitate the type of compact housing that is essential for densely populated areas like Auckland. We’re talking big apartment buildings that can home large numbers of people who need to be close to CBDs and aren’t necessarily looking to buy a detached house at this stage in their life. This type of foreign investor will be stung by the proposed tighter restrictions around how quickly they will have to sell said properties, which some see as a deterrent for the foreign dollars necessary to help fund such projects. They feel this funding would be harder to find domestically which would impede the progress of this type of construction and negatively impact efforts to create more housing stock, rental or otherwise. Whether or not you see this type of investor as ‘evil’, they may just be a ‘necessary’ evil.
We commend the grandmother Doris type of property investor who buys an investment property, rents it out and pays down the mortgage aggressively. They are looking at the property as a forevermore slow-burn investment that will provide them a form of passive income in their retirement. Their ideal tenants are long-termers, and as such they don’t raise rents unnecessarily and are proactive in providing a rental property that is well-maintained and somewhere tenants want to call home. They provide a valuable service for those saving for a deposit to buy their own home, and create stability in the rental market for long-term renters.
Why we think (some) property investors are not so great
One element of property investment we aren’t so hot on is when two groups are in competition for the same type of housing stock, which drives prices up and puts the prospect of ownership out of reach for one group. This occurs most commonly between investors and first-home buyers. Some investors are very cleverly targeting well-presented houses on quiet suburban streets because they know these are the houses that would-be first home buyers want to live in (and will live in) while they continue to rent and save for a mortgage deposit. This competition creates a bidding war and a viscous cycle that sees the price of this type of property pushed over and above what the first-time buyers can afford.
Then there’s your mate’s mate, Dave who buys ‘cheap’, renovates and sells for profit. Dave’s either a champion or a nuisance depending on which area of the market you yourself are in. If you’re looking to buy your first home and want to spend more elbow grease than money, you’ll likely be in direct competition with Dave at the auction for a doer-upper… what a nuisance. Dave may well be propped up by the equity tied up in the house he actually lives in and the profit he earned from the last couple of doer-uppers he sold, which may drive the price up and out of your budget on auction day. If you’re on to your second house or have more mortgage money to play with, Dave may have already done all the hard work for you and be serving up a modernised home that sees you move up the ladder… what a champion.
How can property investors better serve the market?
This is where things become subjective and people get heated because they all have their own agenda when it comes to housing (even us, obviously). We’d like to see the government and the construction industry throw everything they can at realising the KiwiBuild dream and its ongoing developments in order to create more housing stock. This way we can help more ‘mum and dad’ investors acquire their own investment property and help them manage it by finding them great tenants.
We’re also fans of building new homes upward, rather than outward. This lowers cost and consumption of materials and land and uses less space, meaning suburban sprawl is slowed.
So, there you go, for better or worse, property investors are key players in the housing market and can’t all be tarred with the same brush. How do you think investors could better serve the market and society as a whole? Do you think they can make profits in a responsible fashion that benefits wider society, or do you think the current system needs a major overhaul? We’d love to hear your thoughts.