The rise of the mega-landlords

Who owns New Zealand? It’s not mums and dads. A comprehensive new study reveals the rise of mega-landlords and shows that attempts to help first-home buyers have failed. Ged Cann reports.

Mum and dad investors don’t own New Zealand - it’s an elite class of large investors who own more than 20 properties each. New research reveals how the influence of these landlords is growing and how attempts to help firsthome buyers has failed.

More than 22,100 homes are owned by an elite class of large investors who each own more than 20 properties, new analysis by property data company Valocity reveals.

That’s the equivalent of Invercargill or Nelson, owned by 906 people or private companies, whose portfolios continue to grow.

The analysis, conducted for this Sunday Star-Times and Stuff series, appears to quash the long-held belief the market is predominantly made up of mum and dad investors, and reveals the vast majority of Kiwis own no investment property.

It is the most comprehensive study to date of who actually owns New Zealand.

Valocity’s head of valuation, James Wilson, says the biggest takeaway is that all Government attempts to even the playing field for first-home buyers have failed.

The data shows first-home buyers’ share of the market has fallen, with 11,603 fewer homes owned by this group compared to 2015 – a market share fall of 4 per cent.

During the same period, 82,121 more homes have entered investors’ portfolios, increasing their market share by 1.7 per cent.

“It actually goes to show how little policy levers will impact on the actual fundamental nature of who owns our housing stock,” Wilson says.

The impact of the Government’s largest changes to housing policy, announced in March, may not have appeared yet, however.

Wilson puts the fall in home ownership down to first-home buyers being unable to keep up with price rises, and competition from existing owners, who can capitalise on the increased valuation of their own properties to buy more.

ANZ economist Finn Robinson says the continued demise of first-home buyers isn’t surprising. Since 2010, house price increases averaged 8.2 per cent annually, but average hourly earnings growth averaged only 2.9 per cent – which was swallowed up immediately by rents, which increased 3 per cent annually.

The Valocity study also calls into questions a claim that had been the mantra of investor groups for years – that the market is overwhelmingly made up of mum and dad investors, who own one or two properties.

The analysis, which cross-referenced names on roughly 1.7 million publicly available property titles, shows investors with up to two properties own just over a third of investment properties.

Investors with three to five properties own over 41,000 more homes than those with one or two.

Infometrics principal economist Brad Olsen says Valocity’s findings present “huge challenges” to the mum and dad narrative, with over 20 per cent of investor stock – or over 118,000 homes – owned by people with six or more properties.

“Again and again we make those refrains, but we also know there’s a lot of property here being held by an increasingly concentrated group,” Olsen says.

Olsen says a conversation is needed about the growing professionalisation of owners, because the services they provide affects a considerable number of people.

He says large landlords are not bound by the same level of legal and reporting standards as other large businesses, which was illustrated by rentals typically being colder, damper, and more poorly maintained than owner-occupied homes.

Olsen says the Government’s new Healthy Homes standards will go some way towards requiring landlords to do better.

Robinson says that given 29 per cent of homes are owned by investors with one to five properties, small investors remain a key part of the market, but the data revealed the “wealth inequality that pervades New Zealand”.

He points to the 2018 census, which shows home ownership rates at their lowest since 1951, and the Ma¯ ori Economy Report 2018 that found Ma¯ ori home ownership rate was just 48 per cent in 2018 – much lower than average.

“But this new data shows that there are also over half a million Kiwis who own more than one property, and around a quarter million who own between 3 and 20 properties,” Robinson says.

Wilson describes the size of the holdings of investors with three to five properties as “a bit of an eye-opener”.

“In the last 10 years the growth in asset values, particularly house prices, has allowed those mums and dads to now, as you can see in relatively large numbers, to actually pick up a third or fourth or in

some cases a fifth property,” he says.

Wilson says most of those with three to five properties still consider themselves mum and dad investors, despite house price rises now meaning they own multimillion-dollar portfolios.

Because of this self-perception, he says smaller investors are happy to continue buying and will not give much thought to how they are removing the ability of firsthome buyers to get on the ladder, societal impacts, or the need to make their properties healthier or more environmentally sustainable.

The analysis found the 605,722 investment properties in the country are owned by a little over 533,000 people and private businesses. Compared to the adult population of New Zealand, this would equate to roughly 14 per cent or 22 per cent of over40s.

That would suggest the vast majority of Kiwi adults have no investment property, and are disadvantaged by skyrocketing prices because they will buy and sell in the same market, having to take on more debt to move up the ladder.

Investors are shown to now own more properties than either first-home buyers or single homeowners.

Although the difference is slight – a difference of 15,638 homes – it’s a reversal of 2015 when first home buyers owned 78,086 more properties than investors.

This suggests an increasing wealthy property investor class is developing. When combined, first home buyers and single homeowners still hold the largest share of the market, with roughly 63 per cent.

The data also shows that since 2015, when the then-National Government first tried to introduce a two-year bright-line test – a rule that could see sellers pays tax on money they earned from a property sale – the number of homes owned by mega landlords with over 20 properties has increased by just over 3,600 properties.

In the context of a market of roughly 1.7 million properties, this increase is modest, but reflects the holdings of the country’s largest investors are not going down.

Over 16,000 more dwellings, meanwhile,

entered the portfolios of landlords with six to 20 properties, to bring this group’s total to 96,000 homes.

Many Kiwis will be surprised so much is owned by so few, but Wilson says the sum is actually low compared to other countries.

Wilson says finding out who really owns New Zealand’s homes is crucial to the Government being able to create effective, targeted policy.

‘‘We’re often surprised at the lack of visibility that’s afforded to government,’’ Wilson says.

Wilson believes the current demonisation of investors is unhelpful, and might put off those at the smaller and medium end of the investor market from working to be part of the solution.

‘‘With access to data like this you might still make policy with the effect of targeting that group, but you can pitch it in a way that’s not going to get that large group of homeowners angry, and instead getting them on board.

‘‘I think that’s been missed in the last 10 years in New Zealand – and that’s governments on both side of the line.’’

Wilson says continuing to encourage the building of appropriate stock such as townhouses will help address the imbalance in ownership, and Government-backed deposit and shared ownership schemes are essential.

The Government has recently announced a shared ownership scheme to help families who cannot save a deposit.

He adds the Government must start focusing on helping the disadvantaged to buy, rather than penalising investors.

‘‘It worked for New Zealand post-World War II between the 50s and the 70s with Governmentbacked buying schemes. It worked really well, so let’s try that again.’’

Without more Governmentbacked purchase schemes, Wilson says first-home buyers’ share of the market will continue to fall, and before long only those with family money will be able to afford their own home.

For the past six months, Stuff has been investigating the country’s largest property owners, trying to find out how much housing has accumulated in the hands of those with 20 or more properties.

A number of government departments were approached, including Inland Revenue, the Ministry of Business, Innovation and Employment (MBIE) and Stats New Zealand as well as the Cabinet. None could supply reliable estimates on the number of large landlords, how much property they own, or how much wealth investors have amassed as a result of recent house-price increases.

Before now, the best estimates have been supplied by MBIE and are based on bond data. But this could be easily skewed by multiple bonds being lodged for one property or by landlords registering bonds to different companies or trusts.

In an apparent effort to begin filling its knowledge gap, the Government has sent letters to 400 of the wealthiest New Zealanders, warning them it will soon be asking for details about their finances.

A spokesman for Revenue Minister David Parker says that will likely include property and capital gains information.

IRD will measure capital gain by ‘‘realised gained’’ (profit from a property sale) and ‘‘accrued gain’’ (the rise in overall worth created by the increase in the value of a property that hasn’t been sold), a spokesman tells the Sunday Star-Times.

A final public report from the High Wealth Individuals Research Project is expected to be completed in June 2023.

The Government must start focusing on helping the disadvantaged to buy, rather than penalising investors. James Wilson of Valocity