Anne de Bruin and Susan Flint-Hartle: Who's buying houses and why?

Herald on Sunday photo / Doug Sherring

Opinion

Recently leaked real estate data pointing the finger at Chinese buyers' responsibility for booming Auckland house prices continues to cause controversy.

The furore highlights how little information we really have on house buying and obscures the wider picture. Do we have enough information at this stage to answer the important questions of who is buying and why they are buying? As Fran O'Sullivan points out there is a need to 'dig deeper', so yet another bite of information can't go amiss.

In March 2015, we conducted an online nationwide survey of residential rental property investors. This follows a similar 1999 study. Comments here draw on selected findings. In both surveys the overwhelming majority of respondents were New Zealand Europeans.

In 2015, only eight identified as Chinese, despite recent claims that Chinese make up a disproportionate section of the housing market, especially in Auckland. Was this response profile to be expected? Yes. Data was collected mainly through association with a mainstream property investor group. The survey was not promoted in Chinese newspapers or websites.

The earlier survey also used mainstream property investment outlets for survey distribution. Therefore both surveys had similar sample bias. So it was striking, the highest share of total responses at 41 percent was from the Auckland region in 1999, compared to only 26 percent in 2015.

This leads to two speculative possibilities. Either Auckland's high prices made Auckland property no longer attractive to rental investors in the sample demographic. Or, Auckland investors had reaped capital gain and sold their properties to new buyers (be they of Chinese origin or not). The latter inference lends support to Liam Dann's comment that there are 'two sides to any Auckland housing transaction'.

Interestingly also, in 1999, the number of respondents from Wellington came in second. Yet in 2015, Wellington investors made up fewer than six percent. Given Wellington affordability ratios show recent improvement, unlike in Auckland, high prices can't be putting off rental property investors. Can it be that Wellingtonians have increased their levels of financial literacy? Are equities and other investment options more attractive to them? Such unanswered questions and speculative inferences all point to a need to delve deeper in the face of a dynamic and complex property investment market.

In 2015 the top motivation for buying rental property was to provide retirement income. Interestingly tax advantages did not feature prominently. Perhaps this ties in with apparent confusion of respondents over the most tax effective ownership options.

Whether or not residential rental property is in fact a low risk investment is a matter of debate. But capturing attitudes to risk, 41 percent rate low risk as an important reason for investing in property.

Ability to personally control and contain costs was important to many. Disdain for financial advisers was also evident from comments. Contrary to current speculation about offshore investors, almost all respondents usually lived in NZ. Again to be expected given our sample.

Most investors began buying rental properties in the early 90s and the trend continued upwards until a return to median purchase levels last year. This is perhaps not surprising considering widely reported unaffordability in the current market, especially in Auckland. Rental returns don't stack up where values are high.

As for current concerns, affordability was not high on the radar of this group. However there was considerable concern, fact or fiction, about the number of foreign buyers in the market. The size of houses being too big was a new concern in 2015. Other concerns in the limelight were building costs, the regulatory environment, and ring fencing losses. Potential warrants of fitness for rentals were not an issue. Neither was fear of a house price bubble.

Our study confirms context and data reliability are critical when commenting on housing. A more complete picture will have to wait until we have accurate data on property investment, either for owner occupation or rental. Our results merely supplement existing information.

As for recent claims about Chinese house buyer influence in Auckland, these remain unsubstantiated, although supported by mounting anecdotal evidence. Nevertheless, such comments are inflammatory and tap into a populist fear and insularity at odds with a global society.

Professor Anne de Bruin and Dr Susan Flint-Hartle are in the School of Economics and Finance, Massey Business School.