Betting on house prices: Housing speculation in Auckland
Michael Rehm; Yang Yang
Abstract – Tuhinga Whakarāpopoto
Until now the Income Tax Act’s intention test has not been used to curb housing speculation in Aotearoa. This Act could allow government to effectively control housing speculation. This paper uses a simplified equation to determine the initial (first-year) cash-on-cash return or net rental yield of a property in Auckland between 2002 and 2016. Each property purchased and rented was assessed as speculative or not, by benchmarks around modelled net rental yield against alternative investments available at the time of purchase. Benchmarks included the prevailing 6-month term deposit rate and a ‘fair rate of return’. Using this model, nearly all rental purchases in Auckland from 2002 through 2016 were speculative to some extent with the vast majority being negatively geared and operating at a loss. That behaviour contrasts to the Auckland Property Investors Association’s stance that investors focus on rental income, invest only when adequate returns can be had and do not consider capital gains when buying. Using the modelling contained in this paper to assess investment property purchases against the intention test is a way to lessen the widespread ‘betting’ behaviour of Aotearoa’s housing market.
Other reports associated with this research
Rehm, M. & Yang, Y. (2021). Betting on capital gains: housing speculation in Auckland, New Zealand. International Journal of Housing Markets and Analysis, 14, 1, 72-96. DOI: 10.1108/IJHMA-02-2020-0010
Articles associated with this research – Karere Tūhono
Media article: NZ’s housing debt dilemma
27 November 2020: Newsroom Opinion article by Building Better researcher Dr Michael Rehm, University of Auckland
Housing debt is the catalyst behind our stratospheric house prices, and our policies to manage this will be central to either a managed descent or the triage that will follow a housing market crash… >> Read More
Media article: ‘Obscene’ housing Ponzi driven by banks’ greed
14 April 2021: Newsroom Opinion article by Building Better researcher Dr Michael Rehm, University of Auckland
The Reserve Bank is laying out its plans to stimulate the economy while reining in housing prices. Sidestepping a debt-to-income limit would amount to a poisoned chalice for first-time buyers as they assume massive mortgages and will be the first to fall into negative equity when house prices inevitably ease.. >> Read More
Keywords – Kupu Hāngai
house prices, economics, quantatative, investment, tax, housing speculation, property investment
Fields of Research – Āpure Rangahau
Economics, Income Tax Act
Date – Te Wā Whakarewa
2020-06
Type – Te Auaha
Research Bulletin
Collections – Kohinga Kaupapa
Citation – Kupu Hautoa
Rehm, M. & Yang, Y. (2020). Betting on house prices: Housing speculation in Auckland. Research Bulletin, 14 June 2020, for Building Better Homes, Towns and Cities – Homes and Spaces for Generations: Affordable Housing for Generations, 4pgs. Wellington: BBHTC.
