No doubt rents will rise if rebate goes
Friday, March 12th 2010, 4:06PM 
16 Comments
It was pleasing to see the NZ Property Investors Federation come out and put the issue of rent rises on the agenda this week.
For those who missed it NZPIF vice president Andrew King calculates that if the government goes ahead with changes to depreciation rules for residential property investment then rents are likely to rise.
He says landlords would lose on average $1750 a year if they lost the tax deduction and this amounted to $34 a week, which would be passed on to tenants.
There is no doubt that any changes to investment rules will impact on the economics of property investment.
After all it is an economic equation which needs to balance up. There is little point in making an investment if the returns are not there. You need to remember that most investors are after cash flow and income; they are not speculators chasing quick capital gains.
Rents are one of the key inputs into this equation and another, from a cash flow perspective, are depreciation claims.
It seems absolutely logical that if you change the rules around depreciation it will have an impact on rents.
So Prime Minister John Key sounds like he has had some dud advice when he told TVNZ that the advice he has received is that proposed changes will have little impact on rents. (We’re looking to find this piece of advice at the moment).
Likewise arguments that tenants set rent is only part of the picture.
What hasn't been touched on is that if other changes are made to penalise Kiwis who choose to prepare for their retirement by investing in property then there is absolutely no doubt rents will rise.
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Comments from our readers
On 12 March 2010 at 6:02 pm John said:
Rents are clearly rising already in city suburbs, especially in Auckland & Wellington. Rises are significant since the statements about tax, and tenants are aware so are expecting rises, as we discovered yesterday. On 12 March 2010 at 7:40 pm Lee Kammerer said:
Andrew King has to be dreaming if he thinks rents are going to rise in this economic climate. Greatly increased demand is the only thing that is going to push rents otherwise landlords are going to take the hit and suspect a good number are going to leave the industry if they haven't already. On 13 March 2010 at 10:32 am Steven said:
If Lee is correct and a good number of landlords do leave the market then surely as he mentioned this would impact on the demand. As less properties are available to rent therefore rents would obviously increase. On 13 March 2010 at 12:31 pm Anne said:
Lee has missed the point that landlords leaving the industry because they can't afford to "take the hit" is presicely what is going to cause a shotage of rental properties. That shortage will cause increased demand for the remaining rentals, which willpush rents up. On 13 March 2010 at 6:35 pm Mike said:
Blatant political statements like this which lack any analysis only undermine the credibility of Andrew King. Interest rates, employment, immigration etc are all well known to be greater influences than tax. If profitability of property investment is reduced due to tax, prices simply fall to match as in farming or any other industry. Also bear in mind that lower or static property prices may be helpful to first home owners and thereby reduce rental demand. On 14 March 2010 at 8:55 am Craig said:
I agree with Mike, it seemed very self-serving. The tax changes will probably cause an easing of house prices anyway, thus some of the people renting at present might be able to afford to buy themselves a house of their own. On 14 March 2010 at 10:07 am Darren said:
The number of people renting who will be in a position to purchase during a slowing or drop in property prices will be minimal overall and counteracted by the next wave leaving home. Rental demand is still continuing and investors no longer purchasing will constrict supply. Some investors are bailing from residential property investment now. Is the government going to act increase supply of rental properties? Rents are far more likely to go up. On 15 March 2010 at 7:49 am Bruce Fuller said:
One of my concerns with landlords is that many do claim a tax refund for "repairs". I have heard the boasting sometimes. Having looked at a great deal of properties over the years (I have kids who rent) many have never been touched in any shape or form. It is easy to buy a 20 pail of paint or a new roof for your own property but claim it against your rental property. Maybe this angle should be looked at closer by the tax deparment. On 15 March 2010 at 10:11 am Regan said:
Wasn't that 'warning' about rising rents more to do with posturing? Property investors trying to either drive up rents or avoid the tax changes, or both! When their beloved capital gains have evaporated, negative gearing suddenly looks like the stupid investment technique it really is; rents have been too low (real rate of return) for ages. When the rest of the under-capitalised ladder climbers exit values will fall, first home buyers might get a look in so the supply thing might be balanced (still subject to the usual factors such as migration) as renter become buyers. On 15 March 2010 at 10:49 am Jim said:
Bruce, you are a winner alright. Sweeping generalisations such as your comments are unhelpful and just perpetuate such myths about landlords. Why don;t you buy one for your kids and find out for yourself Somehow I don;t think you will!!!!!!!!! On 15 March 2010 at 12:20 pm Jim said:
Regan, I do not believe property investors prevent people from buying their first home. I think it has more to do with the ability to save. Many would be first home buyers would sooner spend their money than save for a deposit. If you really want to make a difference to the Tax take dump working for families which is the biggest tax rort going. Just a hand out to bludgers On 15 March 2010 at 6:36 pm Adam says said:
Fella's all of your speculation is a waste of time and the arguing is ridiculous.
Let's face it there are many things that may happen. The biggest contributing factor will be the overall economy and interest rates as it always has been.
All these other things i.e: tax and immigration, are just variables, the government is talking it all up in order to keep house prices lower i.e keep inflation down, which isn't a bad thing really.
On 17 March 2010 at 9:53 pm Florence Moore said:
I am currently letting a property in Nelson. I am asking substantially more than I did last year and there is still so much demand that it is almost overwhelming me. Obviously a lot of previously available rental property has disappeared for various reasons so what is going to happen to all these people who need accomodation? I can only see rents rising even more as tenants compete for the few available properties, especially if interest rates on mortgages go up as we have been warned they will. Presumably market forces will correct the situation and investors will again buy property for rental until the unmet demand is satisfied. Or am I missing something? On 18 March 2010 at 9:56 pm John said:
To be honest, you all need to focus on buying property now if you are investors. Lots of stock out there and choice. Good time to buy! Once you realise that house prices longterm will continue to rise and the see the small impact that the tax changes will make, it may be to late to get the bargains that are out there now. And rents are going up now, which will more than cover any change in tax law. However with the current uncertainty in the market I can't see interest rates going up anytime soon..another plus.
Supply and demand rules.
On 19 March 2010 at 4:08 pm Blog: The Landlord says… » Blog Archive » Not as much tax in residential property as TWG says said:
[...] Blog: The Landlord says... « No doubt rents will rise if rebate goes [...] On 22 March 2010 at 11:44 am ray said:
The sooner the Government realises that unless they outlaw Family Trusts and LAQC then all of their comments about depreciation is a load of hot air.
Those Landlords who do operate at a profit are being screwed by the income tax system and no wonder they want out.
Rents will rise in any case because councils have deliberately over priced their fees to stop new housing from occurring.
We have had nine years of a Labour Government and Green Party whose sole purpose in life is to regulate, regulate, and put up costs. Get used to it folk this is the norm.
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