Housing – and the cost of it – is one of New Zealand’s hottest political issues.
Housing – and the cost of it – is one of New Zealand’s hottest political issues. Despite the hyperbole, the fundamentals are sound and it remains one of the best long-term investments according to Alan Henderson, Director of property investment experts Erskine + Owen.
As a property investment expert, as well as an experienced residential investor himself, Alan Henderson of Erskine + Owen has ridden the ups and downs of a few cycles.
The much talked-about affordability gap in New Zealand’s housing market – where our cities are among the most expensive globally to own homes – doesn’t scare him at all.
‘Back in 2011 it felt similar – we were in the depths of a recession, the US housing market had just imploded and people were thinking the sky would fall,’ says Alan.
‘People thought the economy, financial markets and property markets had fundamentally changed. But we crunched the numbers and didn’t agree.’
When you took a rational look at the influences and removed the panic, the pattern Alan saw then came down to the simple economic fundamentals of supply and demand. There were more potential buyers than houses on offer. So he predicted that when the fear lifted and finance became easier to obtain, demand would surge and the market would strengthen. It was this message that he took to New York and other international destinations, to court potential investors.
Many didn’t listen. But those who agreed with Alan and the Erskine + Owen analysts back then, went on to invest and have since made handsome gains from their portfolios.
But surely now in 2017, with the cost of housing at stratospheric levels, it’s different?
Housing affordability is of course, high on the agenda as an election issue and already a cornerstone of the emerging debate, with Labour making a raft of recent policy announcements – such as reducing the tax breaks for property investors.
Alan’s philosophy, now as it was six years ago, is to look beyond the hype and rhetoric at the market fundamentals.
‘We always come back to supply and demand. When you look at the bigger picture and the factors that are really influencing the market, it makes no difference. Yes, government policies will have an impact in terms of flattening things for a while – and we’ve definitely seen that with the loan to value ratio rules. But the supply / demand imbalance means that housing is still an excellent long-term investment.’
On the one hand, demand is high. As well as immigration remaining strong, there is a steady flow of ex-pat Kiwis returning home. No government wants to tamper too much with immigration because it is so key to economic growth.
On the other hand, supply is constrained and hard to solve. In Auckland, the metropolitan urban limits set in the Unitary Plan are firmly in place. The building consent process could be loosened to fast-track development, but the relatively slow progress of the now abolished Special Housing Areas shows that this is also a hard nut to crack, and can result in a log jam somewhere else in the process. The Resource Management Act can be eased significantly to enable development; but should a Labour-Green coalition prevail in September, the RMA is likely to be seen as sacrosanct.
‘There is discussion about encouraging people to the regions, to smooth and spread housing demand, but that has inherent flaws as a concept. You can’t send people to the regions without the jobs and economic strength being there to sustain them – and how can you police it?’
Alan’s philosophy as an investment adviser could perhaps be summed up as ‘carpe diem’.
‘No matter where you are in the cycle there are always, always reasons not to invest in residential property. You don’t want to buy at the peak – but how do you know where the peak is? You may be waiting for interest rates to drop – and before you know it they’re on the upward cycle again. When I’m discussing this with any investor, there’s so often a reason they’re waiting. But there’s never a perfect time to buy – and when you look at the long-term performance of property, it doesn’t matter. It delivers great long-term returns.’
The current squeeze on lending is one factor that Alan can see changing. Alongside the LVR rules that have reduced access to finance, banks also tightened lending criteria in late 2016, driven largely by the Australian parents needing to repatriate finance to shore up their balance sheets. But at some stage this must reverse – history suggests it will.
One aspect of the current debate that is ill-informed Alan believes, is the blame frequently placed on the shoulders of property investors. But investors form a crucial part of the housing landscape, and will be increasingly key providers in future years as long-term renting becomes a more central proposition.
‘Property investors make up about 40% of the market. There’s only a very small component of the investor community that buys and flips properties to make a quick buck,’ he says. ‘If you work to shut investors out of the market, it will only have negative consequences for the sector. For example, who will fund the development we so urgently need, if not investors?’
As a response to the tighter lending criteria, and to give potential investors more options, Alan and the Erskine + Owen team have developed an innovative property investment vehicle in the form of syndication. It’s a way for people to access the long-term benefits of property investment when they don’t have the necessary up-front capital to go it alone. Open only to wholesale investors as defined by the Financial Markets Conduct Act, the syndicated offer enables investors to collectively access a portfolio of selected properties, sharing the cost and risk.
‘We’ve developed this because we could see many would-be investors wanting to get into the market and not being able to. We’re very excited by the potential, and have seen huge interest already,’ says Alan.
Strong performing regions – such as Queenstown and Hamilton – are in the frame as well as the main centres. Potential purchases are carefully analysed for rental return and long-term growth, with the benefit of Erskine + Owen’s ten years of property investment experience informing each purchase decision.
In addition to seizing the day and not being deterred by negative voices, Alan endorses the long-range view when it comes to investing.
‘Personally, I’m a minimum 10-years investor. I encourage my clients to do the same. In ten years, given where demand and supply is now, there is no way I can see that property value won’t have lifted significantly in key areas.’
If you are interested in using the expert buyers’ agent services of Erskine + Owen, click here to get in touch with one of the team today.