| Interest.co.nz Indicative Gross Rental Yield Report | ||||||||||
| Q1 2023 |
There's good news and bad news for residential property investors in interest.co.nz's latest indicative rental yield figures.
The good news is gross rental yields have risen significantly between the first quarter of last year and the first quarter of this year, improving the relative attractiveness of residential property as an investment.
The bad news is the yields are still terrible, meaning investors are likely to struggle to find a residential investment property capable of providing them with a reasonable income stream.
The yields are calculated using the Real Estate Institute of New Zealand's lower quartile selling prices for the three main property types popular with investors - three bedroom houses/two bedroom units/apartments and one bedroom units/apartments - in each of the 27 main urban districts throughout the country and all 11 Auckland Council wards.
These are then matched with quarterly bond data from Tenancy Services, for the same property types and locations.
That provides an indicative gross yield figure, a residential yield is a property's annual rent expressed as a percentage of its purchase price, which allows an apples-with-apples comparison of the relative attractiveness of investing in residential property by property types and locations.
The indicative yields for each property type/location for each of the five quarters from the first quarter (Q1) 2022 to Q1 2023 are shown in table 2 at the bottom of this page.
The overwhelming trend across most locations and property types is yields have been steadily rising over that period, driven by falling prices and rising rents.
In simple terms that means the income earning potential of rental properties has improved over that period.
On a national basis the indicative yield on a three bedroom house has increased from 4.7% in the first quarter of last year to 5.7% in the first quarter this year, while the indicative yield for a two bedroom apartment/unit has increased from 5.7% to 6.8% over the same period.
However, although the yields are improving, in most cases they would probably still be too low to provide investors with a reasonable income stream.
Table 1 below shows the major expenses investors would be likely to face if they purchased a two bedroom unit/apartment at the REINZ's national lower quartile price in the first quarter of this year, compared with the first quarter of last year.
Over that period the price dropped by $50,000, from $480,000 to $430,000, while the median rent increased by $35 a week, rising from $525 a week to $560, pushing the yield up from 5.7% to 6.8%.
Assuming the property was purchased with a 40% deposit, the size of the mortgage needed also declined, from $280,000 to $258,000, while the average two year fixed mortgage rate increased from 4.20% to 6.45% over the same period.
The higher interest rates pushed annual mortgage payments up from $16,848 to $19,422. And once rates and insurance are paid for, the net rental income that's left for the investor would have been $5424 in Q1 last year, dropping to $4364 in Q1 this year, and that's before allowing for any maintenance costs or periods of vacancy.
Those returns could be described in one word - terrible.
They are so low that any significant period of vacancy or unexpected expense would be likely to push the investor into a negative cash flow situation, where the rental income would be insufficient to cover the property's outgoings. And they would have to be dipping into savings or another source of cash to cover those costs.
Which is probably why residential property purchases by investors are steadily drying up.
The graph below shows the number of mortgages approved to residential property investors each month from August 2014 to April 2023.
According to the Reserve Bank, the number of mortgage approvals for residential property investors declined by 70% between the first quarter of 2015 and the first quarter of 2023, from 14,600 to 4392.
This is probably also why there is so much emphasis by investors on property prices and the potential for, or lack of, capital gains.
With yields so low it is probably the only way they can make money from a potential investment.
Some will still be looking for income returns over the long term. But the latest figures suggest their investment horizon would need to be a very long one for that strategy to succeed.
At current fundamentals, the days of mum and dad buying themselves a little rental unit to provide them with a decent retirement income may be drawing to a close.
The way things stand at the moment, they would probably be better off keeping their money in the bank or looking at another alternative to residential rental property.
The comment stream on this story is now closed.
Table 1:
Table 2:
| Quarter | 3 brm house | 1 brm unit | 2 brm unit |
| Whangarei District | |||
| Q1 2022 | 4.5% | 7.3% | 4.9% |
| Q2 2022 | 4.9% | 6.2% | 5.1% |
| Q3 2022 | 4.9% | 7.1% | 5.2% |
| Q4 2022 | 5.0% | 8.4% | 5.3% |
| Q1 2023 | 5.2% | 7.0% | 5.3% |
| Auckland Region | |||
| Q1 2022 | 3.5% | 6.2% | 4.4% |
| Q2 2022 | 3.7% | 13.6% | 4.5% |
| Q3 2022 | 3.9% | 7.2% | 4.6% |
| Q4 2022 | 4.0% | 11.2% | 4.8% |
| Q1 2023 | 4.2% | 11.8% | 5.3% |
| Auckland - Rodney Ward | |||
| Q1 2022 | 3.5% | ||
| Q2 2022 | 3.5% | ||
| Q3 2022 | 3.9% | ||
| Q4 2022 | 3.7% | ||
| Q1 2023 | 3.5% | ||
| Auckland - Albany Ward | |||
| Q1 2022 | 3.2% | 4.1% | 3.4% |
| Q2 2022 | 3.4% | 4.5% | 3.6% |
| Q3 2022 | 3.6% | 3.8% | 3.8% |
| Q4 2022 | 3.7% | 4.2% | 4.3% |
| Q1 2023 | 3.9% | 5.1% | 4.5% |
| Quarter | 3 brm house | 1 brm unit | 2 brm unit |
| Auckland - North Shore Ward | |||
| Q1 2022 | 3.1% | 3.9% | 3.5% |
| Q2 2022 | 3.3% | 4.2% | 3.9% |
| Q3 2022 | 3.4% | 4.6% | 4.1% |
| Q4 2022 | 3.5% | 4.2% | 4.1% |
| Q1 2023 | 3.7% | 6.0% | 4.1% |
| Auckland - Waitakere Ward | |||
| Q1 2022 | 3.3% | 3.4% | |
| Q2 2022 | 3.6% | 3.6% | |
| Q3 2022 | 3.7% | 4.8% | |
| Q4 2022 | 3.8% | 4.1% | |
| Q1 2023 | 4.0% | 4.7% | |
| Auckland - Waitemata and Gulf Ward | |||
| Q1 2022 | 2.8% | 9.1% | 10.6% |
| Q2 2022 | 2.9% | 26.4% | 10.0% |
| Q3 2022 | 2.6% | 16.5% | 10.4% |
| Q4 2022 | 2.8% | 24.2% | 9.9% |
| Q1 2023 | 2.9% | 19.4% | 10.5% |
| Auckland - Whau Ward | |||
| Q1 2022 | 3.2% | 5.3% | 4.5% |
| Q2 2022 | 3.3% | 6.5% | 4.0% |
| Q3 2022 | 3.5% | 3.3% | 4.2% |
| Q4 2022 | 3.7% | 4.6% | 4.1% |
| Q1 2023 | 4.0% | 5.1% | |
| Quarter | 3 brm house | 1 brm unit | 2 brm unit |
| Auckland - Albert-Eden-Puketapapa Ward | |||
| Q1 2022 | 2.9% | 4.2% | 4.0% |
| Q2 2022 | 3.1% | 4.2% | 3.9% |
| Q3 2022 | 3.2% | 4.9% | 4.1% |
| Q4 2022 | 3.1% | 4.7% | 4.5% |
| Q1 2023 | 3.4% | 5.0% | 4.9% |
| Auckland - Orakei Ward | |||
| Q1 2022 | 2.5% | 5.3% | 3.4% |
| Q2 2022 | 2.8% | 4.5% | 3.5% |
| Q3 2022 | 2.7% | 6.7% | 3.6% |
| Q4 2022 | 3.1% | 6.4% | 3.8% |
| Q1 2023 | 3.3% | 7.8% | 4.4% |
| Auckland - Maungakiekie-Tamaki Ward | |||
| Q1 2022 | 2.9% | 4.1% | 5.0% |
| Q2 2022 | 3.3% | 5.2% | 4.3% |
| Q3 2022 | 2.3% | 5.5% | 3.1% |
| Q4 2022 | 3.6% | 5.5% | 4.4% |
| Q1 2023 | 3.8% | 8.4% | 4.7% |
| Auckland - Howick Ward | |||
| Q1 2022 | 3.0% | 4.6% | 4.0% |
| Q2 2022 | 3.4% | 3.9% | |
| Q3 2022 | 3.2% | 5.3% | 4.6% |
| Q4 2022 | 3.4% | 5.1% | 4.0% |
| Q1 2023 | 3.5% | 5.0% | 4.4% |
| Quarter | 3 brm house | 1 brm unit | 2 brm unit |
| Auckland - Manukau Ward | |||
| Q1 2022 | 3.8% | 5.1% | 4.1% |
| Q2 2022 | 4.0% | 5.5% | 4.3% |
| Q3 2022 | 4.3% | 5.4% | 5.1% |
| Q4 2022 | 4.5% | 5.5% | 4.7% |
| Q1 2023 | 4.6% | 6.0% | 5.0% |
| Auckland - Manurewa-Papakura Ward | |||
| Q1 2022 | 3.8% | 3.9% | |
| Q2 2022 | 4.1% | 4.2% | |
| Q3 2022 | 4.2% | 4.2% | |
| Q4 2022 | 4.5% | 4.8% | |
| Q1 2023 | 4.8% | 4.9% | |
| Auckland - Franklin Ward | |||
| Q1 2022 | 3.8% | 4.3% | 3.5% |
| Q2 2022 | 3.7% | ||
| Q3 2022 | 4.0% | 4.1% | |
| Q4 2022 | 4.1% | ||
| Q1 2023 | 4.3% | ||
| Hamilton City | |||
| Q1 2022 | 3.8% | 3.6% | 4.6% |
| Q2 2022 | 4.0% | 4.5% | 4.5% |
| Q3 2022 | 4.3% | 4.8% | 4.6% |
| Q4 2022 | 4.5% | 4.0% | 4.6% |
| Q1 2023 | 4.5% | 3.2% | 4.8% |
| Quarter | 3 brm house | 1 brm unit | 2 brm unit |
| Taupo District | |||
| Q1 2022 | 3.9% | 4.6% | |
| Q2 2022 | 3.8% | 3.4% | |
| Q3 2022 | 4.1% | 3.7% | |
| Q4 2022 | 3.9% | 0.0% | |
| Q1 2023 | 4.6% | 4.3% | |
| Tauranga City | |||
| Q1 2022 | 3.8% | 3.6% | 4.7% |
| Q2 2022 | 4.1% | 3.4% | 4.4% |
| Q3 2022 | 4.4% | 2.7% | 4.7% |
| Q4 2022 | 4.6% | 8.4% | 4.5% |
| Q1 2023 | 4.5% | 5.7% | 5.0% |
| Rotorua District | |||
| Q1 2022 | 5.2% | 5.8% | |
| Q2 2022 | 5.2% | 5.7% | |
| Q3 2022 | 5.5% | 1.9% | 7.9% |
| Q4 2022 | 5.6% | 2.8% | 5.4% |
| Q1 2023 | 6.4% | 6.5% | |
| Whakatane District | |||
| Q1 2022 | 4.2% | ||
| Q2 2022 | 4.2% | ||
| Q3 2022 | 4.5% | ||
| Q4 2022 | 5.2% | ||
| Q1 2023 | 5.3% | ||
| Quarter | 3 brm house | 1 brm unit | 2 brm unit |
| Hastings District | |||
| Q1 2022 | 4.7% | 4.4% | |
| Q2 2022 | 4.7% | 5.1% | |
| Q3 2022 | 5.0% | 0.0% | |
| Q4 2022 | 5.2% | 5.0% | |
| Q1 2023 | 5.5% | 5.5% | |
| Napier City | |||
| Q1 2022 | 4.1% | 7.0% | 5.4% |
| Q2 2022 | 4.6% | 7.7% | 5.7% |
| Q3 2022 | 4.7% | 7.4% | 5.6% |
| Q4 2022 | 4.8% | 5.0% | |
| Q1 2023 | 5.2% | 6.9% | |
| New Plymouth District | |||
| Q1 2022 | 4.7% | 4.4% | |
| Q2 2022 | 5.0% | 5.3% | |
| Q3 2022 | 5.1% | 5.3% | |
| Q4 2022 | 5.2% | 6.1% | |
| Q1 2023 | 5.5% | 7.2% | |
| Whanganui District | |||
| Q1 2022 | 5.2% | 6.8% | 4.8% |
| Q2 2022 | 5.3% | 4.8% | |
| Q3 2022 | 6.1% | 6.0% | 5.1% |
| Q4 2022 | 6.3% | 9.7% | 6.8% |
| Q1 2023 | 6.3% | 8.3% | 7.2% |
| Quarter | 3 brm house | 1 brm unit | 2 brm unit |
| Palmerston North City | |||
| Q1 2022 | 4.6% | 4.3% | |
| Q2 2022 | 4.9% | 4.9% | |
| Q3 2022 | 5.3% | 5.7% | |
| Q4 2022 | 5.3% | 6.8% | |
| Q1 2023 | 5.7% | 6.2% | |
| Kapiti Coast District | |||
| Q1 2022 | 4.0% | ||
| Q2 2022 | 4.4% | ||
| Q3 2022 | 4.4% | ||
| Q4 2022 | 4.4% | ||
| Q1 2023 | 4.8% | ||
| Porirua City | |||
| Q1 2022 | 4.3% | ||
| Q2 2022 | 4.8% | ||
| Q3 2022 | 5.4% | ||
| Q4 2022 | 4.9% | ||
| Q1 2023 | 5.0% | ||
| Upper Hutt City | |||
| Q1 2022 | 4.4% | ||
| Q2 2022 | 4.7% | ||
| Q3 2022 | 4.9% | 5.6% | |
| Q4 2022 | 5.2% | 6.3% | |
| Q1 2023 | 5.6% | 5.7% | |
| Quarter | 3 brm house | 1 brm unit | 2 brm unit |
| Lower Hutt City | |||
| Q1 2022 | 4.3% | 4.5% | 4.5% |
| Q2 2022 | 4.7% | 5.5% | 5.3% |
| Q3 2022 | 5.2% | 7.4% | 6.2% |
| Q4 2022 | 5.6% | 10.5% | 6.4% |
| Q1 2023 | 5.8% | 6.6% | 7.1% |
| Wellington City | |||
| Q1 2022 | 4.1% | 6.3% | 5.0% |
| Q2 2022 | 4.3% | 6.2% | 5.4% |
| Q3 2022 | 4.6% | 7.1% | 6.1% |
| Q4 2022 | 4.8% | 8.4% | 5.4% |
| Q1 2023 | 4.9% | 7.8% | 6.4% |
| Nelson City | |||
| Q1 2022 | 4.2% | 6.0% | 4.4% |
| Q2 2022 | 4.2% | 6.0% | 4.6% |
| Q3 2022 | 4.5% | 6.5% | 5.9% |
| Q4 2022 | 4.6% | 6.4% | 6.2% |
| Q1 2023 | 4.7% | 4.7% | 5.7% |
| Marlborough District | |||
| Q1 2022 | 4.3% | ||
| Q2 2022 | 4.2% | ||
| Q3 2022 | 5.0% | ||
| Q4 2022 | 4.5% | ||
| Q1 2023 | 4.9% | ||
| Quarter | 3 brm house | 1 brm unit | 2 brm unit |
| Waimakariri District | |||
| Q1 2022 | 4.3% | ||
| Q2 2022 | 4.2% | ||
| Q3 2022 | 4.4% | ||
| Q4 2022 | 4.3% | ||
| Q1 2023 | 4.8% | ||
| Christchurch City | |||
| Q1 2022 | 4.3% | 4.9% | 5.4% |
| Q2 2022 | 4.6% | 6.2% | 5.7% |
| Q3 2022 | 4.7% | 5.6% | 5.5% |
| Q4 2022 | 4.9% | 5.4% | 5.8% |
| Q1 2023 | 5.1% | 5.8% | 6.4% |
| Selwyn District | |||
| Q1 2022 | 3.9% | ||
| Q2 2022 | 3.9% | ||
| Q3 2022 | 4.0% | ||
| Q4 2022 | 4.4% | ||
| Q1 2023 | 4.2% | ||
| Ashburton District | |||
| Q1 2022 | 4.7% | ||
| Q2 2022 | 5.0% | ||
| Q3 2022 | 5.3% | ||
| Q4 2022 | 4.8% | ||
| Q1 2023 | 5.0% | ||
| Quarter | 3 brm house | 1 brm unit | 2 brm unit |
| Timaru District | |||
| Q1 2022 | 5.1% | 6.4% | |
| Q2 2022 | 4.8% | 6.3% | |
| Q3 2022 | 5.2% | 5.3% | |
| Q4 2022 | 5.6% | 6.1% | |
| Q1 2023 | 5.4% | 6.6% | |
| Queenstown-Lakes District | |||
| Q1 2022 | 3.2% | 4.4% | 4.1% |
| Q2 2022 | 3.3% | 4.8% | 4.8% |
| Q3 2022 | 3.6% | 7.4% | 4.3% |
| Q4 2022 | 3.8% | 4.8% | 4.7% |
| Q1 2023 | 3.9% | 8.8% | 5.0% |
| Dunedin City | |||
| Q1 2022 | 4.7% | 5.0% | 6.4% |
| Q2 2022 | 4.8% | 4.3% | 5.6% |
| Q3 2022 | 5.4% | 4.6% | 6.0% |
| Q4 2022 | 5.6% | 4.2% | 7.4% |
| Q1 2023 | 5.9% | 5.8% | 6.6% |
| Invercargill City | |||
| Q1 2022 | 5.9% | 6.1% | |
| Q2 2022 | 6.1% | 7.0% | |
| Q3 2022 | 6.0% | 6.8% | |
| Q4 2022 | 6.0% | 7.3% | |
| Q1 2023 | 6.8% | 6.4% | |
| Quarter | 3 brm house | 1 brm unit | 2 brm unit |
| All of Aotearoa | |||
| Q1 2022 | 4.7% | 6.4% | 5.7% |
| Q2 2022 | 4.9% | 7.8% | 5.7% |
| Q3 2022 | 5.2% | 6.9% | 6.2% |
| Q4 2022 | 5.3% | 9.7% | 6.3% |
| Q1 2023 | 5.7% | 10.2% | 6.8% |
| --------------------------------------------------------- | |||
| The price data used to calculate the yield figures in this report is provided by the Real Estate Institute of New Zealand (REINZ), home of the most complete, accurate and up-to-date real estate data in New Zealand. | |||
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218 Comments
Leave the yeild aside but think about the stress of keeping a tenant in your property.
The laws are so in favour of tenants that a landlord is a slave to a tenant and here I was thinking slavery is illegal in this country.
Really no same person would want to be a landlord if you want to live your life and enjoy it too. I know plenty of greedy out there who do this but then we need those leeches in this world don't we. 😉😉
We sold ours for exactly this. Tenancy Tribunal is absolutely stacked against the landlord.
Losing $500 per day on the Average NZ Property should be the first thing to consider. Forget about the Yield !
10% Interest Rates This Year, Guaranteed.
I bought a student rental in 2015. DGAF when it shot up in value over COVID, and DGAF now it's coming back down. Cashflow is king.
Was it a lot of work? I started with a block of 6 student flats, I swore never again! I didn't know back then that students in NZ are animals, lol
Nah they're in good condition, I rent to 22-25 year olds. PM does it all. Just set very high standards and immediately do your maintenance so they feel heard. Provide lots of heating, ventilation and at 2 bathrooms if more than 3 bedrooms.
A visitor from Hawkes Bay
When last living in NZ, we had to complain to the the Tenancy Tribunal as the landlord hadn't met the new standards for housing insulation. We were told that if we continued with our complaint we would face a 3000 dollar fine as we hadn't reported it when we first moved in. When I explained I hadn't been aware until then, and was making the complaint as soon as I had become aware, I was told that was a failure of due diligence.
They then declined to take any action, including advising the landlord to install the insulation so we were forced to leave the property as it had become unlivable. Not particularly 'stacked against the landlord' in my experience. Quite the opposite.
That sounds like lies - did you actually talk to the tribunal, OR was this from the property manager?
There's no fine in schedule 1B for what you've described. And Section 66I.2 describes exactly your situation - the landlord must comply regardless of you knowing the state of the premises at the time of lease.
I wish it was lies. I spoke directly to someone from the tenancy tribunal and that was the advice I was given. At that stage it was the last straw where I was staying so we left (the house and the country). I couldn't be bothered following it up.
Now that the ground has well and truly shifted beneath those who believed equity was so easily got and banked, lets share a micro moment of silence for all "Reluctant Landlords" out there. They may not have a choice but to be in the game for the long haul now.
Landlords - look after your tenants.
RP, your cynical and sarcastic posts are a tribute to character!
Yvil, try self reflection as to the reasons my posts trigger. Viewing yourself as superior to others is a lonely path.
Now now children
I would suggest looking in the mirror tired ploppy
Both yields and the hassle of owning a rental problem are the key here.
Currently most people can get at least 5.7% on a 12 month term deposit - locking it in for 3-5 years will yield you close to 5.25% and all your paying on that is tax.
At the moment if you spend $1 million on a rental (price of a rental in Auckland) to get the same return of at least 5.2% per annum - you need to rent it for at least $1000 a week (good luck getting that) , but out of that $52000 you pay rates, insurance, water, and maintenance and then you have tax on top of that, have the hassle of having to comply with changing laws, tenancy rules, property agents etc.
That same $1 million in a term deposit will net you $52000 minus tax - clean and with the slight hassle of deciding what to do with the money at the end of the term.
Without capital gains (which is where we are currently at) why would you bother with property.
As a long-time renter, it's abundantly clear to me that most landlords do pretty well from their investment properties - especially if they hold them for a few years and reap a sizeable capital gain (in addition to the rental income and all the tax write-offs).
There seem to be plenty of landlords who are able to retire early, drive a modern car and take overseas vacations. Nice life for some.......
Frankly, I'm happy if the Tenancy Tribunal whacks them.
TTP
You know it's got a long way to crash when Captain Spruiker has resorted to the 'wolf in sheep's clothing' schtick.
I should say "spruiker in renters rags"
I’m sure people made good money from Kodak shares for a while too.
Are you suggesting housing will become obsolete like photographic film did? How, are they going to digitize themselves and upload to the cloud?
I always felt a bit scummy when I had tenants in my old flat. This type of retirement plan was what my parents and their mates all did when properties were a couple of hundred Gs or less. There were books about it going around in the 1980s and 90s "born free tax to death" or something that they used to share amongst themselves and even with my old siblings and cousins born in the 1970s - fair enough for them but there are better alternative strategies to play the end of the long term debt cycle that don't involve profiting from the growing inequality in NZ.
You are hopelessly naive if you don't think that other investment strategies don't involve profiting from some aspect of societal inequality or exploitation.
This is the exact reason there's a rental crisis in Nelson bay currently. Landlords leaving the places empty due to not wanting to run the risk of getting a fixed term tenant in that refuses to leave at the end before they sell up, or move in themselves, and then having to lose money and time trying to get them kicked out. It's a hard balance, as renters have pushed so hard that they now can't find places due to the level of rights they have. Quite the conundrum and there'll never be a perfect answer I think.
Do you know how many properties have been removed from the long term rental market and placed in the short term rental market (such a Airbnb, Bookabach, etc)?
Not specifically, however anecdotally through friends and family this is the trend. Seems theres an article on it every month or two. I know several people building and selling tiny homes made from shipping containers successfully around the region, and can confirm the sales of used shipping containers for accomodation is booming as they're used as outhouse accomodation on rural properties and for Airbnb converts as a cheap alternative to investing in property. 4-8k for a used container (some pre-insulated), convert to accomodation, simple.
Zero interest deductability zero interest in borrowing money.
Simple as, applies to all businesses.
Guaranteed there will be more power given to tenants. Think rent freezes, more penalties and expenses for land lords, no ability to remove tenants even if you sell.
Another term of Labours war on businesses may as well sell up and leave the country to its inevitable demise.
Nguturoa - in what world do you believe this? Tenants do not have the security of tenure offered in many other countries and rents as a proportion of incomes are very high here. The requirements to provide insulation and heating and to prevent no fault evictions are really just minimum standards that imo every decent person should support. Too many houses are still damp and badly presented and poorly maintained.
Should be labelled "Net Rental Income before allowing for Capital Loss".
Yep.
eg That Q1 2022 case where the value drop has blown everything out of the water. The only salvation would be for the value to rise again sometime....
So I'm good with my 10-15% yields with half debt (and shrinking) then?
Good investors create yield and equity.
Also, this article fails to state that yields will increase due to increasing demand or shrinking supply until they work for an investor. With the new tax rules this is very hard to do, so I see a really unfortunate situation developing in the rental market.
Ironically the rule to punish investors will be the single biggest driver for young people leaving New Zealand. There won't be any homes to rent here.
Will they be going to Australia, with its rental vacancy rate of 1.2%?
Don't know. Ours will be worse soon. I just saw a chart showing Auckland rental availability down 50% YoY.
I have just the medicine - banning short term rentals (airbnb bookabach etc) unless the property is in a designated tourist/beach area that doesnt have a rental shortage.
It's a bitter pill to swallow, but it is time that NZ recognized that houses are for living in.
The longer this drags on with no solution in sight, the more convinced I am that a capital gains tax of 50% or higher will be coming for any dwelling except the family home. This would result in rents increasing by a third and home prices continuing to crash. But in the end, home prices should end up being in the 4x to 6x income zone. Affordable housing.
I like this. We want a thriving motel and hotel industry but we also rent out houses as motels.
To be fair, all the motels are currently being used for emergency housing. Tourists have to stay somewhere.
There is another answer - allow Airbnb but make them follow the same rules and taxation as hotels/motels.
And rents too need to be in the affordable zone - presently consider to be no more than 30% of household income in rent outgoings.
One method that renters have be able to pay higher rents is to increase the number of income earners in the household which potentially leads to over-crowding.
For instance, there was a report of 2 working parents and 2 adult working children living in the same house, and if the 2 adult working children were unable to contribute to the rent (i.e were still young school aged children), the rent would have been unaffordable based on the parents income alone. There have been reports of people living in converted garages who contribute to the rent.
Also difficult affordability for single people to rent - e.g divorcees, single parents, single adults.
It is legal to live in a car at a park, but is is illegal to live in a garage that houses a car.
Source?
Some stupid meme - they're all the rage these days :-) /sarc..
Not sure that is true, its illegal to rent a garage out, but I don't think it's illegal to live in a garage you own. It the same with food, its illegal to run a commercial food operation out of a kitchen that doesn't have all the necessary health inspections etc, but you are free to cook your own food on a sewer grate over a couple of burning logs if you wish.
Exactly. Nothing stopping landlords from living in Yurts, but when they charge hundreds of dollars per week for accommodation like all businesses there are minimum standards.
Yeah thought Mr Blobby was talking bollocks. Lots of council's have also brought in freedom camping bans which would mean you'd get pinged for sleeping in your car.
Capital Gains tax is the sensible answer. But neither the Bloods or Crips (Lab / Nat) have the stones to make this call.
It will be too unpopular with the cashed up Boomers who will ALWAYS vote. And the younger generations - who are being shut out of the property market by having to compete against the older generations buying investment properties - don't mobilise themselves to vote for change.
There is a sense of doom in regards to property ownership amongst the younger generation.
And even their parents can see the deck is well and truly stacked against their offspring.. they are often planning to help them into their first home at the very least.
"Capital Gains tax is the sensible answer"
One thing to think about is potential unintended consequences - with a capital gains tax, existing owners will continue to hold and not sell unless forced to. This can be seen with the current Brightline rules - many existing non owner occupiers are holding on until the property they own falls outside the Brightline rules to avoid the tax before selling. With a Brightline test / capital gains tax, there is an incentive to buy and hold, and a disincentive to sell - that might mean less effective supply in the house ownership market.
Also a capital gains tax would apply to capital gains made in other assets such as sale of private businesses, shares listed on NZX, capital gains made on bonds purchased at a discount, etc
What we know is that people will game the tax rules for their own financial benefit.
All of the details around capital gains taxes have been worked out over many decades in other countries. In Australia it's been nearly 40 years now. We should just copy their system and get on with it. We've had it extremely good for a long long time.
I used to work in wealth management in Sydney and people paid tax on their stocks without much drama, it's just part of life. Perhaps we could then lower GST to 10% and have a tax free threshold like they do.
Jesse1
Let me expand further.
I'm not a tax expert, but simply raising the question of what sort of behaviour is desired and to be incentivised and be aware of the unintended consequences of different types of taxes (as the tax rules will be gamed by clients of tax experts)
Do people want tax gains on:
1) only existing residential real estate
2) all residential real estate property only (including new builds)
3) all real estate (including non residential real estate such as retail, industrial, office, etc)
4) all assets - including shares, bonds, mutual funds, ETF's, private businesses, etc
If only residential real estate, then there are other taxes that can be used such as:
1) stamp duty (as is used in Singapore and the rate increases for each additional non owner occupied property and disincentivises non owner occupied residential real estate)
2) land tax
3) other
There will be merits and disadvantages to each type of tax.
The current phasing out of non deductibility of interest on existing houses purchased on or after March 2021 has clearly changed behaviour by investors. To obtain tax deductibility, property investors have moved into:
1) existing non residential real estate (retail, industrial such as waehousing, office, motels, hotels, etc)
2) new build residential real estate
3) existing residential real estate being rented to social housing providers
It should be number 4 excluding a person residence just like in Australia. It's not just about taming the property market but also having a fairer and more balanced tax system. We can reduce income taxes or have better services as a result (like pay nurses and teachers more).
Again other countries have worked this stuff out already and it's not good use of our time (or expensive consultants) to get into debates about things as if they are new because they are not and we aren't so different from Australia that we can't just copy them and learn about the various nuances they have.
"It's not just about taming the property market but also having a fairer and more balanced tax system"
Unfortunately I'm not sufficiently informed to have a perspective on how best to do that.
On the other hand, I do like this idea from Finland:
https://www.weforum.org/agenda/2018/06/in-finland-speeding-tickets-are-…
Hmmm. Wouldn't that be subject to the same distortions? E.g. the squillionaire sitting on $10M of assets but with a low income from national super gets a piddly wee fine. But the early 30s professional on a $200k income but still with a sizeable student loan and paying off a massive mortgage gets slammed?
You raise a good point. There will always be some distortion when using an income based criteria vs an asset based criteria.
Those with high levels of debt chose to take on those liabilities and are irrelevant in the context of fines / penalties to discourage illegal behaviour. People in that situation might actually think long and hard before engaging in the undesired behaviour due to the potential consequences of that behaviour.
Fines / penalties are supposed to be "sticks" to disincentivise illegal behaviour. This is especially important when public safety and innocent lives are at risk. A small fine doesn't impact a high income earning person as much as a low income earning person.
Perhaps for repeated infringers under the asset rich income poor situation, fines / penalties can be doubled for each repeated infringement.
Perhaps this penalty system could also be applied to distracted driving.
The problem is that NZ is a small, isolated, relatively poor country with little to offer investors other than the lure of CGT-free returns. Take that away and its lost its one and only competitive advantage in the race to attract capital. Wealthy people who stayed in (or moved to) NZ for the tax advantages will now think "oh, if I have to pay capital gains taxes, I'm better off paying them in Australia, or France, or the USA. I'm free to move anywhere now because there is no financial penalty in doing so".
People have accepted lower gross rates of return from NZ markets because the net return was as good as if not better due to the tax advantage. Even it up, and suddenly people are going to be wanting a much higher gross rate of return and will be looking offshore for it, or demanding higher returns here.
I think the benefits of a CGT far out weigh the potential loss of wealthy foreigners living here. Foreign investment from outsiders are taxed according to their residence which I think you realise.
One of my friends growing up was from a very wealthy family that moved from the Netherlands. Part of why they choose NZ I believe was our lack of CGT. They we very tight spenders and were very anti paying tax (hence coming here). They kept their investments offshore and after 20 years they left NZ. Really these type aren't providing anything much to NZ from what I can tell and certainly not a reason to not introduce a CGT.
Not just foreigners but Kiwis too. Take the RocketLab guy as an example, he can choose to stay NZ resident and not have to pay capital gains tax on his shares if he chooses to sell them, or he can choose to move to the US and take the business and all its jobs with him. Any founder of a business is currently incentivised to stay in NZ by a lack of a CGT, and its removal will see a lot of innovation and talent leave NZ.
It's really just speculating what would happen though. People in NZ loves to scaremonger so they get their way or so nothing changes. From what I know we don't have all that many like the Rocketlab guy anyway and introducing a broad CGT is more important. It might actually encourage more people to start profitable businesses instead of just parking their money in properties for tax free gains (this is me speculating now).
Your logic is awry.
New Zealand might be isolated, but it is in no way small, nor relatively poor.
NZ is above the median in area (73 out of 196) and a bit below the median in population (120 out of 196). We are way at the top in terms of wealth...#7 in terms of adult median wealth.
More tax is never the answer.
You cant tax a nation to prosperity.
You cant borrow your way out of debt.
You cant increase the money supply without real growth in productivity.
The end result is inflation and a cost of living crisis.
This is where socialist ideology crashes with the real world economic reality.
Socialism has failed the children.
Again you spout nonsense sir.
Tax is sometimes the answer. It is a tried and tested method for raising funds to resolve problems that society has not been able to resolve.
Tax is the foundation of democracy.
Airbnb et al already banned in many cities with similar housing shortages. Dublins problems are more acute than Auckland, and Airbnb was banned 2018. Many other European cities, esp popular tourist places where residents were being displaced, have done the same
The tax rules don't have an effect on newly built properties, at least for a long time. And investors typically sell existing properties instead of burning them down, so the house will still be there whether for someone else to buy and rent or an owner occupier to move into. So that change alone isn't going to cause many fewer homes to be built.
"With the new tax rules this is very hard to do, so I see a really unfortunate situation developing in the rental market. "
There has been a lot of politicisation of the phasing out of tax deductibility of interest on existing houses for long term rentals purchased before March 2021 by politicians (i.e. own vested political self serving interests), and by those with their own vested financial self serving interests,
Has anyone looked at the maths?
Let's take a look at which has the larger impact on cashflows for a property investor on an interest only mortgage. Let's look at 2 scenarios - a change in:
1) phasing out of deductibility of interest
2) mortgage interest rates
(i.e only changing one of the variables to see which variable has the greater cashflow impact.)
Key assumptions:
Property price at Feb 2021 (i.e before tax rules changed): $853,000
Gross rental yield at purchase: 4.88%
Initial interest rate at purchase date (Feb 2021): 3.14%
Tax rate: 33%
A) 0% LVR property investor at time of purchase
This investor is unaffected by higher interest rates as they have no debt and no interest cost.
They are already paying tax on their net rental income.
Conclusion - zero cashflow impact to this property investor
B) 30% LVR property investor at time of purchase
Benchmark reference case
An investor who fixed their mortgage interest rate for 5 years at 3.14% who has 100% interest deductibility has the following metrics:
- Interest cost of $8,023
- Cashflow after interest: $29,310
- Tax cost of $9,672
- Net cashflow of investor after tax: $19,638
i) changing the one variable of phasing out of interest deductibility - an investor who fixed their mortgage interest rate for 5 years at 3.14% who has 50% interest deductibility ( i.e impact only of phasing out of tax deductibility)
This investor experiences no increase in interest cost
At a 50% non deductibility of interest, this investor experiences an increase of $1,324 of tax
Net cashflow of investor after tax: $18,314 (a fall of 7% from the benchmark reference case)
ii) changing the one variable of higher mortgage interest rates - an investor who is now on current 1 year mortgage interest rate of 6.8% who has 100% interest deductibility
This investor experiences an increase in interest cost of $9,385 compared to the investor on an interest rate of 3.14%
Net cashflow of investor after tax: $13,350 (a fall of 32% from the benchmark reference case)
So the impact of higher mortgage interest rates outweighs the impact of phasing out of interest deductibility for this property investor
C) 60% LVR property investor at time of purchase
Benchmark reference case
An investor who fixed their mortgage interest rate for 5 years at 3.14% who has 100% interest deductibility has the following metrics:
- Interest cost of $16,046
- Cashflow after interest: $21,287
- Tax cost of $7,025
- Net cashflow of investor after tax: $14,262
i) changing the one variable of phasing out of interest deductibility - an investor who fixed their mortgage interest rate for 5 years at 3.14% who has 50% interest deductibility ( i.e impact only of phasing out of tax deductibility)
This investor experiences no increase in interest cost
At a 50% non deductibility of interest, this investor experiences an increase of $2,648 of tax
Net cashflow of investor after tax: $11,615 (a fall of 19% from the benchmark reference case)
ii) changing the one variable of higher mortgage interest rates - an investor who is now on current 1 year mortgage interest rate of 6.8% who has 100% interest deductibility
This investor experiences an increase in interest cost of $18,770 compared to the investor on an interest rate of 3.14%
Net cashflow of investor after tax: $1,687 (a fall of 88% from the benchmark reference case)
So the impact of higher mortgage interest rates outweighs the impact of phasing out of interest deductibility for this property investor
It would seem that given the choice of changing only one variable, the leveraged property investor would prefer:
1) low interest rates, zero interest deductibility over
2) higher mortgage interest rates and 100% deductibility
--
Thanks, great analysis. I very much thought that would be the case. Was hoping otherwise when working on my rental market formula approach - as I recommended that, should the government regulate the maximum weekly rental price, then it should also re-instate all of the previous favourable tax settings to offset landlord costs. By your analysis, I can see why, given the current interest rate settings, that won't be enough. I suspected as much, and did estimate that up to 50% of existing landlords would likely not hold - depending on the level of debt they have on the asset.
Also note that with the higher mortgage interest rates and 50% phasing out of interest deductibility, compared to the base reference case, the tax cost has slightly DECREASED (due to the large rise in the mortgage interest rate)
This is correct. 100% deductibility of a 3% mortgage is exactly the same as 50% deductibility of a 6% mortgage. Therefore, we will not see the true impact of the tax change until next year when it becomes 25% deductibility of a 7% mortgage. It would be interesting to see the same calculations done at 25% and 0% deductibility so that we can see the future financial impact on landlords. Because as of April 2023, the 5 year Brightline period begins rolling off, and property owners who have held for 5 years are finally free to sell up.
But the property owners will see the impact - because they're still paying the other 50% as interest to the bank!
Good analysis Greg, thank you. I agree that yields don't justify rental house investments but I do want to point out that your mortgage repayments include principal and interest, this means that at the end of the term, the investor owns a mortgage free house. This is nothing to be snuffed at , and I think it should be mentioned to give a full picture to your analysis.
Imagine having your tenant paying for all your asset costs, and then pocketing another 5k per annum on top. Yeah, bad deal, right?
OTOH, I noted with interest the properties favoured by these Mum and Dad investors - small lower-quartile properties - or exactly the same market as prospective FHBs? And yet those investors are so quick to tell uss they are not competing with FHBs... and it's the FHBs emotional attachment to a first home driving properties up, not the investors emotional attachment to a retirement paid for by someone else's labour...
It will all make more sense when prices have dropped further - decent rental yields and house prices affordable at [whatever] the current interest rates for FHB.
Look at RBNZ C31 for example. Below are the numbers from 2014 to 2018. Average QTY of borrowers per month & average amount borrowed
- 2014: FHB 1600 @ $300k, Investor 4600 @ $296k
- 2015: FHB 1855 @ $323k, Investor 5452 @ $335k
- 2016: FHB 1959 @ $373k, Investor 5236 @ $342k
- 2017: FHB 1807 @ $388k, Investor 3419 @ $331k
- 2018: FHB 2207 @ $393k, Investor 3384 @ $341k
Shocking. 22,000 investors in that period vs 9,500 FHB. This is like watching the gulf between the haves and the have not's growing bigger and bigger.
If investors had been restricted to 5000 or even 9,500 in that same period, imagine how house prices would have declined. Thereby allowing more FHB to enter the market with loans of $250k to $300k
This shows the pure greed and lust for tax free capital gains, and just how rigged the system is AGAINST FHB.
"B-b-b-b-b-but Landlords are providing a much needed service, shelter to those who would otherwise not be able to buy or don't want to buy".
It's called manufacturing a crisis, people can't afford to buy because of an abundance of Landlords on limited supply. It'd be like doctors running around the streets with clubs, breaking peoples bones, jacking up their fees from the resulting demand and then claiming they're helping people.
You're right. Interest costs alone are over $16,600. If the property was bought now, none of the interest costs are deductible. If it was bought when interest costs were deductible, only $8,300 of the interest costs can be claimed this year.
That means the investor is paying somewhere between $5,100 - $ 7,850 in tax.
They could be paying up to $9000 if they're on the top tax rate
Greg,
Will these tables no longer be updated in future?
https://www.interest.co.nz/saving/rental-yield-indicator
https://www.interest.co.nz/property/rent-ratio
They were a useful source to monitor rental yields over time.
Good morning CN. The previous rental yield tables were based on selected suburbs around the country but unfortunately as property sales have slumped there was often insufficient data available to provide a reliable yield figure, which is why they have not been updated recently. These tables will be discontinued and replaced with the new yield table in the article above, which is much more robust. It also has yields for three property types (in areas where they are present in sufficient numbers) whereas the previous table only had yields for 3 bedroom houses. The rent ratio table will also be discontinued.
Thank you Greg.
At current fundamentals, the days of mum and dad buying themselves a little rental unit to provide them with a decent retirement income may be drawing to a close.
The way things stand at the moment, they would probably be better off keeping their money in the bank or looking at another alternative to residential rental property.
These are strong opinions Greg that I cannot agree with. The m&d investor who want to build a nest egg for retirement, may indeed not get any positive cashflow over the first few years, but they will get a mortgage free house after 25 years. This is quite significant! Money in the bank will definitely NOT get you a free house!!!
It takes more than logic to change an ideology.
What about the ideology of people farming as a path to riches?
I.e. leaching off other peoples incomes and jacking up house prices for your own personal gain, at the expanse of social and financial stability of the economy/nation as a whole?
I was referring to the author. This is supposedly a neutral news site.
Yes and I'm challenging the moral character of all of our society - which includes, you, me, the author and all other news sites.
Got an alternative? Free houses for those who don't work seems the be the flavour of the half-decade.
Singapore model is quite good. Government takes a share and you buy them out over time.
An alternative to what? The current milieu/cluster f$@k?
Yep. Use skills to create a business that creates IP and offers value to clients, that they pay you to do that. Rinse and repeat. Employ staff and scale out. Create wealth, jobs and pay tax all the way due to your success. Oh... that hard to do cos I cant think of anything. So Ill just speculated on being able to hold more debt than others, while exploiting the need for shelter.
One option is creative. One is exploitive. Nuf said.
IO, you often think you have the moral highground. I don't know what makes you think that you're morally superior to others and gives you the right to judge others. Every time you're buying anything imported made by someone in a poor country earning $10/day, you're fitting your own description of "people farming"
No-one (including Yvil) can suggest they're superior unless they've found a way to cheat death.
"I don't know what makes you think that you're morally superior to others and gives you the right to judge others"
Are you judging me for questioning the moral character of society?
Wisdom from the gospel/scrolls:
Judge not, that you be not judged. For with the judgment you pronounce you will be judged, and with the measure you use it will be measured to you. Why do you see the speck that is in your brother's eye, but do not notice the log that is in your own eye? Or how can you say to your brother, ‘Let me take the speck out of your eye,’ when there is the log in your own eye? You hypocrite, first take the log out of your own eye, and then you will see clearly to take the speck out of your brother's eye.
Mathew 7:5
I am simply asking whether as a society as a whole, have we our moral character in the right place as I care for our society as a whole. Is this wrong?
As the prophet of the scrolls might say; has the herd lost it way and need to be saved? By questioning if the herd is lost, am in sin for judging the herd or simply acting as the shepherd and protector who wants to keep the herd safe and healthy? And if you judge me, who wants to keep the herd safe, are you part of the herd or are you a wolf that is praying on the herd and wishing to take advantage of its weakness? For in these forums and society, there are wolves who care not for the health of the herd, they look only for their next meal. So I ask you, are you with the herd (society) or are you a wolf who wishes to feast on the vulnerability of the herd? Or do you wish to help me protect the herd from the wolves?
Very thought-provoking comment. Thanks!
Plenty of wisdom to be found in the scrolls.
Unfortunately it is not those (like yourself who I can see as a shepherd and protector), who can comprehend the message, that need to learn from it.
So the irony could be is that it is a worthless message as those who need to comprehend it cannot, and never will. As was the case 2000 years ago when the scrolls were written.
But then again, if enough do comprehend it, and act in the best interests of others and not themselves, then there is still hope for society.
I’m not a fan nor believe any of the religious stuff. However it does create a good metaphor, so from a humanistic perspective, you make a good point regarding the direction of society.
And that's the Big One that is either internationally overlooked, or plain nor considered. Someone has to pay for the goal of that retirement rental/income. And that someone is another New Zealander who in all likelihood will have to incur Private Debt to buy a home in the future.
The alternative is that rental income now NEVER = the cost of outgoings (as price keep falling and outgoings keep rising), and at the end of the 30 years worth of 'getting the tenant' to pay the property off, all that's left is the gap between that it cost to finance over that time (at a yearly accumulating loss) and what it's worth at that stage. And that could be a sobering calculation.
Like the bond market, 40 years of falling interest rates has seriously distorted peoples understanding of the value of assets as a series of discounted future cash flows.
If the discount rate goes up, the asset price must keep falling until the cash flows catch up, or the discount rate falls back to its previous low once again.
No one is talking about farming IO. The topic is about investing in real estate, whilst providing accommodation to people who don't want to buy. A win-win situation!
"A win-win situation!" - LOL!
From an investment perspective, ask yourself, would house prices still be falling if it were such a "win"?
Well said RPoppy 👏
As the prophet of the scrolls would say to the property speculators: "forgive them for they know not the harm they do".
"Truly I tell you, it is hard for a property speculator to enter the kingdom of heaven. Again I tell you, it is easier for a camel to go through the eye of a needle than for a debt speculator to enter the kingdom of God.”
"Money in the bank will definitely NOT get you a free house!!!"
The house isn't free - it is paid for by productivity in the real economy using other people's labour/wages. It comes at a cost to another member/part of society.
It cost you a 40% deposit and uncovered expenses, that would be earning something in a deposit. 25 years is also a long time in retirement.
This risk free "free house" idea only works during extreme capital gains. If your losing money on your assets this looks terrible.
Yip many opportunity costs not considered in the 'free house' argument. A 40% deposit is for many people a considerable amount of their net worth tied up in one asset for 25 years - which could be deployed/invested/spent elsewhere (invested or spent in achieving meaningful life goals/ambitions/dreams).
Thanks Yvil. Of course mums and dads will have to make their own decisions about how best to save or invest for their retirement. But the mortgage lending figures suggest many are coming to the same conclusion as me. However I wouldn't describe the asset they end up with at the end of 25 or 30 years when they have paid off the mortgage as being free. It's likely they'll have paid two or three times as much as they borrowed, plus their initial deposit, and all of the expenses along the way, which over 20-30 years are likely to have been substantial. So it's hardly free.
Thank you for your reply Greg. My point was that mum & dad investors will end up with a MORTGAGE free house, which is undeniable and which you did not take into consideration in your article.
Also you claim that the investors would "have paid two or three times as much as they borrowed". This is blatantly wrong, the tenant paid for all these expenses, and no they were not "farmed" lol, they got the benefit of living in a house for 25 to 30 years without having the expense of ever buying the house!
Right now, for any Landlord Wannabes, allowing for minimum up front deposit requirements and maximum amount borrowed, its a Spruikers sell to suggest weekly rental payments would comfortably cover current interest, principle, insurance and rates payments! Surely regular top-ups are involved here.
What about Term Deposit interest foregone for the initial deposit paid?
Yvil, despite the odds being stacked to the contrary, maybe you hold the Worlds best kept secret to getting rich through Landlording in New Zealand.
Compared to current Term Deposit/Kiwi Bond rates, rental yields do not reflect the risks involved.
I fully agree now is not a good time to invest in rental properties, and nowhere in todays comments have I said otherwise. I simply pointed out that Greg forgot to calculate the fact that the investor ends up with a mortgage free house in his assessment which is an important aspect.
Greg forgot? Anyway, what may have worked for you, may not transpire the same for others. It would appear more are calculating that the risks involved embarking on the pathway to the goal of a mortgage free rental or two may not be worth the financial risk.
edit
Yes I think Greg forgot, I don't think he wilfully tried to deceive people. The deception in his article is unintentional IMO. Greg simply forgot to take into consideration that the investor ends up with a mortgage free house, when coming to his conclusion.
RP, you completely changed your post after I replied to it, not cool.
Yes I did and that's why I added (edit). Is anybody denying you the opportunity to respond to it? Now you're questioning Greg's memory - LOL!
Greg's more likely to be in the know and his track record for admitting fault is WAY better than yours.
edit
Apologies for long post. I bought my first house in 86. I was made redundant in 91. The redundancy/company super payout paid of my mortgage completely. I had to re-locate out side Auckland and made a decision then that I would hang on to it. Got Married to a young woman who had her own house. More career moves and the latest employer closed off new entries into their super scheme. So I had a good job but no retirement plan. Renovated the first place ($60 k) and started letting it in 2000. It was to be my super scheme. Back of envelop calculation says we have had some $400k (after tax and expenses) over the 23 years. Its in the hands of a very good property manager. We meet all legal requirements. Have had some really bad tenants but the current ones have been there 15 years and are really good. We used the original mortgage ($60k increased to $120k orbit) to build a new property. We lived in it for 1 year then I had to relocate for work so let it out for three years then sold it to the tenants. Built another new house in 2005 which we now live in. This year has been our worst year with increased expenses but still returns 18k into our bank account. We still have that $120k mortgage but zero balance owing. We have never claimed interest as an expense since we put the money towards another property as per IRD rules. Current valuation is silly at $1.65 million, I'd be comfortable with 1/2 that. It was a good decision for us and we got 'lucky' with the redundancy. I think this type of mum and dad investing is over but who is going to own all the property that the 30 % who can't or won't take out a mortgage need to live in.
but who is going to own all the property that the 30 % who can't or won't take out a mortgage need to live in.
I suggested to the SC when discussing my rent regulation proposal, that the government needs to beef up their thinking (and subsequent policy programmes) with respect to shared-equity schemes. No one can save a deposit when paying an exorbitant rent. In other words, the government needs to proactively move young families from renters to owners. It is a long term commitment (and not without risk) but one very necessary given the current settings.
Well done up quark! Just don't expect much praise for doing well on this site.
I don't think he's seeking praise.
Maybe a good number of those 30% who "cant" take out a mortgage, are in that situation because rather than selling a property people like yourself just keep it from the ownership market, converting it to a rental and leveraging themselves into a new place? Huge barrier to home ownership due to deposit requirements from combined a) low interest rates and b) lack of supply pushing up prices for a house for people to own.
Yet those people who wish to own but cannot do so due to these factor, shouldn't be so entitled....
Agreed, it is hard for those without the opportunity of a 3-1DTI back in the day to consider it such a success seeing others with a portfolio of properties spouting success. Most can only work, grow their career, invest, live, and hope the housing market comes into their price range so they can even afford the worst house in a fringe neighbourhood.
My plan was never to hold on to properties and put up a barrier for others to own. My wife's first property was sold to help fund the building of the second. The second was sold to our tenants at a fair price. I didn't waste the money from rents on a lavish lifestyle but put it to good use and added two brand new builds to NZ residential housing stock. The building of those houses also supported a couple of builders for about a year and others in the building industry. Currently about 50 % of the gross rents goes to other people, property manager, guy mowing the lawns, plumber, electrician, council, insurance and of course the tax man. That total amount is about 0.3 FTE at the current average wage. Finally the rents I do receive I use to help fund my 4 sons education, something I see as a very good use of the money.
"I'm not the problem, I only have a couple of rental properties" x 100,000. Wasn't a dig at you personally, just highlighting how the widespread accumulation of properties surplus to ones needs through natural life stages has exasperated the issue.
Rather than "buying and selling" in the same market, it's been encouraged to leverage off the first property into the second, removing a house from the owner occupier pool. My mortgage broker pushed this too when we traded up in 2021 because we had over 70% equity. My morals took precedent over finances.
Clearly the size of the purchase price vs your jobs income was quite different to what we see/expect today. Hard to see redundancy paying off any first home purchase in 2023. Accordingly a great example of "a sign of the times" from 1986, and really highlights how out of balance the price to income has become due to tax avoidance investment models and cheap debt. Good that that changed.
Everyone is clear that National is not planning to role back rental losses ring fencing...aka no income tax rinsing will be possible...?
That is true, in 1986 the ticket price of a typical house (really the land value) was somewhat suppressed on account of the 22.5 % interest rate prevailing. But $60k was the absolute max the bank would lend me on my after tax salary of $22k. Principal and interest repayments the first year was $15.9k. I had $20k deposit on a $90k house and the vendor gave me a $10k second mortgage at 15%. He was desperate to sell. While it was tough at first, inflation was running at 18 % pa and 15 - 20 % pay rises each year were the norm. You know what followed. Interest rates progressively dropped and property values went up as it became progressively easier to service a mortgage. Until interest rates started rising again that is.
"$60k was the absolute max the bank would lend me on my after tax salary of $22k"
So that is 2.7x debt to after tax income.
Maybe 2.2x debt to gross income?
A relative who was working in one of the big retail banks in the late 1980's, told me that for mortgage lending back then, the debt to gross income was around 2.0x.
2x income. Not dissimilar to what a deposit for a house is these days, yet back then a term deposit rate would have easily been 15%+?
All these stories of 22% mortgage rates, with second mortgages and vendor finance, makes me wonder why these people didn't just save hard for a few years? Yet these very financially illiterate people often have the gall to call young people the "want it now, me me me" generation.
A relative bought a non owner occupied property in the mid 1990's. The maximum that the lender would allow was less than 2.0 debt to gross income.
Yes, my gross was about $30k. Personal tax rates were higher then, GST came in towards the end of the year. Why buy when I could just save for a few more years? You need to understand that Inflation was running at ~ 18 %. House price data here. That series in the chart is deflated by CPI but if you download the data set and look for NZ quarterly index 31/12/80 = 128, 31/12/86 = 318.8. So in just 6 years the house price index rose close to 150 % or 25 % per year on average. Or roughly double every 4 years. Took me 5 years to save the $20k deposit. There was no way I could keep pace with those price increases even with 15 % TD rates. At the time the property market was on fire, so was the share market. There was hardly anything for sale for FHB and I was looking for nearly a year. Cooled off a bit after the 87 share market crash though.
Not sure how you get that 30%, pretty sure everyone would own if they had the means and it made financial sense. But the way the market is stacked against house buyers, people can say unusual things like 30% of houses need investors. What we need to do is stack the deck in favour of home buyers for houses to live in and not investors.
Yvil, with the greatest of respect, I see this assertion again and again.
As yet - I've never seen spreadsheet that involves buying an existing house (while not land banking) and renting it out for 25 years returns all that much. And, the risks (e.g. CGT, bad tenants, changes to planning rules, what get's built beside you, who lives beside you, area risk, e.g. big employer closing or road development, etc.), are not insignificant.
As an investment class - sure - better than cash in the banks - but only just. Other investment classes - including property development - provide better returns and are much more fun.
But by all mean - feel free to change my mind.
Chris, I agree that property development can be much more lucrative... and sometimes not at all. It's a very different game, not for the faint hearted.
Sure straight property investment requires some work, but you do end up with a mortgage free house in the end, this is not an "assertion" it's just a fact.
I'm sorry, but this is simple innumeracy. You are using yesterday's playbook of ever declining interest rates, equity recycling/snowballing and interest only.
Properties that will pay you positive cashflow on a 30 year table mortgage 80% financed, are rare as hen's teeth at the moment (and that's before accounting for maintenance etc). If they even exist at all.
If you're using more equity, then it's not a "free house" and you're failing to account for the opportunity cost return on your equity.
The fact is, current yields and the tax.regulatory environment mean it makes zero sense for new mum and dad investors to enter the market.
Money in the bank could get them a "free" house, if that's what they wanted.
The $172k initial deposit from the example if invested in term deposits netting 4% after tax will leave you with $460k after 25 years. That could be enough to buy a house, depending on what property prices do over that time. The 2 bedroom unit from the example is $430k for reference.
The example also doesn't include tax, which will probably leave the investor cash flow negative given mortgage interest can no longer be deducted.
If they were to invest that $172k in the stock market and get say 8% returns before tax (which is poor given the S&P500 historically averages around 10% pa), they'd end up with $850k after tax.
Both the TD and stock market are also way lower effort. Just roll over your TDs, or buy an investment fund/ETF and forget about it.
Investing in property in NZ is hard unless you're banking on significant capital gains and rent increases.
So if it’s so good are you going to buy an investment property, Yvil?
Where did I say "it's so good"? Nowhere on any posts on this thread!!! I think it's a bad time now to invest in property. Still for accuracy's sake, I think that Greg should have taken into account that the investor ends up with a mortgage free (not free as I have been misquoted) house for their retirement, which is simply the truth!
Well you were certainly talking up the ‘good’ side of a ‘free’ house. So the good side isn’t so good, is it, overall?
You assume too much. Me pointing out an important missing part in the article (ending up with a mortgage free house) does not mean I think it's a great time to buy an IP now.
but they will get a mortgage free house after 25 years
this is not to the point. you need compare 25 years of saving and investing with that hypothetical free house in question, especially when holding the house means negative cashflow for years.
Greg you better be careful, you might wake up with a horse head next to your pillow courtesy of OneRoof publications.
This is also telling all you current landlords out there your house is currently overvalued. Some people are are willing to cash you out for prices that leave them with a net negative yield on an asset decreasing in value.
"If given the chance, would you yourself buy it for the price you're hoping for?"
Totally agree with the sentiment of the article.
For most potential investors, to make economic sense in the short term at least, there is going to be need for a combination of some or all of the following: further fall in property prices to improve yields, fall in interest rates, significant increase in rents, and surety of some green shoots to indicate that the market has bottomed and some capital gains are likely.
In the near future any indication of the bottoming of the market and and green shoots will not be driven by investors.
However, those investors who have owned properties for some time will be continuing to do well. They will be seeing good return on their initial investment as any mortgage will now be relatively small and yields on initial investment will have improved due to rising rents; they will see the fluctuations (both rise and fall) in the housing market over recent years as secondary in their long term investment strategy.
If rents rise significantly per the scenarios you mention, it is going to:
1. put upward pressure on wages (as renters demand even higher pay to cover their costs)
2. cause inflation to remain unacceptably high for the RBNZ
3. result in even higher interest/mortgage rates.
Yeah, the inability to see rent increases as inflationary is part of the grand delusion that we've been operating under. The chain of causality will ultimately lead from rent hikes to interest rate hikes. And that's aside from the politics of it all, where that half of the population that is having to pay more rent is motivated to screw over landlords to the greatest extent possible as they see more and more of their income being extracted at no extra benefit to themselves.
4. and even higher accommodation supplement subsidies by the taxpayer.
5. increase in numbers on the waiting list for social housing.
Shamubeel in august last year was recorded telling interest.co that AS had not been updated for years, and that AS should be updated yearly "so that renters have the freedom to move anywhere"
So it seems AS will only be an ever increasing cost. For people receiving it, it's one way of getting ones tax money back
So it seems AS will only be an ever increasing cost.
Not if the government chooses to regulate the rental market.
Actually that's so right. It did not occur to me. Liebour won't do it, though the gnats might.
Here you have one of each (Nat, ACT and Lab) MPs asking questions about it (12 minutes in);
https://www.facebook.com/petitionscnz/videos/274553815085411
We'll see what they decided to do with the petition soon.
Watched it. I don't think it's a good sign when they're all worried about the landlords fixed costs instead of affordability of shelter (temporary at that given our weak security of tenure rules). Even worse David Parker sounded like he was worried about all the physical houses disappearing. I've long thought that Auckland rents were doubled in what should be the low end of town. Your East Mangere example of $240 pw plus accommodation supplement of $305pw is not far off the asking rent.
As a landlord, why wouldn't you charge at least $600 (so the tenant (or landlord depending on your view) can get the maximum accommodation supplement of $305)? While not all tenants claim accommodation supplement, it sets a floor for rents in Auckland of around $600 (needed to get max accommodation supplement) for a house rented with a couple of children present. Some quote about good intentions and the road to Hell...
While a fan of LVT per TOP, I think your idea is the only type of rent control that could work that I've come across. Also, I wonder if as an answer to their objections re fixed costs, you could have said the formula could include a variable to allow for landlords fixed costs if that is such a concern to them - it seemed a false objection on their part to me.
Yes. I think you read it well! I think that when they referred to 'fixed costs' - they actually include mortgage costs in that as well - as Nicole actually mentioned the current high interest rate environment. What I think they meant was landlords need to have all their costs covered by rent - which is why I kept making the point about the only difference between a landlord and a tenant being a deposit. And yes, landlords at the low end are taking full advantage of the government subsidy. BTW, I looked on the register of pecuniary interests and only one owns a rental property themselves (Jacqui has one) - hence I'm hopeful that they might take it further. That 2+ billion - going on 3 billion dollar - annual accommodation supplement cost is huge.
IO
As said, I agree with the sentiment of the article . . . property is not currently attractive and is likely remain so unless there is some significant change to improve yields or there is some likelihood of potential capital gains.
Further falls in property prices and falls in interest rates - without rent increases - would improve yields to make property investment more attractive.
However, as you are well aware, I got out of property investment way back in 2017 (for lifestyle reasons) and family members got out in 2020/1. New property investment does not currently make economic sense so are certainly not currently attracted to getting back in. Anyone doing so would be looking at a situation that had unique potential (such as subdivision) or has balls of steel or lack of brain cells.
"However, as you are well aware, I got out of property investment way back in 2017 (for lifestyle reasons) and family members got out in 2020/1"
Can you let us know when the bottom of the market is here P8 and the kids are buying back?
Sounds like your family are financial gurus.
As I said a few years ago, you will know when a good time to buy will be, and it will be when P8 is warning others not to buy, because he or his family are probably out there trying to get a bargain - just as he was telling everyone to buy when he and his family were selling out of the market a few years ago.
IO
You can't really help yourself - being snarking simply seems part of your character.
Pathetic - if you believe that one posting on this site can affect the market shows just how little acumen you have.
Also you seem to have a lack of honesty and integrity as I was posting in 2020 that prices were not sustainable.
Cheers
printer8 | 18th Dec 20, 9:19am
Clearly the current rate of housing inflation is unsustainable . . . .
by printer8 | 3rd Mar 21, 11:35am
. . . I think that most are now seeing current price rises as unsustainable.
Without searching through all of your comments, I'm pretty sure you were still encouraging FHB's to buy at the same time.
IO
I’m calling you out - for one who takes the moral high ground you lack honesty.
Yvil tells me I'm judgmental, you tell me I'm dishonest.
If you wish to accuse me of anything else please go ahead. I offer you my other cheek, my shirt and my coat. Go for it.
"If anyone slaps you on the right cheek, turn to them the other cheek also. And if anyone wants to sue you and take your shirt, hand over your coat as well"
Source: the scrolls
Or could it be that the accusations are not false ???
Sorry Yvil - modified the post to see that you had responded as I modified (as a rule I avoid modifying posts after people have responded to me to avoid confusion).
If you think I think I'm morally superior to you or other people, I can't do anything to change that (because that isn't what I think) - only you can change this situation by changing yourself and your own thinking.
If you think I think "I'm farming people", I can't do anything to change that (because that isn't what I think) - only you can change this situation by changing yourself and your own thinking.
Again, settle children
A year ago you said one of you children sold 4 rental properties, but others still held rental properties (as of a year or so ago). So ‘some’ but not all of your family members got out in 20/21. I'm a bit confused by your comments. I trawled through the archives, for once, something you often so kindly do for me. You better be careful as to who you call dishonest....
by printer8 | 5th May 22, 2:35pm
Yes; after considering my advice my millennial children have and are doing well.
As to their homes (and two with a rental each) their mortgages are 2.99% until 2026, and yes, one millennial sold four rentals late 2020 and is now mortgage free in a very nice home. All done on their own resources without financial support from me.
https://www.interest.co.nz/banking/115668/reserve-bank-says-house-price…
LOL! Printer8, the truth is much easier to remember aye!
Labour has been on a mission to make the only Landlord in NZ Kainga Ora
I disagree, landlord would still be a great business if you could pick up a decent house for $300k. It’s the crazy capital gains that occurred during stupidly low interest rates that made property investment eventually unprofitable.
Like the prices from 1986 from the hero example above.
FYI, from a previous article on interest.co.nz
"Back in 1987 the average house price was NZ$88,900. The average pre-tax income was NZ$485.98 a week"
That is a household price to income ratio of 3.5x (on a single household income, not a double household income)
Source: https://www.interest.co.nz/news/44330/opinion-why-golden-oldies-are-wro…
Once again the myth that "investors" are buying residential property for the rental yield is laid bare. It has always been about un-taxed capital gains!
And guess what folks - the NPS-UD and MDRS will ensure supply keeps increasing and the previous capital gains driven by scarcity are over for the next 20, 30 or even 50 years. And when interest rates come down it'll just stimulate more building of dwellings so supply keeps increasing.
(Assuming, of course, the Land Lord Party doesn't get elected and return many to homelessness and many more to renters-for-life-paying-someone-else's-mortgage.)
I'd say good. who wants to provide rentals for free? who should provide rentals for free?
Considering how many KO are buying or leasing, you are providing rentals for free.
Exactly....
KO claim to be charging market rates for their rentals. This is not the case. I have first hand examples of solid clean homes, 5 min drive from downtown, and it is concerning:
2 bedroom unit, with garage and good size backyard. $75 per week.
3 bedroom ex state house style. Again big section & garage. $150 per week.
The market rent for these would have been $400 for the 2 bed and $650 for the 3 bed. KO are essentially removing housing stock that FHB can afford to buy and then redistributing these properties to folks who cant be bothered paying market rent.
I get what you're saying, I really do, but also if enough people "cant be bothered paying market rent" - then it ain't market rent.
KO shouldn't be charging market rent. It makes no sense - simply sets a floor on the rental market that then applies to everyone.
The implementation of 'market rents' for state housing (and selling-off of state housing) in the '90s might be NZ's most destructive policy error of the last 30 years.
KO may pay market rent to the owner of the property but the tenants don't pay KO market rent, they pay 25% of their benefit. So if you are getting $300 a week you pay $75 a week max.
Yea they are charging stuff all while also effectively paying themselves the rent through accomodation, sickness and jobseeker benefits their tenants receive. Cue the circle of life from the lion king, but with benefits.
The smart money moved to commercial property a while ago, particularly warehousing and the likes, got to keep those online orders flowing from somewhere, the growth has been staggering.
Also the landlord still has the commercial rental agreement stacked firmly in their favour, opposite of residential.
"the growth has been staggering..."? Where did you get that from?
I sold a warehouse in a very busy area of Auckland a couple of years ago and I'm glad I did. The economy's isn't doing well, it could take years for it to get back on its feet. The Labour Govt's more interested in cycleways than freeways, and getting a new build through local government rules is very expensive.
You can always rent a house, but you can't always rent a warehouse.
Great analysis - thank you for all the work.
Just curious as to why you chose a 40% deposit as the base case? I'd have thought that was a very high median or average.
The scary thing for many investors is that they borrowed the lot (i.e., got the deposit on the existing family home or another property purchased years ago). In the event of this turning really sour - that makes two (perhaps three) dwellings vulnerable to a mark to market call from the bank(s).
Spot on.
Given the Name of the Game was to use each and every accumulated cent of equity improvement as the vehicle to take on as much Debt as a lender would advance, it will only take one, perhaps two, ~100 (or even a few 10 ones) property owning pyramids to collapse, and then the cascade will start.
"The scary thing for many investors is that they borrowed the lot (i.e., got the deposit on the existing family home or another property purchased years ago). "
FYI, this article examines those non owner occupier property buyers who let in the long term rental market who borrowed the lot:
https://www.oneroof.co.nz/news/how-much-money-do-mum-and-dad-property-i…
How many will be unable to hold on?
Investment property estimated top ups:
Auckland: 566 per week ($29,432 per year)
Tasman: 547 per week ($28,444 per year)
Waikato: 401 per week ($20,852 per year)
New Zealand: 380 per week ($19,760 per year)
Note that the calculations do not include any other expenses such as rates, insurance and maintenance.
Remember that this comes out of post tax household income, so the above numbers have to be grossed up to determine how much gross income is required to support the top ups.
This is also before the phasing out of interest deductibility on existing houses purchased before March 2021, and zero interest deductibility on existing houses purchased after March 2021.
there is a 40% LVR restriction on investment properties. so for most typical investment properties will have at least 40% down payment.
I have mentioned before that, the rental market will become very tight down the road if the current policies don't change. like it or not, rental is a business, if they cannot make money on rents, they will have to make money on capital gain. if they cannot make any money, then they will leave the market. either way, rental supply will be short and tight, and will be particularly hard on poor people who cannot buy, or young people who just start.
So logic suggests if rental properties are sold and there isn’t much interest from investors, then properties will be bought by owner-occupiers. Good!
However, it will put more rental pressure on people on low to middle incomes, certainly.
If there are plenty of properties for sale then prices should come down. Then the yield may start to make sense and people will get back into rental property.
People forget that yield is a function of property value, it’s not just about rental income and expenses.
My understanding is that the LVR can be calculated across a portfolio of properties? Or have the rules/lending criteria changed?
Example, as a retiree. I have a $1,000,000 mortgage-free family home. I purchase a $500,000 rental property without needing to front up any cash (borrowing 100% on the second home) and still fit with the 40% LVR.
Yes in this case you'd have 800k "usable equity" from that home, so could leverage up and purchase $2m worth of investment properties. In saying that, an immediate 1% drop in house prices would have a direct impact on your equity to the tune of 30K, which would take around 2 years to recover via rent according to this article. 20% drop, 600K, and suddenly you've gone from $1m equity in your own home to $400k equity in your portfolio. That's some "riding the ups and downs".
You’d still need to convince the bank to lend you the money. As a retiree the bank would be concerned that you couldn’t chip in much income to prop up the mortgage if interest rates increased or the place was unrented. They would want a high LVR to cover themselves without making front page of the paper for forcing retiree to sell their house of 50 years.
This is a subject dear to my heart because of the large rent $ for a magnificent home.
I would have more energy today to comment but the landlord and his crew are here giving one of the bathrooms a flash do over. It makes me suspect he is gonna put the house up for sale, BUT he told me that its for me and my GF since we are good tenants. Lets hope so.
The constant noise is driving me a bit nutty, I have to hang around.
u wot
Is this guy trying to be a Chameleon or a Comedian? I can't make up my mind. I'll bet his poor wife doesn't even know he even has a GF...........
So, what's the bigger issue here?
"...a bit nutty ... hang[ing] around"
I thought you would get it.
Sometimes used in the response to a comment by "Can you explain that to me please?", when you know from previous engagements that they are fully aware of what you mean.
Appropriate term for the behaviour of one person in particular here.
I think that theres a few around...they've an obvious political agenda.
Where are people getting 6.8% yields? Townhouses down the road from me were recently completed and advertised for rent. The townhouses were purchased off the plan in March 2021 for $725k, and were rented last week for $540 a week. That's a 3.87% gross yield.
Oneroof were spruiking a house in Epsom the other day that sold for about $3 mil with a rent of $900 a week. Take expenses out (rates probably 6k+ and going up $600 this year), and you are left with almost nothing.
Those who bought their rentals 10 years ago for 300k, and now renting them out for $600/week are probably doing just fine.
I know a few people who did that - their now rental was once their family home - if you've lived in a house long enough, you don't need to sell it to move to the next.
You would make more from investing the 40% deposit these days. No hassle, no rates, no maintenance and with interest rates looking like staying around this level for years and house prices crashing only a fruit loop would get into rental game now. If you are already a landlord and purchased rental years ago this is not going to be a problem as you’re investment would of been far less.
There's 40,000 empty houses in Auckland, owned by people who can't be bothered with tenants.
That is an old picture of Mt Roskill, there are a lot more houses now...
What!? 5.7-6.8 is a terrible rental yield!? Since when?
For over a decade now you'd be lucky to get as much as a 5% gross yield on a rental property in Auckland.
Last time I window-shopped for properties in Auckland they were averaging around 2-3% rental yield (mind you, this was a while back).
Maybe the article also took leasehold properties into their calculation to get such high rental yields? It's hard for me to believe that there are rental properties right now in Auckland which can get over 11% yield. That means they can be bought for around 250k and rent for close to $550 p/w. It's got to be leasehold, surely.
No, I think it's the 40% deposit assumption.
Thanks Kate. I think they are calling NET rental yield terrible, not GROSS Yields. So 'my bad' on that point, sorry.
Leasehold and tens of thousands of one bedroom shoeboxes in Auckland CBD. One beddies rent for circa $400pw, purchase price circa $400k
Hi Mystery, as stated in the article, the yield figures used in the example given are national figures. You are correct when you say the yields in Auckland would be even worse. The table that goes with the story gives the yield figures for the Auckland region and for each of the Auckland Council ward areas.
hi property bros - NZ Gov treasury is paying us 5% on 2yr - net. No maintenance, no tenants, increase, decrease your exposure at will, no forms, no hassle.
I've just vowed to stop reading the Herald as of this morning. I'm sick of the constant blatant spruiking! It's honestly embarrassing for their product and brand. Compare what I've read on the NY times versus that dross, I feel a strong worded email coming on.
Probably wasting your time. I emailed them several times last year, never got a single response. The emails were polite and non-abusive, although firm.
Someone needs to take them to the Media Council. Blatantly unbalanced ‘journalism’ over a number of years.
Part of me just thinks ‘meh’. However hard they try to spruik things, the party is over.
I began working in the early 1960s and even in those days of milk, honey and the quarter acre pavlova paradise far sighted Kiwis and even some of our politicians were saying that our social welfare system is unaffordable so if individuals wished to avoid a mean retirement it would be best that they make provision for their own wealth in their latter years. That was prescient indeed. Many Kiwis took that advice and investment in housing was a big part of this as it also served a social end by providing shelter for those who could never aspire to buying their own homes. Six decades on, those Kiwis who have taken risks and worked hard enough to build a nest egg find themselves under attack by losers, mainly (but not exclusively) from the so-called left wing of the political spectrum who have made investment in rental housing financially fruitless and in fact dangerous, and are even seeking to take away those nest eggs by way of CGTs and wealth taxes. We are seeing the results of creeping socialism and it's not a pretty sight.
An excellent post, how true. Some of the reasons there's 40,000 empty houses in Auckland.
Who wants to be a renter in retirement? No thanks.
The definition of a socialist is someone who likes to spend other people's money.
Some people have no long term vision Wingman, retirement is going to come as a nasty shock if you are still renting. No guarantees there will even be the super for Gen X.
Creeping socialism like the $18b per year (and growing) Government non-means tested superannuation spend because your cohort voted Muldoon in the 70's to scrap compulsory super?
You didn't work hard to own properties, stop spinning a tale. Your tenants were the ones that got up each day and went to work to pay off your mortgages and overheads.
Not true, I had debt you wouldn't believe, I even bought a house in Te Atatu South at a mortgagee sale. About the time 1st mortgage rates got to 23%.
Getting the tenants out wasn't easy, the place was filthy, chokka with fleas and the toilet was so filthy it had to be replaced. Disgusting examples of human beings, but I made quite a bit out of it when the job was complete. The kids got in after school by going under the house and climbing through a hole cut in the floor.
If it's so easy why haven't you done it yourself? Oh that's right, you don't believe in property speculation.
Correct?
Have a go sometime, see if you're up to the job.
Nobody forced you to take out a mortgage at 23% p.a. to buy a flea ridden house and feral humans living in it.
So you had some bad tenants that came back to squat. Did it take many hours per week over years to try evict them, or are you overstating a short lived moderate early inconvenience to your investment plans? You make it sound like conquering Mt Everest. I guess property investment does attract narcissists, so not surprising it's made out to sound like so much more work than it actually is to try puff up one's ego.
That's correct, no one forced me to buy it with ferals in it, but I thought it was worth the risk. It was, I made a heap of money out of it, split off half the section and built another house.
But risk isn't your thing, whining on chat rooms about how others get rich is.
I have shares in a few companies and in a big bank, so I do have risk just in other more productive areas. Made a heap of money out of the sale of our first home in 2021 too, which we bought from lowballing an amateur landlord in '17 who wanted out of the game. Still, the first home buyers we sold to have somewhere to call their own.
It's not even really about people getting rich from property, it's claiming that it was hard work. Hey, maybe you're different and actually built the house yourself like my father in law has recently done (retired builder). But putting your name on a title and occasionally dealing with the odd problematic tenant while collecting rent is not what I'd call hard work.
Well if it's money for jam, why haven't you done it?
I admit I was slightly tempted, but I chose to invest the huge capital gains we realized on the sale of our first home into a much bigger house, 1/4 acre, surrounded by schools in a leafy street, very close to the train station. I could have listened to the broker's advice, and bought a more modest home 3 - 5 km from school + a rental property and not been able to walk my 5 year old across the road to and from school 4 days per week.
I'd also rather see other first home buyers have a shot at owning an entry level house, rather than turning them all into rentals.
Of course, very generous, who wants to be rich? I'm sure the rest of NZ will be thanking you, maybe a mention in the next New Years Honours.
Again, it's not about being rich or poor. The whole crux of the conversation is whether owning a couple of rental properties is hard work. It's most certainly not and well overstated.
I know this is a financial news website, but not everything in life has to be based around screwing the other man for every dollar you can. You can be prosperous and wealthy without rentseeking, it just requires certain skillsets many residential investors lack which is why they gravitate to property like lemmings.
Six decades on, those Kiwis who have taken risks and worked hard enough to build a nest egg find themselves under attack by losers
You had a large availability of resources such as the lovely hardwood native timber that was used to build all those homes at affordable prices with affordable land in the 60's-90's, coupled with average 3-1DTI of a single income back then, plenty of land for all and in the 90's there were mortgagee sales coming out of your ears. Then there's interest deductability, and lowering of real interest rates over the last 40years, free university education and worldwide stability post WWII, the golden era.
Today paints a very different picture. 8-12x DTI for a dual income which is far worse than having 20% interest rates on a 3-1 for a single income, expensive building materials, land scarcity and extremely high land cost, high interest rates for the current value of housing, high inflation now squeezing disposable income out of kiwis on basic staple foods, the pressure is from all around. We have international instability which seems to be slowly escalating as well.
So relatively speaking yes you may have reaped the rewards of taking risks, but these risks came with a lot lower risk than there is today, and you happened to live your working years in a time of very economically favourable conditions. The sale of a house at an over inflated value is a debt to the purchaser, and we have loaded so much debt onto the generations below you that many may not be able to claw their way out, or even ever afford to have their own home and/or children. There is no point in the veritable smorgasbord of options for consumerism if we cannot afford to house our people and for them to have children, for who else will be paying your pension?
Why we will import them and they'll gladly live 10 to a 3 bedroom house, because where they came from it's 8 to a 2 bedroom shanty dwelling within 2 feet of a railway crossing on one side, and an open sewer on the other. Sure, they effectively have an 80% tax free bracket because they're only paid for 20% of their hours worked, but if you bring enough of them in and open up enough liquor stores, then what's the issue?
And tax!
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