After a year of steady-as-she-goes tracking of Auckland rental prices during 2021, behind-the-scenes factors which landlords have put off confronting may rise further up the to-do list this year.
Coming to fruition during 2021 were changes to the amount of loan interest landlords are able to claim back, rising interest rates on the loans themselves and a Healthy Homes standards compliance cut off.
Kiri Thompson, director of Barfoot & Thompson said that during 2020 and 2021, while these factors weighed heavily on some landlords, most were reluctant to put rents up in the thick of Covid-19.
This reluctance is borne out in Barfoot & Thomson's 2021 rental figures which have remained steady despite these pressures bubbling beneath the surface.
"Now we're back to the new normal there's a lot of deferred increases the landlords have had to absorb," said Barfoot.
Figures for the latest quarter (Oct-Dec 2021) of Barfoot & Thompson rental analysis are still pending, but price movement was minimal throughout the year, with the average rental cost for a 3 bedroom house in Auckland sitting at $611 per week during November 2021.
During the third quarter, ending 30 September 2021, which took in the most severe of Auckland's Covid-19 restrictions, the average weekly rental cost moved less than $1.
The phasing out of tax deductibility for interest paid rental property loans began to bite existing landlords from October 2021, with owners of rentals purchased before 27 March 2021 now on step 1 of the phase out plan and able to claim only 75%.
The graduated phase out, which has some exclusions for new builds, will be completed by 1 April 2025.
"Interest rates have almost doubled, from a low 2% to 4% so it's quite a big hike. Most people are on a fixed term but probably only for another 6 months,
"Add to this that they can't deduct it like they used to, we're talking hundreds extra they'll have to pay. Landlords that were cashflow neutral may have to dip into their own pockets," said Barfoot.
Helen O'Sullivan, CEO of Crockers doesn't expect the changes to create a discernible move in rents.
"Landlords have an eye on it of course, but good landlords have got a long term view, they’re always cognisant of cost rises and falls but your rent is set by the market and the quality of the property,
"It’s not as simple as saying my costs are up 5%, I’ll put yours up 5%."
Barfoot said any increases are unlikely to be large, and landlords can only review rent once a year, but despite home owners doing well in terms of their property value, they will be facing a shortfall in real terms.
"Everyone's properties have gone up but you can't pay your mortgage with your capital gain and the rent doesn't cover the mortgage in a lot of cases," said Barfoot.
Despite this, Barfoot says landlords would prefer to take a cautions approach and leave a property empty for a time, rather than take on tenants perceived as high risk, given the abolition of the no cause 90 day termination clause in February 2021.
In this environment, tenants will need to work even harder to prove their rental chops and having references and other paperwork ready to go puts them in a good position.
At the same time, they are less likely to settle for something substandard.
"The advent of the Healthy Homes standard has meant tenants are much more aware of the comfort value of a well insulated, well heated home. We were seeing that expectation from tenants even before July [the implementation date]," said O'Sullivan.
This time of year is typically musical chairs time for student accommodation as people return to the city for the new academic year, but the last couple of years have been a bit different with international students out of the mix.
Living with Covid-19 has also had other ripple effects on rental behaviour, O'Sullivan says.
"After each of the lockdowns we’ve seen an uptake to exit group arrangements and go into studio on their own or with a partner."
She puts this down to work from home pressures during lockdowns which in many cases saw "four people each working in their bedroom every day."
There has also been a shift away from the central city towards the suburbs for those who are staying with a group flat arrangement.
This might reflect a growth in work-from-home or hybrid arrangements or the opportunity to attend tertiary study remotely, thus reducing the need for proximity to the city for transport reasons.
O'Sullivan says supply of rentals in Auckland is reasonable at the moment, but the demand is stronger in the suburbs, meaning there are plenty of good, reasonably priced apartments available in the city.
"In the city, the big change in the market was due to Covid and absence of international students and new migrants,
"Enquiry is up in the city, not back to pre-Covid levels, but it has improved. Demand softened in the city when pandemic started and hasn’t changed a lot," she said.
New Zealand has just over 600,000 rental households, out of a total of 1.9 million, according to the the latest Statistics NZ dwelling and housing estimates.
107 Comments
There are more applicants than there are rentals available... competition for limited spaces. It is the main and only reason that rents are moving up. Also Jacinda put more money into tenants pockets, increasing the AS in 2018 and increasing the benefits and minimum wage.
More applicants than rentals? So why do we have 590 for rent in Hamilton....shouldn't it be zero?
In the meantime emergency accommodation is overflowing costing $1,500 per week. Double that for some families with kids (2 x units supplied) ie $3k taxpayer cash per week...plus their benefits on top. Say $200k a year for one 'family' borrowed off our young peoples future.
Absolute balls up of a system.
Yes good luck to landlords...
Tenants should keep in mind the legislative changes that include market rates as important yardsticks for what is being charged. Where there are any increases that are way over market rates, tenants should have a good case at the tenancy tribunal.
Landlords should think very carefully before making any significant increases - population growth has ground to a halt, and lots of new rental supply is coming on line.
Especially landlords with older housing - the new shoeboxes may be far far from perfect, but they will almost always be much more comfortable and warmer and drier than older properties.
We flat out said no to our landlord. He quickly backed down and won’t be increasing the rent.
Easier and cheaper to just keep good tenants apparently.
He’s no cash flow to fix up the house for next tenants, as all his wealth is on paper. Easy to use that to our advantage.
You know the tenants are starting to become the more powerful party when this starts happening.
https://www.trademe.co.nz/a/property/residential/rent/waikato/hamilton/…
That might be more indicative of the local market in Hamilton than anything else. I can only talk for here in Napier where one of my neighbours who rented had to move out because the owner wanted to move back in and they have struggled for months to find a place to move in to. A quick TradeMe search shows the grand total of 36 properties currently available for rent in Napier - and prices look awfully high to me. Of course, we also have HUNDREDS living in hotels here in Napier too....who'd love a place of their own.
A high of 17 in the capital tomorrow and 28 in Auckland. We wouldn't have seen a sub 20 degree day in months.
Does anyone else think Auckland's weather has got a lot better the last few years? Summer is very nice these days, very consistently hot, and autumn is good too (and even June is pretty good). Winter and spring suck but never that cold.
Yeah I think it's got better. We seem to be having Indian Summers year after year, warm through to mid May.
Yeah winter and spring aren't great, rainy and unpredictable, but as you say at least hardly ever cold. Winters and springs are usually a variant of awful / crappy almost anywhere.
Auckland has lots of problems but climate isn't one of them - a very good climate in my opinion, wouldn't be many better (Sydney might be, although at times a bit on the hot side in summer). The long, warm (but hardly ever over hot) summers are great.
Along with a few other things, Wellington's 'summer' climate is a big put off to living there for me.
Another summer of blocking highs and tediously hot days? Only a matter of time before we end up with another 100 day stretch with no rain and a water shortage again. Even as recently as five years ago you could lock in some decent thunderstorms and squalls for Auckland in Nov/Dec, but we haven't really seen that in the last few years. It's quite a shift, I'm not sure we fully appreciate just how big it could be if it keeps building the way it has been. We're also overdue a properly cold winter - I mean really cold.
$500p/w attracts low quality enquiries, up it by $100 to $600p/w all of a sudden you get lots of quality applications!
People search properties online by their budget and usually happy to pay higher than asking to secure the house (location/schools..etc)
You think you charging too much but apparently it’s the other way around
You either rent the house or rent the money - in either case the cost of ownership of property has skyrocketed so the government has indirectly pushed rent prices up. Was this intentional to try to eliminate private landlords and highlight them as the scapegoat for the govts failure in all areas of housing and monetary policy?
Landlord notice:
Raising your rents will improve the quality of your tenants.
No one will buy a Rolex if it's being sold for a $100 dollars but every one will pay $1,000 for a Casio that has gone through a few cosmetic changes.
A lick of paint and a new price for a new year.
Raising your rents will improve the quality of your tenants.
Ah yes, tell that to my neighbour who put up rent to $950 p.w. (about $150 above the going rate in the area) last year and got an amazing new tenant in mere weeks! Oh... forgot to mention he only stayed for 3 months because it turns out, he was cooking meth. Renovation have been going on for a few weeks now, property has been sitting empty for more than a year! (Reno started months late due to lockdown)
CWBW ....you are the "classic" kiwi landlord ....quibbling over 10 bucks, hunched over your laptop, looking at your Excel spreadsheet thinking hmmmm ....where can I save some more moolah !
I have just finished after 10 years, being a landlord in the USA and my best and longest held property, I was getting 14.4% gross return ......never raised the rent at all the entire time ....tenant was great and that same tenant went on to happily buy the property (nearly double what I paid) ...had a fantastic "no nonsense" property manager, who I paid well but she took care of everything for me..... and because the property itself was fantastic value, I paid cash (probably around the cost of a deposit now for an average AKL property) including great renovations to bring it right up to an excellent spec.
I would imagine you probably have multiple properties, with a smallish mortgage over the portfolio ....while some, if not most properties being bought a few or many years ago. So in your world, you would of done very well financially, so good for you BUT I get sick and tired of those landlords that think they can raise rents whenever they like and always think there will be someone there to rent them .....I know full well that right now inflation would be running at a "true" rate of 10%+ while wages/salaries have not gone up anywhere near that. Also, for the higher end of the market, because of covid, there is not the corporates coming from overseas for long term rentals.
But the icing on the cake, is that the TAXPAYER is paying for an accommodation supplement to support rents, while I realise your tenants may not be in that situation - but many landlords are.
Before you think I am "cherry picking" I got a huge shock last year when Labour negated the ability to write off your mortgage interest against income - I never thought that would actually happen. While I am also aware landlords now have to provide "healthy homes" - however, there shouldn't be a need for this, but there is - and it's because landlords don't want to spend the money !
So you just keep raising those rents CWBW ....all that will happen is tenants will squeeze more and more people in and those annual "lick of paint and repairs" will just get more expensive...while as far as starting out being a property investor now in AKL, as I have said before, "you would have to have rocks in your head" .....while you are sitting there under the "greater fool" theory, that someone is going to come along and buy one of your properties at your inflated price .......best of luck !
Also having been a property manager in central AKL in the 2000's, you know what my biggest problem was - getting landlords to spend money !
If I was a renter now, I wouldn't blame anyone at all for going on a "rent strike" .....this whole NZ property "ponzi" scheme has just been too one sided for too long....and there will be change ...whether it comes from overseas or within NZ ....nothing last forever mate.
It's sure a privilege to get a long reply from the horse.
If your're right that the inflation is running at 10%, then a rent increase of 10% aren't really increases in real terms for tenants and there's nothing wrong and exceptionally charitable on us adjusting only for inflation.
Did you yell at supermarket for raising the prices? What makes you think landlords should be solely responsible and be the punchbags for renters' cost of living?
Housing isn't a Ponzi, if it were, every other investments could be classified the same by your definition.
And who says housing is one sided in favour of landlords? Where's the healthy landlords act?
Your problem is wages aren't catching up with inflation, it has nothing to do with us.
Hi CH were you getting 14 percent return based on the original purchase price or cost including the renos. And you did not raise the rents over the entire ten years you held which meant that you had an out of this world cashflow for a small outlay. I would not have imagined that rents in the USA are that steep as to provide over 14 percent yield. No doubt that could have been much higher based on the current market rates. BTW can you tell me how much tax is payable on the capital gain
HW ....yep it was a 14.4 % gross return on the cost of the property, including all renovations ....remember I bought the properties just after the GFC, so much cheaper, so managed to do this one (first one) with cash only and as I said, about the same as a deposit for an Auckland house now....rent for this one was $1800 per month, so $415 per week (3 bds, 2 1/2 baths, internal garage townhome, on a train line 12 miles from the city centre) .....the capital gains around 6%, but got half of that back, as no other income in the USA.
So while I was concentrating on the USA, I was watching Auckland prices just get more and more ridiculous - while gross rental returns were diminishing, so that is why most "mom n' dad" investors in AKL are relying on capital gains and why I would never invest in AKL again.
HW2 ....from a taxpayers perspective no matter what the country, all residential property investors should pay a capital gains tax...and in NZ's case to offset the cost of the accommodation supplement and infrastructure of new residential developments....it's a "win win" as they say ....the big question is what percentage ???
Prices for newly let rentals (flow) are pulling sharply up and away from existing rental prices (stock) at the moment, so it is pretty obvious that rental prices overall are going to increase next year as these increases wash through into stock prices.
It is worth noting though that this trend was evident before Covid and it was only a significant drop (3%) in new rental prices between March 2020 and June 2020 (lockdown) that prevented rents breaking out of the steady circa 3% growth per year trend that we have seen since 2012.
I think it is now safe to assume that rental increases will break through the 4% annual increase next year. This will obviously increase demands for rent controls, better tenant protections, etc.
Yes all this is true. Also people need to remember that with inflation running at 4.9% then if rents are not increasing at 4.9% then they are getting cheaper.
journalists have a responsibility here to point this out and not just say “rents are going up 5% per annum OMG!!!” Just to get clicks.
There is zero net immigration and a flood of housing supply hitting the market.
Landlords can attempt to raise rents all they like, but they still need to find suitable tenants that are willing and able to pay it.
And we're not even getting started on the cost of voids between lettings.
The government just needs to stop putting a floor under rents with their idiotic accomodation supplement.
Wishful thinking at this point. We rented out our family home in Lower Hutt in November 2021, got close to 100 applicants in 2-3 weeks.
It was a pretty terrifying exp. - we all know there are a lot of renters struggling to find good/any place but seeing it yourself is a different exp.
Anecdotally just around the corner from me is a block of brand new town houses still for rent after what must be about a month.
Thinking back, I went to a Williams corp open home a year ago (maybe longer?) and they were guaranteeing something like 1 year of rental income for investors. I wonder if the block near me has something to do with that.
At some point the other shoe has to drop. We're building houses flat out while selling the dream of no effort passive income. NZ housing is in a self reinforcing upswing underpinned by cheap(ening) credit....
PM put all my HB rentals up by between $150-200 pw coming into effect next month - I asked if it was too large of an increase and PM replied that it was an increase to market rate, which is the Government recommendation. He then said because there was only 16 advertised rentals in Napier available, if the tenants couldn’t afford it and moved out, someone who could afford it would move in. I haven’t heard of their notice being handed in so I assume the tenants all absorbed the extra cost.
A smart investor never sells.
Speculators sell but you've called them investors.
True investors, of which there are very few, buy for the longterm, invest in the property and their tenants and buy based on fundamentals.
The market needs more developers and real investors not speculators who call themselves investors.
I would say that is in the top tier of successful businesses although I know a few plain old cafe owners who also do very well just serving coffees and lunches. I think the difference is that your business consumes most of your time and you will pay 2 or 300k tax plus acc levy. I pay no acc levy on my rents.
I work 3 to 4 days a week on average these days. When you make money you pay tax, ACC levies arent a big deal, its not a high risk business. Net is after levies before tax. I have had to pour a lot of the profit back into it over the years. Its not apples with apples, my point is that housing isnt the only way to make a buck.
Never suggested it is. Well aware that commercial tenants very often make more money than the comm property owning landlord. When the tenant sells their business they often advertise amazing turnover and profits stating long lease/low rent. And have a high asking price for it. I dare say that your business is worth zillions.
There are more than 5500 Auckland rentals advertised in Trademe at the moment. That is the largest number ever. Building consents are at record levels. Immigration, tourism and student demand for rentals is down.
Just because you want to increase rent doesn't mean you will get it.
Well after reading nearly all of these posts my summary is. If you want to keep or maintain an existing good tenant you may be able to increase the rent. On the other hand you may have to reduce it or keep the rent the same to maintain the tenant. My last sentence sums up just about everything whether its rental or some other item.
All those properties that aren't be let out are asking too higher rental. eg if you dropped the rent by half how many applicants would you get? Many may be undesirable but there's a good chance you'll rent it out.
Each landlords circumstances are different. At worst they have to sell up and get out at best not getting the return they were hoping for and possibly having to subsidise by paying out of their salary.
The old saying and still valid is sell at what the market can bear.
..........."I suppose we can only hope people are getting double digit pay increases to support cost of living" ......fat chance there Squishy ! as the more qualified or skilled people enter the country, the more they can suppress wages/salaries as more competition for roles, especially if JA and her cohorts open up the immigration flood gates as well .....the newly arrived non NZ'ers will work for that much less than the average kiwi ....so landlords may get their rent increases, but there will be more people on the property - which many landlords don't like.
Auckland rental market has been significantly impacted by lack of international students. Many other parts of NZ have not been impacted much by this.
Outside of Auckland, NZ has a rental crisis that is just starting to unfold. If you want a 4% gross yield on your rental property & house prices increase 30% then rents need to increase 30%.
We now have 2 different classes of landlord, one that’s just purchased & one that has owned a rental for eg 5 years.
If you just bought $1 million property, with $800k loan @ 4% interest you will probably have negative cash-flow as cannot claim $32k interest expense deduction & outlook now for capital gains is weighted more to downside than upside over next few years.
The “5 yr” landlord has made a 30% tax free paper gain during the last 12 months & is likely to be cashflow positive so doesn’t need to increase rents to get 4% gross yield. They can still claim 75% interest costs.
The warning to renters is that these “5 yr” landlords will play catch up on rents as the private rental supply reduces. Renters might think that if a rental property is sold it will be purchased by another investor but that is unlikely as the financials no longer stack up because you cannot claim any interest expenses.
Some new landlords will be forced to sell their rental as increasing interest rates mean increasing negative cash flows & increasing risk of negative capital gains ie they are likely to perceive they won’t make money over the next few years so they will sell.
Hears a funny one....From my understanding landlords can get interest deductibility if they rent to Kainga Ora and the price is determined by the private market. So if a significant number of landlords move to providing public housing there may be increased supply pressure in the private market which puts further upward pressure on rent prices does it not?
I am a bit surprised no one has mentioned the timing of the 2020 rent freeze. 12 months post that ending puts it in November 2021. I do not like to be the grinch issuing a rent increase as a Christmas present so do it a little bit later. This then brings all my rental annual increases into line with the annual moves to new jobs, schools, courses. In my old age I am getting a little bit soft so do not put existing tenancies up to full market rent levels. Once the statistics come out we will all be able to see how many other landlords did the same. What is the bet the politicians will wring their hands and say inflation by landlords is greed and by banks and IRD is for the good of the country.
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