Government legislation drives rents and higher house sales

The Healthy Homes Standards and tenancy law changes have been blamed for higher average rents of more than $500 a week.

Wednesday, March 22nd 2023, 11:41AM

by Sally Lindsay

Of 700 landlords answering a recent Kantar survey commissioned by the Housing and Urban Development (HUD) Ministry, 47% had raised rents by more than $20 a week to the end of November.

Of those landlords who had not raised rent in the past six months, 23% were considering increasing rent in the next three months.

Key reasons for 41% of landlords considering a rent increase include a desire to cover increased costs, for 51% it is matching market rates, and for 57% it is raising rents after a year of no increases.

Two out of five, or 39%, are specifically looking to cover costs resulting from regulatory changes.

Just over four in 10 landlords or 42% took the opportunity to increase the rent when their tenants changed. About six in 10, or 61%, of these landlords increased rent by more than $20 a week.

However, the desire to maintain good landlord-tenant relationships and encourage tenants to stay means some landlords keep rent levels the same.

Motivations for rental property investment

Of investment in property, 93% of landlords invest in existing property, with 8% investing in new builds and 2% investing in build-to-rent property.

The low maintenance of new builds and build-to-rent properties are the biggest reasons for 69% of investors buying new and 64% of build-to-rent. They are also seen as cheaper or more convenient than alternatives.

Interest deductibility motivates 30% of landlords to invest in new builds, while shorter bright-line period motivates 22%.

Management

Three out of five, or 60% of landlords personally manage their rental property/properties and just over two out of five, or 42%, use a property management or real estate company.

Another 5% use an individual property manager. Overall, the survey shows these results have remained fairly consistent over time.

Cost savings drive 65% of landlords to self-manage, along with wanting to be more hands on (54% like to talk directly with tenants, 50% like to be hands on generally).

Of landlords use property managers 64% use them for their regulatory/compliance expertise, 49% to save time and 46% to encourage distant relationships with tenants. These reasons have remained mostly consistent with the previous three surveys.

Buying in the doldrums

Fewer landlords have bought a rental property in the past six months - a drop of three points since May 2022, which is statistically significant at the 90% confidence level.

Four percent of landlords have sold a rental property in the six months since the end of November, which is consistent with the previous three surveys.

Reasons for 46% of those who most commonly relate to the need to improve their own financial situation, for 29% it has been changes to tenancy laws and for 25% it is the gap between mortgage costs and rent.

More than one in five landlords, or 21%, were considering selling property 12 months ago - an increase of five points on what landlords said in the last survey. A similar proportion, or 22%, were considering selling their property in the next six months from the end of November last year.

Landlords considering selling property at 49% are most commonly motivated by a desire to improve their own financial situation and 39% are concerned that mortgage costs cannot be offset against the rental income .

Regulatory changes continue to motivate some landlords to sell - 26% because of the tenancy law changes and 20% due to the new Healthy Homes Standards.

Falling house prices are now the main reason why 50% of landlords who had previously considered selling property are most likely to say they are holding on to their property, a big jump over previous surveys. Changes to the bright-line test are a reason for less than one in ten, or 8%.

Mortgage payments

Landlords are increasingly concerned about their ability to pay their mortgage, with 23% saying they are concerned - up seven points from the May 2022 survey.

One in five landlords, or 21% have had issues or concerns with their tenants. Thirteen percent of all landlords have had an issue and discussed it with their tenants.

Of those who have had problems or concerns, 15% considered approaching Tenancy Services or the Tenancy Tribunal (11% for each). Awareness is high for both services, but many landlords have not considered using them.

Collective failure

Caution has been urged with the figures because landlords can increase rents regardless of what regulatory policies are in place.

In a speech earlier this month to the Property Council’s residential housing summit, National’s housing spokesman Chris Bishop says the country’s collective failure to build enough houses has significantly impacted almost every aspect of New Zealand society – from homelessness, inequality, poverty, poor productivity, economic growth, and intergenerational mobility.

The results are in plain sight.

The Government launched a war on landlords by removing interest as a legitimate expense for rental property owners and extending the bright-line test to 10 years. They were warned it would put pressure on rents and the social housing waitlist, but they did it anyway.

Fixing the crisis

Bishop shared some of National’s ideas for fixing the housing crisis.

“First, freeing up land. The big driver of house price growth in recent decades is limited land supply. We are not a small country, but government fiat has artificially constrained where and how we can build.

“We want competitive land markets in and around our cities and I’ll have more to say on that soon.

Second, infrastructure funding and financing to make sure insufficient infrastructure isn’t a barrier to new housing. We hear the calls of local government that housing density and housing growth has to come with the right infrastructure. There’s a role for central government here alongside councils’ existing tools. And our transport planning system has to facilitate growth, not stop it.

“Third, making sure communities share in the benefits of housing growth. The political economy in too many communities and too many councils is stacked against growth.

“There’s a role for central government to help change the calculus from ambivalence bordering on outright hostility, to enthusiasm for more growth.

“Fourth, making resource consents cheaper and faster.

“I am deeply sceptical that Labour’s current RMA reforms are going to make it easier to get a consent for a house and actually get it built. The reforms are falling apart and about the only person who likes them are David Parker and Tony Randerson KC.

“Fifth, we need a more competitive building materials market. Why is it so hard to get building materials that are authorised for use in countries with similar environments and standards, like Canada and the European Union, available in New Zealand? To say it is broken would be kind. We need urgent reform.

“Sixth, we will be stopping Labour’s war on landlords and improving the rental market.

“We’ve already announced we will bring back interest deductibility for rental properties and restore the Brightline test back to two years.

“Mum and Dad landlords aren’t the enemy. They’re an important part of our housing market and the sooner the Government stops demonising them, the better.

“I’m also a big supporter of Build-to-Rent developments, a new form of rental housing in New Zealand. These developments are common overseas but rare in New Zealand.

“The Government finally moved last year to reintroduce interest deductibility for Build-to-Rent developments, which I note in passing it hilariously described as a “tax break” even though it is in fact standard tax treatment.

“If we are elected on October 14 we will quickly move to implement the other changes required to unlock Build-to-Rent in New Zealand.

“The first major change is to the Overseas Investment Act. This will give greater certainty for institutional investors to invest in New Zealand’s Build-to-Rent market. We need both domestic and international capital to help us house kiwis.

It is nuts that retirement homes and student accommodation have an easier ride through the Overseas Investment Act than Build-to-Rent developments. We will make sure they are treated the same.

“The second change relates to the tax treatment of a completed Build-to-Rent development.

Currently a completed Build-to-Rent development is treated for tax purposes as a residential building, and so falls outside the depreciation deductions available to all commercial buildings that were reintroduced in 2021. Our change will ensure that Build-to-Rent developments are eligible for depreciation deductions.

“I understand from Property Council members that, conservatively, a minimum of 25,000 additional Build-to-Rent homes could be built in the next 10 years if the Government settings were right. That’s a lot of kiwis with warm, quality, professionally managed roofs over their heads. And it would make a substantive difference to solving our housing crisis.”

Tags: rents