Dialogue: Home ownership important to the nation's social fabric

By REX HADLEY*

After reading Peter Lyons' depressing assessment of residential property investment, I am surprised that we are not all queuing at the airport.

Fortunately (or unfortunately in Mr Lyons' case), his logic is fundamentally flawed. He fails to differentiate between property speculation and residential property-based savings.

In the process, he seems to blame the flattening of Auckland property prices on the real estate profession and just about everyone else.

Yet the one man he seems to trust implicitly, the Governor of the Reserve Bank, Don Brash, would be the first to tell him that the mid-1990s boom in Auckland property prices was nothing more than a blip, which Dr Brash cracked down on almost as quickly as it happened.

It was caused by a combination of the influx of Asian immigrants and that other factor which Mr Lyons seems to dislike most - human nature.

To say that we are a speculative breed is wrong, and to substantiate the boom-bust assertion with the Dutch tulip bubble and the 1987 sharemarket crash - a rare international phenomena and the first such decline since the 1930s - suggests that Mr Lyons needs to reconsider his dire assessment of the human condition.

The Real Estate Institute is a great advocate of home ownership, not just for the purposes of earning commission but because we believe it is important to our social fabric and is still the best and easiest way for New Zealanders to save money.

If you include home ownership statistics (we have one of the Western world's highest rates of home ownership), there is not much wrong with New Zealanders' personal savings patterns.

It's just that the average Kiwi likes to pay the mortgage off as a form of saving. Once the home is freehold he or she will be likely to enter into a second investment, often a residential rental property, as a means of saving for his or her retirement.

In an ideal world, of course, we should all be living in rental properties and investing in productive industry.

But Mr Lyons is right: New Zealanders have had too many bad experiences chasing higher returns and ill-conceived investments often offered under the guise of managed funds.

Investors in property bonds attached to a high-profile Auckland property development may now be ruing the fact they did not put the money instead into an unspectacular little rental property in Onehunga.

The real issue seems to be that Auckland property prices have not performed up to Mr Lyons' expectations over the past five years. While that is true, it is in contrast to many other parts of New Zealand where buoyant property prices are a reflection of economic growth and confidence.

With the exception of Auckland house prices, which are taking a breather, residential property prices have performed steadily if unspectacularly over many years

Nobody rational would encourage property speculation, and the institute and its members are hardly going to benefit from a boom-bust market.

What we do encourage is rational investment in family homes and rental properties as a low-risk alternative for those who trust themselves, rather than the experts, with their money.

And the benefits of investing in your own home are numerous. Residential property is a tangible investment which has the benefit of accommodating the family, there are no ongoing management fees, homeowners can improve the value of their investment through their own endeavours and home ownership creates a sense of social responsibility and community cohesion.

And it is still the only investment that will keep the rain off your head.

* Rex Hadley is the national president of the Real Estate Institute.