Insights
Ethical Hotline: Investment Properties

Great question!

You've found something unique in the investing world; an asset that can generate returns that is also considered a human right. It's time to get ethical.

The short answer to your question is– yes, you buying an investment property could make it harder for people looking to buy a home & live in it.

Here's why:

Investors and first home buyers tend to compete most directly at the lower and median end of the market. So, when investor demand is strong, it raises entry-level prices for everyone.
We're talking supply and demand.
Housing supply responds slowly to demand (as we've seen in New Zealand), so more capital chasing existing stock tends to produce higher prices rather than more homes.

But you're also asking if, because of this, it's wrong to buy an investment property. Here's where things become nuanced. You could argue that the system and how it's set up to benefit landlords and penalise homeowners is what's wrong.

By design, as in, designed by people who benefit from them, there are clear privileges to being a landlord in NZ, the kind you don't get from other investments. Things like untaxed or lightly taxed capital gains, deductible mortgage interest and the ability to leverage untaxed equity to buy more homes.
Compared to this, first home buyers are often bidding with a deposit saved from their income, which has already been taxed.

But considering you didn't make the system, is there a middle ground?

As an individual looking to purchase a second or third investment property, the most thoughtful way to approach it could be to consider buying a new build rather than existing stock. When you buy an existing home as an investment, the total number of homes in the city stays the same, and a home buyer just misses out. But when you invest in a new build (especially buying off the plans), your capital enables construction that often would not have occurred otherwise, because developers need pre-sales before banks will advance construction finance.  At least in this version you are adding a home to the city's stock.

Let's not forget there's real value in being a good landlord and even though Kiwi's are obsessed with it, home ownership isn't the only way to live.  Renting provides the human right for a decent home too. If you can provide one that's safe, warm, dry, affordable, accessible and culturally adequate then you're actively doing something good.

And finally, if you still feel conflicted about commoditising a human right, you can invest in listed property funds and other financial instruments to gain exposure without buying a property at all. And you save on rates & maintenance costs!

Hope that helps give you some perspective while you decide what makes moral and financial sense to you.

The views expressed here are of a general nature and are not specific to Pathfinder's product.