Tired of the same old duck shooting season? How about a bit of housing investor hunting this year instead then?
Yes, those naughty housing investors.
The Government, having for some reason chosen not to blame itself for New Zealand's median house price rising by $200,000 (to $730,000) since it came into power in late 2017, has decided to find a fall person - the investor.
Well, actually, Finance Minister Grant Robertson has talked most specifically around "those who are speculating".
This is what Robertson said on February 9 of this year:
...We all know that building more houses, particularly affordable houses, is critical. But we also can do more to manage demand, particularly from those who are speculating.
New Zealanders are seeing family members being crowded out of the opportunity to purchase a home of their own by speculators and investors. We want to tilt the balance more towards first home buyers, while also incentivising more investment in the construction of homes.
As I said late last year, we have received advice from both Treasury and the Reserve Bank on our existing measures to manage demand and discourage speculation, and how they can be enhanced or changed. Proposals will shortly go before Cabinet.
As the Prime Minister has outlined, we will also make more announcements on the supply side as Budget 2021 is finalised. These will build on the Government’s housing programme that has seen us build more houses than any Government since the 1970s.
Anyone who tries to tell you that there is a single silver bullet for addressing the housing crisis is not facing reality (or is speaking from the safety of Opposition).
What we do know is that now is the time for bold action. The market has moved quickly and rapidly in a way that is not sustainable. We have to confront some tough decisions, and we will do that.
So, what's a speculator and what's an investor? And how would you tell the difference when implementing new measures aimed at the demand side of the housing market? I will come back to this.
The speculator v investor debate/argument is a fairly recurrent theme in the comment sections on this website.
Down with the specuvestor
When I think investor, I think of someone who is buying property for the purpose of the rental yield they will derive from said property. So, it's a proper business. The provision of shelter in return for a revenue stream.
I reckon that a speculator thinks capital gain first. That's the focus for buying the property. The rental is incidental to the motive to make a capital gain.
Some commenters on this site like to use the term 'specuvestor'. And I like that. It kind of implies someone who's in it for the capital gain but will take the rent for as long as is necessary to bag that capital gain.
I've rented a fair few properties both in New Zealand and in the UK in my time.
And I've rented from both 'specuvestors' and what I would term 'real' investors.
I know which I prefer.
In earlier days I rented a lot from owners who were definitely eyeing the capital gain and their attitude reflected that. They begrudged spending any money on the properties and would take it personally if you did anything that might necessitate them having to fork out money. The clear subtext is that any money the owner is forced to spend is less capital gain for them.
Taking care of business
In more recent times I've rented from several real investors, normally through agents and that's as different again. If something goes wrong, you get in touch with the agent, and the problem is fixed. And nobody takes anything personally. It's a business.
So, I say, subjectively, we need the investors - people who are providing liveable accommodation with the purpose of making an income from the rental stream. We don't need the specuvestors, since it's always going to be capital gain first for them.
But, aha, how will the Government actually tell the difference?
Robertson had targeted putting out housing proposals before the end of February. These plans have been delayed and may yet be further delayed by the latest Covid outbreak. And will what the Government comes up with match the tough talk? Implementation, or lack thereof, IS an issue for this Government.
I honestly don't really know what my attitude is to the idea of specifically targeting 'investors' as a way of constraining demand in the housing market.
Clearly this Government (and it's certainly not the first government to be so) is terrified by the potential bomb-in-the-ballot-box that is images of first home buyers being locked out of the market.
But I don't like the way some of the thinking appears to be leaning - such as Finance Minister Robertson's inclination to have any introduction of debt-to-income limits targeted at 'investors' with FHBs likely exempt.
Be careful with those FHBs
Yes, I get the point, the FHBs are the ones most likely to be blocked from buying a house by DTI limits, so exempting them makes sense from that perspective. But what if they do overstretch and get into trouble? The outcome could be worse than if the FHBs were not able to buy that house in the first place.
Putting limits on interest-only loans is an interesting possibility and could be a good idea depending on how it's applied.
I guess I'm just concerned the Government might come out with a one-size-fits-all blunt instrument approach that does help to drive out some of those 'real' investors who have been providing a good service in the rental market.
Another concern is that we don't want to be 'hitting' the market with too many things at once. Remember, the LVRs are back, and with the supercharged 40% deposit rule to follow closely behind in May, although some of the big banks are already applying that.
When the 40% deposit rule for investors was first introduced in 2016 I doubted it would make much difference. It did. And I think it will again.
Remember also, the 'beast' may be at least partially sated.
Fill your boots
The RBNZ-compiled mortgage figures show that in the last six months of 2020 'investors' took out $11.163 billion in mortgages, compared with just $7.062 billion for the same six months in 2019.
Of huge significance is the fact that within those totals, in the last six months of 2020 some $3.959 billion of investor mortgage money was advanced on 'high' (over 70%) loan to value ratios. For the same six months in 2019, when a 30% deposit rule was in force, just $1.087 billion was borrowed at a high LVR.
So, the vast majority of the difference in the investor borrowing amounts between the last six months of 2020 and 2019 was down to investors being able to fill their boots and leverage up.
A 40% deposit rule will make a difference.
So, the Government should tread carefully.
The last thing we want is for ructions in the market caused by a Government being political and wanting to be seen as doing something, rather than doing the right thing.
'Doing the right thing' for this Government will be coming up with a convincing plan to tackling the supply side of the housing headache. Its previous (KiwiBuild) form in this area is terrible. And if we want to talk about ballot box bombs, well, another failure like that one would surely be terminal for the Government next time.