Most property speculators are New Zealanders who do not even earn the cash returns they would reap from a six-month term deposit - giving the lie to the contention they are not investing in property for capital gains.
Dr Michael Rehm, a senior lecturer in property at the University of Auckland Business School, says preliminary PhD research by one of his students is revealing how property speculation has fuelled high prices and the Auckland housing crisis.
The research points the finger clearly at Kiwi investors (government figures show foreign property investors are involved in only three per cent of house sales here) and a strong motive of tax-free capital gains.
The student, Yang Yang, has used data available to the government and Inland Revenue to track thousands of house sales over the last 18 months and, using a newly-developed speculation index, has identified potential speculative house purchases.
Yang has benchmarked cash flow returns from the investments against a risk-free alternative (a six-month term deposit) and other risk-appropriate investments offering higher returns.
"What he's found is that, if you put capital gains aside, 97 per cent of speculators are not earning as much in cash returns as the risk-free alternative," says Rehm. "So only three per cent are earning more than a term deposit.
"If you compare their returns with the risk-appropriate option, 100 per cent do not make as much in returns."
Rehm says this data runs counter to the picture painted by landlord lobby groups who often maintain landlords are in it for long-term cash flow, not short-term capital gains.
The Yang research also looked at two groups of investors - those who bought with a mortgage and cash buyers.
"Even when you look at cash buyers, 72 per cent are not even achieving the risk-free returns, so only 28 per cent equal or exceed the return from a six-month term deposit. If that doesn't reveal what the real motive is for property speculators, I don't know what does."
The research begs the question of what to do to stifle speculator- and bank-fuelled investing in property. Rehm says: "I wasn't too surprised at the findings - I have always suspected the housing crisis was supported by domestic residential property investors and owner-occupiers - but I was disturbed by the degree of speculation."
Research covering the years 2003-2008 showed owner-occupiers held onto their homes for a median of five years while investors held on for a median of four.
The "bright line" test introduced in 2015 is designed to make someone who buys and sells a property within two years pay tax on the profit; Rehm says it is too early to assess its effect.
"What I suspect is it will just alter behaviour. The bright line test says you must pay tax if you buy and sell within two years; but if it is slightly over two years, you can beat the test and avoid paying a cent."
It might catch and discourage "flippers" - those who bought and sold a property for profit just an hour after the ink was signed on their deal.
There was also, especially in the election campaign, much discussion about a capital gains tax, he says: "Yet we already have legislation covering this - the Income Tax Act of 2007. The problem is that the act requires the IRD to somehow gauge your intentions...did you intend to buy this property to make a profit or not?
"They have admitted themselves there is no documentation or other hard evidence which can identify someone's intentions - so they don't call anyone on it; nothing is done. That's the tragedy of it."
Rehm says Yang's research will make "pretty horrible reading" for many when complete - but it offers a chance for government to deploy the anti-speculation measures of the Income Tax Act.
"We have information that is already available to the government or government departments," he says. "We hope to be able to share this with the government in the future."
The recent moves keeping LVR lending restrictions in place were a step in the right direction and he thought there could also be measures taken to stop speculators funding property investment through the banks.
"We could say to speculators: 'Use your own money. Don't go to your friend at the bank and leverage the equity in an inflated property.' That's what happens with some of these people - they don't actually use any of their own cash."
The other measure which could be taken was to lower debt-to-income ratios which were far too high in New Zealand, with most mortgages sitting somewhere between 9-12 times borrower income.
"Rationing credit would solve the problem, I am pretty sure of that," he says. "But the politicians are terrified of it because they worry that it could bring the whole thing down; the banks don't like it either."