Thought for the Day: Properties for Rent?

Monday, 9 February 2015, 7:06 pm
Opinion: Keith Rankin

I saw a news item last night (TV1) about the difficulty of finding student flats in Auckland. OK, we get stories like this every February. But, surely, with all these properties in the Auckland isthmus being sold to 'investors', there should be a glut of rental accommodation on the market?

Maybe these 'investors' who paid so much are holding out for more classy tenants? Actually student tenants are perfect for many of these properties. From a landlord's point of view, the 'investment' is essentially in the land, not the house. (Buying something that already exists is not actually investment; hence the quotes around the words 'investors' and 'investment' in this case.) We note that a number of pretty much derelict properties have sold for over a million dollars; the low quality of the house gives the new owner the option of demolition rather than expensive maintenance.

An even better option for isthmus land-bankers is demolition indefinitely delayed. Auckland market rents are low relative to house prices. So rent out properties to students who together pay high rents but have a reputation for being high maintenance. (Another potentially lucrative option is poor families on large Accommodation Supplements).

Renting out properties is 'investment' for yield. However the main driving factor in the Auckland market is 'investment' (especially debt-driven 'leveraged investment') for capital gain. Maybe many owners simply cannot be bothered renting out their properties, preferring to leave them empty most of the time?

What I suspect is happening is this. Many of these properties are being bought by people who are not at present resident in New Zealand. (Some of these would be New Zealand citizens resident overseas.)

It seems to me that the dynamic in play may be that moneyed foreign residents with a past link to New Zealand, or seeking to create a future connection with New Zealand, are buying second properties in Auckland. (Their first properties are their residences in their countries of residence.) Their present aim is to find a lucrative way to park their unspent incomes. In addition they are holding onto the option of relocating to New Zealand, as a kind of insurance policy, or as a retirement dream.

The property dynamic in New Zealand 10-20 years ago was for New Zealand moneyed urban professionals to buy coastal property for both capital gain and to maintain a lifestyle dream. For most of the year these properties would be empty (as indeed they still are). Local handymen would maintain the grounds. These coastal communities could not flourish, however, despite the mushrooming of these high-end baches. For most of the year they are ghost towns.

From the point of view of the global moneyed set with established or embryonic links to New Zealand, houses in (especially) Auckland may be being purchased as little more than metropolitan baches, or as land upon which such baches might one day be built. In the meantime the capital gains accrue.

Why bother housing students and low-income families?

ENDS

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Keith Rankin

Political Economist, Scoop Columnist

Keith Rankin taught economics at Unitec in Mt Albert since 1999. An economic historian by training, his research has included an analysis of labour supply in the Great Depression of the 1930s, and has included estimates of New Zealand's GNP going back to the 1850s.

Keith believes that many of the economic issues that beguile us cannot be understood by relying on the orthodox interpretations of our social science disciplines. Keith favours a critical approach that emphasises new perspectives rather than simply opposing those practices and policies that we don't like.

Keith retired in 2020 and lives with his family in Glen Eden, Auckland.

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