The 2018 census found that around 95,000 homes were empty nationwide. That’s one in every 20 homes. The bright-line rule in New Zealand means homeowners must pay income tax on property profits sold less than a decade after purchase, but this still only applies to house sales. Amid New Zealand’s growing housing crisis, the question emerges: should investors be taxed for keeping homes empty?
In 2022, one in four rental households spent more than 40 per cent of their disposable income on housing costs. Stats NZ says, “In the year ended June 2022, for households with expenditure on housing, the average cost for housing per week was $369.80, up from $358.70 (3.1 per cent).” It’s only up from here.
Stats NZ continues to state that “In the year ended June 2022, the proportion of households spending more than 40 per cent of their income on housing costs was 15.2 per cent for all households, 25.9 per cent of households that made rent payments, 18.7 per cent of households that made mortgage payments, 3.1 per cent of households that owned their dwelling outright. These proportions were unchanged compared with the previous year.” See https://www.stats.govt.nz/ for more.
Why Homes Are Left Empty
Urbanisation and population trends, new government policies, dynamics in rental markets – the list of reasons why homes are left empty is vast. However, a majority of them are left vacant intentionally. The Empty Homes report – see https://www.emptyhomes.co.nz/ for more – said around 10 per cent of all of the empty homes surveyed were being kept empty deliberately. This figure comes with some uncertainty – rules to restrict foreign homeownership in New Zealand in 2018 were changed, making statistics on the housing stock and how many homes are owned by overseas investors murky.
Overseas, places such as Canada and Ireland have their own taxes on empty homes – sometimes called ghost homes. Ireland charges a tax of between 200 and 300 per cent of rates. In Vancouver, there’s a tax on empty homes where 3-5 per cent of land value is added on. It’d be another source of government revenue that could ultimately be used to further promote housing equity. Queenstown could potentially generate $255 million a year if Ireland’s approach to empty homes tax were applied to the city.
Investors’ Reasons
Investors keep homes empty for many reasons. Some investors purchase properties with the intention of holding onto them and speculating on future increases in property values. They may not have an immediate need for rental income and are banking on the property’s value appreciating over time, so it’s a strategic choice; house flippers wait to sell at the most profitable time.
Investors may believe that the current rental market conditions could be more favourable, such as low rental demand or declining rental rates. In such cases, they might wait for more favourable market conditions before leasing the property. Investors may also keep a property vacant for personal use if it’s their holiday home or future retirement residence, and they don’t want to deal with the implications of renting it out, which include maintenance costs, renovations, and other upkeep tenants bring on. The Empty Homes report showed that of the 95,000 residences considered empty in the 2018 census, 8 per cent were kept empty for personal use (often as a second home). 35 per cent were empty because they’re holiday homes.
Occasionally, investors may face regulatory or legal challenges that prevent them from renting out a property. These issues could include zoning restrictions, unresolved property disputes, or non-compliance with local housing regulations. Sure, investors may miss out on rental income and contribute to reduced housing availability. Still, with these factors in mind, it helps those who don’t own their homes to rationalise investor decision-making. The Empty Homes report said that of the 95,000 homes left as ghosts, 23 per cent were empty for renovations and repairs and that about 17 per cent were vacant rentals, sometimes due to non-compliance with Healthy Homes Standards.
What’s Normal?
Empty Homes says having some vacant properties is normal. “Experts have advised that a typical housing stock has between 2.5 per cent and 3.5 per cent of homes that are empty. There are exceptions, though, such as in large geographical areas with low populations (e.g., rural or mountainous areas). Regardless, a high empty home rate does not necessarily signal an issue such as extensive land banking,” reads their website’s data, linked here: https://www.emptyhomes.co.nz/Numbers
For those without roofs over their heads, it’s an especially bitter pill to swallow, however. Per Stats NZ, 1 per cent of the population is severely housing deprived. “At the time of the 2018 Census: 41,644 people were severely housing deprived; 3,522 people were without shelter (e.g., rough sleepers, improvised dwellings); 7,567 people were in temporary accommodation (e.g., night shelter, motel) and 30,555 people were sharing accommodation (so temporary residents in a severely crowded private dwelling).
“Almost 1 in 9 New Zealanders lived in an overcrowded home in 2018. 4.2 per cent of households were moderately crowded (needed one additional bedroom). 1.6 per cent of households were severely crowded (needed two or more additional bedrooms),” continues Stats NZ, which you can read more of here: https://www.stats.govt.nz/topics/housing/
Who Is to Blame?
So, should investors be to blame for leaving homes empty amid the housing crisis? And should they be taxed? Investors exacerbate housing affordability, imbalance supply and demand, and contribute to the global housing crisis, as do overseas owners of New Zealand homes. Their decisions influence other areas of society broadly. Not all investors are the same, though; some invest in housing with the intention of providing Kiwis with safe and warm homes in which to live.
Addressing the housing crisis ought to require a multifaceted approach. The housing supply should be increased, the government regulated, initiatives to promote affordability exist, infrastructure developed, and foreign investment monitored—all with the goal of better understanding housing problems and achieving housing equity. In sum, to blame investors is to make a sweeping generalisation. Every New Zealander deserves a place to call home.