The Ethical Dilemma: Is Property Investment Morally Sound?

Is it ethical to own investment property? Are you providing essential housing or contributing to skyrocketing housing prices, making it harder for others to enter the market? Finance expert Diana Clement delves into this complex issue.

The Personal Struggle

David Hanna, a thoughtful property investor, has grappled with the ethics of his investments for years. In the 1990s, David purchased his first rental property to supplement his retirement, prompted by government signals that NZ Super might not be sufficient. Over time, however, he began to question the broader ethical implications of property investing.

David, whose day job is director of Wesley Community Action, acknowledges that being ethical on an individual level doesn’t address the wider systemic issues. “You can be ethical as an individual landowner,” he says. “You can be nice; try to be a respectful and sensitive landlord. That’s only at the individual micro-level. At the wider economic level, it’s unjust because the capital gain is moving a whole lot of wealth from one part of the population to another.”

The Ethical Debate

Property investors are often criticized for driving up house prices, making it difficult for first-time buyers to enter the market. Sharon Cullwick, executive officer of the New Zealand Property Investors Federation, argues that landlords provide a necessary service. “If landlords aren’t providing a house for someone, who is?” she asks. Social housing can’t meet everyone’s needs, and not everyone wants to or can buy their own home.

Kay Saville-Smith, research director at Cresa, offers a more nuanced perspective: “It can be ethical, but it typically isn’t,” she says. The shift from viewing housing as a necessity to seeing it as a commodity has raised significant ethical concerns.

Historical Context

The transformation of the housing market into a property market began in the 1980s. New Zealand had high home ownership rates and social housing for those who couldn’t buy. However, the share market crash and the collapse of the commercial property boom changed everything. Frightened by the crash and government warnings about NZ Super, many New Zealanders turned to residential property investment.

By the early 2000s, property investment associations had emerged nationwide, encouraging ordinary New Zealanders to borrow against their homes to buy rental properties. Between the 1986 and 2018 censuses, the number of homes held by investors increased by 191%, while those held by owner-occupiers grew by only 30%.

A Necessary Evil?

Kay Saville-Smith’s nationwide survey of landlords in the mid-1990s revealed that most investors viewed property as a commodity for speculative or long-term returns. Many saw tenants as a necessary nuisance rather than legitimate individuals with needs. “Sometimes [tenants are] an unnecessary evil, and they don’t actually even rent out their properties,” Kay says. “Tenants are just problems for landlords. They’re a source of income to pay the mortgage and tide the property over until it makes a capital gain.”

Despite these issues, Kay argues that there is nothing inherently unethical about investing in property. However, she cautions against pretending that property investment is solely about providing housing services, calling it a form of “gaslighting.”

Capital Gains and Social Impact

The ethics of property investing extend beyond the landlord-tenant relationship. Activists argue that the influx of investors has driven house prices to unprecedented levels, locking low-income and some middle-income people out of home ownership. Housing activist Paul Gilberd at Community Finance points out that every additional home taken out of the market for owner-occupiers limits opportunities for others to lift themselves out of poverty.

Homes have become commodity assets aimed at capital gain, Paul says. “Rents don’t cover costs, which means it’s not a rational investment decision. It’s pure speculation.” He raises serious ethical questions about the motivations of such investors, noting that many tenants pay more than 50% of their disposable income in rent, with 70% of tenants in the private rental market receiving government accommodation supplements.

Providing a Choice

The New Zealand Property Investors Federation (NZPIF) rejects the notion that property investors are unethical. Sharon Cullwick emphasizes that tenancy is highly regulated and that investors supply a service to a market with demand. “Landlords provide accommodation to someone who wants it,” she says. “People have choices, and who are we to restrict their options? Some people do not want to own a property and would like someone else to provide housing for them.”

In conclusion, the ethics of property investment are complex and multifaceted. While individual landlords can strive to be ethical, the broader systemic issues remain contentious. As the debate continues, it is essential to consider the historical context, the motivations behind property investment, and the social impact on tenants and the wider community.