As Auckland housing hysteria gets more, well, hysterical, there seem to be a few people worried that investors are leaving homes vacant rather than bothering to rent them out – preferring to rely on capital gains as a source of income instead.

Leaving aside the obvious question of why you wouldn’t rent them out as well as getting capital gains (after all, this can be made pretty hassle-free with a property manager, and helps to cover the ongoing costs of the property), there is some concern that this is a widespread phenomenon and contributes to a housing shortage in Auckland.

I’m assuming from Peter’s post the other day that we’re now happy to broaden our readers’ musical education as well as providing commentary and encouraging intelligent debate about transport issues (although my “Transport-Related Song of the Week” post series never really panned out), so here’s a topical song:

North and South recently ran an article on the apparent phenomenon, called “Running on Empty” (which is also a catchy number by NZ band The D4). It does suggest that much of the issue is at the suburb level, which I’ll leave for another post. It also notes that some vacancies will be due to Kiwis now living overseas, or splitting their time between multiple homes:

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.

[Andrew King, executive officer of the New Zealand Property Investors Federation] 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

[Mike Atkinson, managing director of Aspire Property Management]’s 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 five houses, including property in Auckland, Wanaka and Mangawhai Heads.

The most easily accessible source of data on vacant homes comes from the census. The 2013 census shows that, on census night, there were 33,360 unoccupied homes across Auckland. That sounds like a lot. Out of the 500,000-odd homes in Auckland, it’s 6.6%, which might still sound like a lot.

However, it’s almost unchanged from 2006, when there were 33,330 unoccupied homes, 7.0% of the total. And not much up from the 29,586 recorded in 2001, also 7.0% of the total. When I first saw these stats, I thought of them more as something indicating the current shortage of homes – i.e. housing is tighter, so more homes are being occupied.

When you look at these stats on a regional level, you see that Auckland has a smaller percentage of vacancies than any other region except Nelson:

Unoccupied for regions

Again, this made me wonder if Auckland’s low vacancy rate suggested a persistently tight housing market. But then I looked at the stats for New Zealand’s cities, leaving aside the more rural districts:

Unoccupied for cities

This suggests that Auckland is actually in a similar range to most NZ cities – but no one is suggesting that there’s a spate of Invercargill investors leaving homes vacant just so they can enjoy the capital gain. It’d be interesting to look at this data more closely: I’d like to look at different Auckland suburbs in another post, and maybe there is some truth to the claim that it’s a problem in some areas – then again, maybe Herne Bay homeowners are simply more likely to be away on holiday, or overseas contracts and so on.

At a city-wide level, though, I don’t think there’s much we can take out of this. I think it’s a myth that there are large numbers of people leaving homes vacant for speculative reasons, and I think the data in this post goes a long way to busting it. I also don’t see support for my original hypothesis that low vacancies in Auckland suggest a housing shortage. That doesn’t mean we don’t have a shortage, but the vacancy data doesn’t really tell us. Of course, since the census we’ve had two years of strong population growth and not built enough homes for all the new Aucklanders…

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26 comments

  1. Perhaps the government should make having vacant homes illegal. If your home is going to be empty for one night, you must make it available to others to use. Come to think of it, even during the day, if you aren’t using your bedroom, you must make it available to the proletariat. We could triple the utilization of partially vacant bedrooms by having submarine style shifts, each person gets 8 hours then they must move on.

    1. What a complete dick. It is a home owners right as to what goes on with there house while they are not there. Any government that tries to make that a law would be crucified by most home owners.

  2. You’ve looked at unoccupied on census night, you need to look at the breakdown between empty and away. “About one third of unoccupied dwellings in Auckland were classified as unoccupied because all the occupants were temporarily away at the time of the census, but about two thirds had no occupants at all. This category – unoccupied, empty – includes unoccupied holiday homes and dwellings being repaired or renovated.” – page 22 of http://www.stats.govt.nz/browse_for_stats/people_and_communities/housing/auckland-housing-1991-2013.aspx

    Also, for Brendan, check out page 87 of http://www.stats.govt.nz/browse_for_stats/people_and_communities/housing/auckland-housing-1991-2013.aspx for a discussion on under-utilisation of houses within Auckland. “In Auckland just over half (53.8 percent) of all four bedroom dwellings had two or more bedrooms spare according to CNOS, compared with 62.0 percent nationally.”

  3. If we want to look at underutilisation then the bigger issue is likely to be people living in homes far too big for them, for a variety of reasons, a key one being a lack of options such as well design terraced and apartment style housing anywhere outside of the central city.

  4. Northland and Marlbourgh would be high as they would have a higher % of baches and holiday homes. Same for BOP but not sure why Waikato is so high.

    Really need to dive down into the suburbs and compare the high priced ones which the article refers to and compare to the likes of lower value ones.

      1. And Auckland has its share of bach communities eg Waiheke and the other Gulf Islands, Piha, Matakana, Snells Beach etc too.

    1. A lot of farm workers get a house on the farm as part of their employment contract. Presumably those houses will sometimes be empty when the farmer doesn’t need to employ anyone. I would imagine there are a lot of these in Waikato, because Waikato has a big rural population.

      1. You’d expect Canterbury to be higher on that basis. I imagine the main reason would be the number of baches on the Coromandel, which is in the Waikato region.

  5. I have a rental property that’s been empty since November. Before I can rent it out it needs about $70,000 in repairs and renovations and someone – me – needs to organise and oversee all that….. And I’m a pretty busy guy.

    Things like this can drag on for literally months. Looking at that amount, it will take close to 3 years to recover that in rents. I might well think…. Why bother spending the time and money?

    Being a publicly spirited person, I am investing the money so others can have a nice, warm, dry home. But there really isn’t much if any economic return in it for me. Only karma.

    I can understand why people would buy a place and sit on it. The cost of renovating / repairing is way or if proportion to the rent one gets.

    In 2013 I spend most about $60,000 during and renovating a trashed flat. I may recover most of that money in another year.

    Building costs are very high. Every little bit of plastic and metal costs tens of dollars when you know the same item in the US – probably from the same Chinese factory – would cost a Dooley or three.

    I got some insight into this after watching a YouTube video that showed how to make a video camera stabiliser out of cheap home plumbing components for US$5.

    I went to Mitre 10 to price up these components. I stopped at NZ$217…..

    With materials being over 40 TIMES more expensive, it’s no wonder homes are expensive and property investors may decide not to waste the money when time alone will make an acceptable return.

    1. I’ve watched UK property shows where they will do an entire extension to their house for 15k pounds ($30k). Here it would cost you 30k for the plans to be drawn up, 30k for the consent, 30k for the materials, 30k for the labour, 30k for plumbing and electrical…

      1. A slight exaggeration, but you’re on the right track.

        I applied for a consent for an extension to my 1920s bungalow in 2011. It required both a building consent and a resource consent, as it exceeded the maximum allowable built footprint on the site. It was $25K to get it to the stage where I had permission to start construction.

        Since 2011, the rules have got tougher, so it would probably cost more today.

        The total renovation cost was 3-4 times the cost you see on shows like the Property Brothers, for a similar type of project and the same high standard of finish.

        1. The NBR has picked up on this and noted that in many areas there is a Australia/ New Zealand Standard but for building materials everything has to be the New Zealand standard. This makes building material more expensive than they should be.

  6. On a serious note…I am aware that there are investors that are buying homes and leaving them empty. One who I know very well told me it was less hassle than having tenants. Tenants at 30k per annum are a pain in his opinion.

    1. I wonder if the IRD look at this aspect. Seems pretty impossible to argue you bought for “investment” (ie. rental) if you never rent it out.

      Does he have multiple houses in Auckland or could he claim it is for his personal use when he is in town.

  7. One reason to buy and leave empty is flexibility. If it’s a property you added to your portfolio for the short term, you want to be able to flip it when the opportunity arises. (All this stuff is on another planet from where I live.) Holding an empty property long term is unusual behaviour if investment is the purpose, so I doubt there is all that much of it going on.

    People who have 2 or 3 or 5 or 6 houses is also a rarefied bunch, but isn’t unusual in a city that is growing increasingly wealthy and attracting executive types who just live like that. Nothing can be done about it, so it won’t affect housing costs here any more than it does in, say, San Francisco or London. And how many of those are there, 2? 12? 150? It isn’t a large enough number to matter.

    Rich people aren’t daunted by housing costs when they want to be able to see their super yacht from their hot tub.

    I think the problem rests more with investor behaviour in the way they buy properties in bulk to just bank money because they are confident they will make some reasonable return and the government won’t take it away from them like maybe they do in the country they come from. If the houses stay vacant, that’s incidental to the overall marketplace.

    I don’t mean to dismiss out of hand the effect of vacant liveable units, but it’s small and very much a minor element. There are bigger factors to worry about. And remember, all you folks at Demographia, human behaviour is not rational.

  8. John I’m sure you’re right – but one possible flaw in your argument is that the vacant houses in other cities may be due to a lack of demand while the vacant houses in Auckland may be due to lazy investors. 6% seems high considering almost any house in Auckland can be rented out in a matter of days.

  9. “Are vacant homes adding to Auckland’s housing shortage?”
    It would appear the answer is “No”. Or at least nothing out of the ordinary.
    Now Northland is different. There would appear to be a lot of empty properties there (probably holiday homes?) while Northland has some of the most sub standard housing in the whole country.

  10. Am I right to assume that the article writer wishes to dismiss the capital gains claim, because he is against a capital gains tax?

    It’s got me thinking though, within a kilometre of where I live, my street has several vacant houses, two of which have been renovated within the last 12 months, but remain empty. I’m now wondering if this means the owners are just increasing the value further, whilst sitting back and waiting for the price to reach the threshold they want for selling them.

    1. “Am I right to assume that the article writer wishes to dismiss the capital gains claim, because he is against a capital gains tax?” – certainly not, I’m very much in favour of a CGT or a land tax. It’s a hole in our tax system that should have been plugged 30 years ago, and still needs plugging.

      1. John, why do we need a capital gains tax? That is a tax on income that has already been taxed multiple times. CGT is a wet dream of socialism. Just add it to all the other jealousy based taxes they love. Death duty being another prime example.

        1. Come on Phil, even you should realise what you are saying is a bunch of baloney.

          CGT is not a tax on income at all, it’s a tax on (realised) capital gains. So therefore it is a tax for something that has never been taxed before. CGT doesn’t apply to the original purchase price, only the gain, so your claim of taxed multiple times is completely incorrect. Currently in NZ capital gains are 100% tax free at all times.

          If CGT is so socialist then why does the USA, that bastion of capitalism, have them and we don’t?

          And please, jealousy taxes? Yeah right, cos everyone just wants more tax because they are jealous of you, ha!

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