With housing a key issue in this year's election, we take a look back at Joanna Wane's 2015 investigation into Auckland's "ghost" houses - the properties sitting empty or under-occupied amid the city's housing shortage.
In Auckland, more than 33,000 houses were registered as unoccupied in the most recent data from 2013. A breakdown shows about a third had residents away. The remaining 22,152 properties are listed as empty.
Who owns them and why no one lives there is information that’s not readily apparent, although ask around and you’ll hear all sorts of theories – from land banking by foreign investors who see New Zealand as a bargain bolt hole to families future-proofing their children’s education by buying a second house in a desirable school zone.
Whatever the real story, it’s not that the owners (or tenants) just happened to be out when the collectors knocked at the door. Census workers are given clear criteria on the various definitions of an “unoccupied” house and need evidence no one lives there (the appearance of the property, talking to neighbours) before it’s officially classified.
At a time when both the government and the Auckland Council claim the city faces a critical housing shortage, it’s ironic that the number standing empty is more than enough to fill the gap. A report by the Auckland Housing Accord put the cumulative shortfall at about 20,000 dwellings. A ministry briefing to Building and Housing Minister Nick Smith post-election came close to that, with an estimated shortage of 18,000 homes, and predicted to rise.
Given the latest rent hikes – up 6.7 per cent across Auckland in the year to January 2015, according to Trade Me’s Rental Price Index – the storm clouds signalling an accommodation squeeze are indeed starting to gather. The government is already reviewing the Resource Management Act to speed up building consents and some 43,000 new homes are planned for dozens of Special Housing Areas that have been created to ease the pressure. Yet the city is sitting on a stockpile of empties.
Before you shrug it off as an individual’s right to do whatever they want with their own house, imagine having a few homes in your street that aren’t lived in and the impact that might have on the neighbourhood.
Last year, the Herald reported squatters had broken into an abandoned waterfront property in Herne Bay that’s fallen into disrepair. And in February, former political journalist Duncan Garner posted a series of photos on his RadioLIVE webpage of a $2 million house on a dishevelled site in Takapuna that he said had been bought by a Chinese investor several months earlier.
“No one has moved in. There is no sign of the new owners. And they are not renting it out,” he says. “The place is going to the pack. Look at the section… This is now quite a common sight in Auckland. Should we be concerned about this growing practice – especially when we face a housing shortage in the country’s largest city?”
While Chinese buyers are an easy target, the swathe of empty houses can’t be blamed on foreign investors who may have no sense of connection to the community. North & South was told of an Auckland couple with young children who live in the double Grammar zone and have bought a second house close to their preferred primary school. Mail and power bills have been redirected there and the lawns are regularly mowed, but no one actually lives in the house (in breach of zone regulations).
A breakdown of the statistics on unoccupied properties – area by area – is intriguing. No surprises on Waiheke (1743), in Omaha (888) and Orewa (345); most of them are likely to be holiday homes. But the numbers also spike in pockets of the central city and in the “leafy suburbs”, including Takapuna (177), Balmoral (114) and Newmarket (141), which borders Epsom and laps into the Grammar zone. All have had significant increases in the number of unoccupied dwellings since 2001.
In contrast, there’s a much smaller proportion of empty homes in many less wealthy parts of town, where overcrowding is the real problem, with two or more families living under one roof.
Keith Rankin, who teaches economics at Unitec, has been noticing this “hollowing out” of the city with concern. He says housing patterns are changing radically on the Auckland isthmus, with young homebuyers pushed to the fringes – priced out of the market by speculators playing for capital gains.
“What is happening in places like Mt Albert and Mt Eden, Grey Lynn and Herne Bay?” he wrote in a blog post. “These are places where houses are being bought at very high prices, by people who themselves do not plan to occupy them” – and want to buy and sell as if tenants are incidental.
“Auckland can be a vibrant, liveable place with mixed communities of quality dwellings, rented and owner-occupied. Or it could be an unpleasant place of suburbs with poor quality, overcrowded, insecure accommodation interspersed with suburbs with many unoccupied and under-occupied properties acting more as a land bank than as places to live.”
When Rankin and his wife were house-hunting in 2013, a property in New Windsor they looked at had an empty house next door, with a large tree fallen over in the backyard. They were told it was owned by a real estate agent who’d had problems with the previous tenant and hadn’t bothered to re-let it.
“When you can buy places for $1 million that are almost derelict, the real asset is the land,” he told North & South. “Finance is a global industry now and part of the finance market is property. It’s not a ‘find somewhere to live’ exercise for many, but a straight financial calculation. And if you’re getting more than 10 per cent a year in capital gains without necessarily bothering to rent it out, then the land is doing the business for you,” he says.
“But there’s a social cost to that, where people would very much like to be living in those properties or in properties on that land. When you look at housing supply, you have to address both aspects: the building of houses and making sure existing stock is efficiently used.”
Rankin says the “new rich” in China are only part of a global propensity for people to acquire multiple properties. He suspects many expat Kiwis and former residents who’ve maintained links with New Zealand are sitting on chunks of suburbia too. A former colleague, who’s returned to Kazakhstan, owns an apartment in Auckland that’s unoccupied except for a few weeks’ summer holiday most years. Another European academic takes regular sabbaticals here and offers short-term rentals on his Auckland house and basement granny flat, “but the property as a whole is empty much of the year” – just two examples of how some properties that aren’t principal residences are vacant for extended periods.
Auckland has one of the most overpriced property markets in the world – and in December, investment expert Ron Hoy Fong predicted prices had at least another 35 per cent to climb before peaking around 2017. Yet in countries where incomes are higher and mortgage rates lower, our real estate is a snap. In February, real estate agent Kathy Ying told Morning Report, Chinese buyers think property here is “a steal”, particularly with our dollar falling against the yuan. And with no restrictions on foreign investment, we’re happy to take their money and welcome them with open arms.
New Zealand is seen as a safe bet, says Rankin, buffered from problems affecting the rest of the world. “That’s not necessarily true, but it’s often how we’re perceived. Back in the 80s, it was a nuclear bolt hole as the Cold War briefly intensified. The motivations are different now, but many people like the feel [of New Zealand] and if there are difficulties in their country of residence, it’s a place they’d quite like to move to, so having some property here sounds like a good idea.”
It’s hard to blame local investors, either, when you can leverage equity in one property to buy another and then another, gathering tax-free income from the capital gains when you sell. The fallout hasn’t just affected first-home buyers left struggling to claw together a deposit (a Bank of New Zealand survey last year indicated interest in buying residential rental property had almost doubled since the LVR restrictions were introduced); a shortage of inner-city rental accommodation is forcing university students as far out as Meadowbank, Mt Roskill and even the North Shore.
Rankin says the co-opting of houses as financial commodities rather than places to live has caused market failure. And he has some ideas on how to make individual and community interests realign. What he suggests is a land-bank tax, on both unoccupied and under-occupied properties (where, say, older couples have large houses with spare bedrooms in mothballs once the kids leave home). For a vacant house, the tax might be equal in value to the rates, while under-utilised homes could be charged using a formula based on the floor area and size of the section.
There’d be exemptions, such as a grace period after a bereavement or during renovations. And combining the stick with a carrot, landlords could be rewarded with a subsidy if they meet a voluntary code of fitness on the properties they let. What’s needed are good landlords (and a mix of short-term and long-term tenancies), argues Rankin, and then it doesn’t necessarily matter if many of them are foreign residents.
“A good, vibrant city has young people living reasonably close to the centre,” he says. “There are a lot of character homes in Epsom and Mt Eden that could house a lot more if they were used as flats. And if you really want to keep the mansion rather than downsize and you’re pretty prosperous, you can easily afford to pay the tax in lieu of making it available to facilitate housing.”
Tell investors they’d be penalised for leaving their properties unoccupied and there would be a revolt, reckons Andrew King, executive officer of the New Zealand Property Investors Federation. “That would stick in the craw,” he says. He doesn’t buy the idea of rental incentives, either. “I don’t think that’s needed. As a taxpayer, I wouldn’t want to see my tax dollars put into something like that.”
Rental yields have been falling in Auckland, with house prices rising at a faster rate than rental returns. But King, who had bought his first home and an investment property by the age of 24, has never heard of an investor simply not bothering with tenants. “Why wouldn’t you? That really doesn’t make sense.” He reckons a lot of empty houses are owned by executives who’ve been seconded overseas and don’t want to lose their foothold in the market or have strangers living in their home. “There have always been empty properties,” he says. “If you need more houses, you build them.”
At Aspire Property Management, an agency based on the North Shore, managing director Mike Atkinson has no unoccupied homes on his list. But when a mediocre one-bedroom rental in Mt Eden came on the market for $320 a week, his phone rang off the hook.
“God, at the moment you can rent out anything,” says Atkinson, who’d like to see some of Auckland’s empty commercial buildings rezoned for apartments. “Every one of our customers is looking to get every dollar they can out of their properties.”
His take on Auckland’s “ghost” properties? Wealthy owners who split their time between multiple homes. The father of one of his friends lives on a boat but keeps a two-bedroom apartment in the Viaduct as a city crash pad. Another businessman he knows owns at least five houses, including property in Auckland, Wanaka and Mangawhai Heads.
“Don’t they say that the top 10 per cent of all real estate in the world is empty because it’s owned by people with multiple places?” he says. “In summer, you see the Saudi Arabians outside Harrods with their Lamborghinis made of carbon fibre. They all have houses in London, but only stay for a few weeks and don’t rent them out because they don’t want other people sleeping in their beds.”
However, Keith Rankin is not alone in his belief that there’s a wider social responsibility at play here. Auckland entrepreneur Selwyn Pellett won’t allow his children to borrow against the family trust to speculate on property (beyond buying their own home) because of the domino damage he sees being done to the New Zealand economy.
He tells the story of a property investor friend of his who was bidding at auction against a young couple, but pulled out after discovering they were trying to buy their first home. “We have some level of moral obligation to the next generation that the greedies aren’t taking care of. And my generation are the greedies.”
Pellett believes investors should have to pay a significantly larger deposit on each subsequent property they buy, shutting down their ability to leverage off the equity to build up a real-estate portfolio. Then, he says, slap capital gains on top of that.
“If I want to make money out of property, tax me,” he says. “It’s another form of income. And if you leave an asset empty and unproductive, you’re hammered. Why are we allowing people to land bank in situations where it’s causing economic and social disharmony? It offends me and I’m an empty nester. I look at the empty bedrooms in our house and feel guilty.”
Since the election, Labour has moved away from a capital gains tax. Instead, the party is following Australian federal government policy that restricts foreigners buying existing housing stock, although they can build or invest in new developments.
Both Hong Kong and Singapore have stung offshore buyers with a property tax to restrain the market (in Hong Kong, wealthy mainland Chinese have been snapping up apartments essentially to use as storage units when they pop over on shopping sprees). Attention has now turned to cities like London, where speculators are blamed for driving prices through the roof.
Labour’s housing spokesman, Phil Twyford, describes Auckland’s real estate market as “speculation on steroids” and says the number of unoccupied houses is part of the rot.
“Take out the holiday homes and my suspicion is that a very significant proportion of those 22,000 empty houses are owned by speculators farming capital gains who are going to sell and make a killing down the track. They’re not interested in rental income or mucking around with being a landlord and all that entails,” he says.
“What’s frustrating is that the government refuses to even collect the data on this. Particularly in Auckland, people resent being told they’re racist and xenophobic, because they know from their own experience and their family’s and their neighbours’ experience what’s going on. And it makes them wild to see their kids really struggling to get a first home because a speculator is bidding up the prices.”
Keith Rankin agrees we need more than anecdotes to find out the real story behind Auckland’s empty houses and who owns them. “To a large extent we’re in an information vacuum,” he says. “The answers may be quite complex. But not enough people are asking the right questions.”
Signs of Life
In Christchurch, an empty house isn’t an appreciating asset but someone’s damaged home.
It wasn’t property speculators but the 2011 earthquake that gutted entire Christchurch suburbs. But being surrounded by empty houses is “eerie”, says a woman who lives on her own on the slopes of Mt Pleasant, where at one stage only 17 homes out of 49 in her neighbourhood were occupied.
Another in a hard-hit suburb talks of abandoned properties being broken into or set on fire. “It was quite scary not having people around to look out for each other. And when places are left to run down, that starts to attract trouble.”
In Canterbury, where a shortage of accommodation pushed up rental prices by almost five per cent last year, the idea that someone would buy a house then deliberately leave it empty is just another sign of the madness of the Auckland market.
“In Christchurch, empty houses are almost always waiting for repair or are uneconomic to repair,” says one local developer. “At any property investor conference, they’ll tell you to go for cashflow. Capital gains are the icing on the cake. There are lots of costs in owning a house – rates, insurance, maintenance. But maybe if you’re that rich, it doesn’t matter.”
Kim Willems, who handles both short-and long-term rentals through her property management company Ruby Housing, agrees land banking doesn’t sit well with most investors. “An empty house is a bit sad, really,” she says. “They don’t have the love, care and attention put into them if they’re just sitting there. It’s not going to do anything for you, it’s not going to grow – it’s going to depreciate if it’s not being maintained as it should.”
On the 2013 census form, Willems had to state whether she was a tenant or homeowner. Like thousands of others throughout the city, she and her husband were both – paying the mortgage, insurance and rates on a house that was still standing but couldn’t be lived in. “If they wanted to find out what was happening in Christchurch, they didn’t ask the right questions.”
Over the past few months, the pressure on rentals has eased as most of the smaller EQC repairs are signed off. In demand now are quality family homes with features like a double garage and a decent-sized section, for temporary accommodation while the big rebuilds are done.
Willems says a net population gain from people moving to the city for work – including new arrivals from overseas – has also put a premium on smaller flats for younger singles and couples; one that was listed recently on Trade Me attracted 1500 views in four days.
Basic bedsits are in short supply, too, after many of the older boarding houses were destroyed by the quakes. However, investors who snapped up properties cheaply and furnished them as rentals are finding there’s a glut on the market as people start moving back into their own homes.
“Long-term renters tend to want their own furniture,” she says. “And a lot of the people coming to Christchurch for work opportunities are bringing their family or plan to settle and start a family here. It’s not just single, short-termers who’ll party hard and go home in six months’ time.”
This was published in the April 2015 issue of North & South.