By Gareth Vaughan
Renting in New Zealand today is more difficult than a decade ago, with fewer properties available, rents continuing to increase, and the quality of rental properties not much better, Shamubeel Eaqub says. However, the economist and co-author of the 2015 book Generation Rent, rethinking New Zealand's priorities, says it's not all bad news.
Speaking in the latest episode of interest.co.nz's Of Interest podcast, Eaqub says the "lived reality of renting" has got harder over the past decade, but the regulatory settings are slowly improving.
"We need to ensure there's sufficient renters' rights ... because in New Zealand renting is so insecure and is such a problematic thing for so many people."
One area giving Eaqub optimism is the rise of build to rent, where landlords must offer 10-year rental tenancy agreements.
"I've been a long time fan of institutional landlords rather than accidental landlords. When you are in the business of land lording, you want to have as little turnover as possible, whereas if you're an accidental landlord, you are much more interested in having quick turnover and being able to sell it off and all those other bits and pieces. The tenant is kind of incidental to the story and a bit of an annoyance, really."
Eaqub says build to rent offers two types of security; tenure security and financial security.
"Because more often than not [build to rent] will come with contracts that will have a known level of [rental] increase for the next, say three years, so you can plan your finances. Whereas in a normal tenancy you have only certainty for 12 months and then you don't know what will happen next."
Build to rent is adding new housing supply targeted for one particular use, which he says is unusual in NZ.
"If you look at what happens in New Zealand, or how it has generally happened in New Zealand in the past, it's the idea of filtering, right? You build houses which are for new homes and for rich people, and then the older homes that are secondhand, that kind of gets recycled into the rental market."
"So I'm very encouraged to see this new supply that's coming in, that's very much targeted towards renting specifically. Because if you think about the pressures that we see in terms of emergency housing, social housing and all those kinds of things, that's happening because people are falling out of the rental market, because the rental market is short supplied and is very expensive. And so the more we can do to get more supply directly and retained in the rental market, the better it is," Eaqub says.
He also talks about his disappointment at the fracturing of the Labour-National consensus on medium density residential standards (MDRS).
"[The consensus] showed me for the first time the grown-up-ness of the way that our politicians can respond to structural problems, that we can put aside our political differences and just do something because it's the right thing to do, not because you're on one side of the House or the other. But that grown up moment of politics lasted very, very briefly, and we threw it away at the first chance when the election campaign started," Eaqub says.
In the podcast Eaqub also talks about NIMBYS, the construction sector, what's driving rents, problems with local government, his views on rent controls, the accommodation supplement, emergency housing, what the rental market may be like for his kids' generation, and more.
*You can find all episodes of the Of Interest podcast here.
76 Comments
Institutional landlords charge a lot more rent than private landlords. There was a study done in Australia where they looked at the same building and the rental apartments owned by the developer rented for 20-30% more than the apartments owned by individual owners. https://www.afr.com/property/commercial/build-to-rent-pulls-a-20pc-prem…
Look at the BTR providers currently in the market - they are expensive apartments leased to mostly immigrants. This particular building is tenanted by 24 nationalities. This is not providing long term homes for Kiwi families. https://buildingtoday.co.nz/2023/06/26/simplicity-living-begins-third-b…
Most Kiwi's dont want to (a) live in apartments, and (b) rent forever. The only Kiwi's who want a 10 year lease are the social housing tenants who will never be able to afford to buy a house themselves. Everyone else aims to buy their own home eventually. See the above link where only 20% of tenants chose to take up 10 year tenancies.
Thirdly, most of the institutional BTR market is financed by foreign owners. So NZ will be sending billions of dollars in rental income a year offshore instead of local landlords spending that money in their communities. How does NZ benefit from that?
So, you're simultaneously worried that they provide a service no-one wants, they charge too much, and they're going to be so successful they act to drag money out of NZ?
The higher rent is interesting - I guess that shows the market requires a ~20% discount to subject themselves to the whims of a 'normal' landlord - makes sense with that extra uncertainty hanging over your head.
I'd be curious to see how easy it is for the tenant to break the 10 year lease - I would hope relatively easy with sufficient notice but I admit I have no idea. The point of difference should be stability for as long as you need it (which could easily include 10 years to save a deposit in today's house market)
No, I'm saying that forcing Kiwi's into a rental situation that is designed to replicate an immigrant lifestyle whilst shunting money offshore, is not in NZ's best interests. We should be fighting tooth and nail to retain the "Kiwi Way Of Life" - which means renting proper houses temporarily while saving for your own, having BBQs in your backyard with friends, a car in the garage, kids being able to play outside, and having a dog. Instead people like EQ are applauding the battery farming of people in high rise apartments so they can live the lifestyle of the Chinese or East Germans. The less houses that are available to rent, the more people who will be forced to become permanent renters in expensive apartment buildings, and the less likely they will ever be able to afford to save a deposit on their own home. All while we still have one of the lowest housing densities on the planet.
I'm afraid we've already reached the point where that's not possible. Too many people, not enough housing supply, too many NIMBYs, too expensive for everyone to live that lifestyle.
Now we're onto how best to manage the changed situation we have. When the big problem is housing is too expensive, I am all for throwing everything we have at that problem including massive increases in all kinds of supply. If someone wants to come and build a few hundred apartments and people want to live in them, that's great. Many will prefer a central apartment over a free-standing house that comes with a 1 hour + commute.
NZ's approach to migration, housing supply and property investment over the last few decades has pushed us into this.
I agree with KW about one major point. We do not want large scale foreign ownership of our rental stock.
Anyone who doesn’t understand this needs to look at our mostly foreign owned banking system. Most years the big four Australian banks nz divisions make more profit than the entire rest of the nzx companies combined.
I know there are serious issues with rental stock in nz at the moment, but do we really want to repeat this mistake?
BTR for sure, but for the love of god retain the profits within the nz economy.
Until Covid (from 2020), people in Christchurch could easily afford that lifestyle. Single family homes were being built for $350k-$450k (including land) and existing housing was just as cheap. I think we need to look at how we go back to that, instead of capitulating and saying "oh we just have to put up with living in 70 sqm apartments that cost $800k each with no carparking. Also high rise buildings cost more to build per sqm than normal homes, so they are not cheaper. In Christchurch, we had access to land and relaxed planning permissions post earthquake - if everyone had that then we would have a much higher standard of housing than battery farming people like they do overseas.
Why do you idiots keep eating mince?! Don't you realise steak is better?! We need to encourage people to eat steak, it's the Kiwi way of life!
Get this: Young people want 'The Kiwi Way of Life', but it's not an option. Do the sums.
$800 p/w for a place that allows that kind of lifestyle. $41k per year. General guideline is that rent shouldn't be more than 1/3 of income, so that implies household income c.120k. That's two adults with pretty standard full-time jobs. No kids, no dog, no redundancies or illness. And in this scenario, they are *not* saving anything close to a deposit. The mathematics does not add up, unless you move to Westport.
Being told that we shouldn't want nice apartments because it's inferior to an option *that doesn't exist* is profoundly frustrating.
Looking closer at the KPG Resido site, they are going to offer 1-10 year terms (not sure what the in-between options are). So you can still do the 1 year terms like at a standard rental, or longer if you want to. The benefit of having a stable, long-term landlord.
Yes, the rules do not seem to be clear. At least in the way they are being applied.
Now that interest deductibility is available on any rental property, old or new, then that would seem to negate every other condition that legally might stop you from offering the same benefits of a BTR.
After all, what is to stop a landlord with an existing stand-alone dwelling offering a 10-year lease with a 56-day early termination clause for the tenant?
How are others reading it?
I like the build-to-rent model. NZ wouldn't have taken to unit titles on apartment buildings if people didn't want to live in them. And I think corporate owners in BTR are a really good addition to the market - as they aren't going to offer out the properties as AirBNBs. Hence, it's a niche we needed.
Lease was a poor choice of words.
Build-to-rent tenancy » Tenancy Services
10-year tenancy offer
Landlords must offer a 10-year tenancy agreement for a build-to-rent property. Tenants are not required to accept the 10-year term and can negotiate a shorter fixed-term or a periodic tenancy with regular rules applying to these tenancies.
Only tenants that agree to a 10-year build-to-rent tenancy can terminate the tenancy with 56 days’ notice.
On my read of it, a tenant could accept a 10-year tenancy and yet terminate with 56 days' notice. This termination period is slightly longer than a standard tenancy agreement, but the upside is the security of a 10-year occupancy if you want to take it to that full-term.
The benefit to the tenant, besides the guaranteed security, is that it allows them to take advantage of any opportunity that would require them to move, ie they are not trapped in a long-term commitment that either a long-term fixed tenancy or homeownership requires.
The 10 year tenancy offer was just a rule that had to be met in order to qualify for the tax subsidies as a BTR (it was one of several, including that it had to be a building of 20 or more apartments) . There was nothing stopping any residential landlord offering a 10 year tenancy term - but if you did it didnt suddenly convert you to a BTR. You were just a landlord who was now locked into a 10 year term that you couldnt terminate except under specific grounds, which would have prevented you from selling it to an owner occupier if you needed to sell.
Yes, but those tax subsidies (interest deductibility) are available to every landlord now, irrespective of whether you want to call it a BTR.
If a BTR signs a 10-year tenancy agreement (or whatever the length is), then they are locked in, just as any landlord would be.
From what I can tell about the recent removal of the 20-unit minimum rule and the opening up of interest rate deductibility to all landlords, allowing all to offer the same tenancy type agreement, then BTRs are just a defunked branding meaning large commercial entities owning large numbers of rental properties, mainly as apartments.
NZ: "The tenant is kind of incidental to the story and a bit of an annoyance, really."
When I lived overseas in Europe renting was normal and most properties (apartment blocks big and small) were owned by insurance companies.
Rents were very stable, tenants valued and had some protection, families could plan and so could companies - it was a win for everyone. NZ Inc could well benefit from such a model.
It's not weird at all. Each time you move or wish to upgrade the current kitchen you make the alterations. No landlord to veto. German modular kitchens are far superior to anything produced in NZ. I brought mine to the country 7 years ago. Two thirds cheaper than anything quoted in NZ Three kitchens in the container. Fitted like a glove. The only problem was the NZ sub-contrators for electric and plumbing couldn't handle the services channel built into the back of the units. 'None of this foreign muck'. Very behind the times, yet the NZ installer who had worked through out Europe during his OE fitting these reckon it was better than sliced bread.
https://youtu.be/ylvE6P1TUAo?si=EILsF3dQZOVggPEI
Comments such as insane, disaster, waiting months for installation, quotes over 20,000 euro
Would that be the same banks that write 100% mortgages to mom and pop landlords, who then write off that siphoned interest money as a tax deductible expense?
Problem is these institutional investors probably won't touch NZ property until it's dropped in price by another 40%, because yields don't stack up after a decade of young FHB and equity leveraged Dunning Krugers battling it out, backed by the big 4 you just mentioned.
BTR got full tax deductibility for interest in perpetuity - whereas residential landlords did not get tax deductibility, and landlords of brand new homes only got tax deductibility for 20 years.
They also got exemptions from the foreign buyer ban. And access to the Affordable Housing Fund for grants to build rental properties.
So, the former has now been equalised with everyone able to claim interest as an expense.
The affordable housing fund - I see the Affordable Rent Pathway which only applies to non-profits (are you saying there's an exemption from this requirement?), and the Build Ready Development pathway where the government offers to buy, so the BTR company no longer owns or rents the property.
Am I missing something?
Thanks for clarifying.
Yes, as you say, the silence is deafening.'
The way I read it, now any landlord anywhere with any housing type can offer the equivalent of a BTR by offering a 10 year tenancy agreement and a 56-day early termination period, and all get the benefit of interest deductability.
You mean their exclusion from interest deductibility rules? That's no longer a point of difference as the rules have been scrapped for everyone, right?
Is there another tax difference? I'm not sure where they ended up in the depreciation discussion when it was removed for commercial buildings.
Institutional landlords take away the deliberate obfuscation, where landlords switch hats from being a "business" for tax purposes but "mom and pop" if the place needs repairs.
Unlike "mom and pop" landlords who succumb to the rush of an equity leveraged debt spending spree, institutional landlords are real businesses that should make rational bids on property. FHB will be less likely to be dragged into a bidding frenzy against an idiot with a lot of equity.
Downside would be where the profits end up, most likely offshore if reliant on overseas investor funding. How much tax will be paid after transfer pricing?
most likely offshore if reliant on overseas investor funding
There's roughly ~$200 billion NZD sitting in Kiwisaver, ACC and NZ Super. Imagine the long-term economic effects NZ would receive if these funds were to mobilise just a fraction (say 1-3%) out of their kitties towards BTR and other nation-building schemes.
For reference, investments in infrastructure initiatives from Aussie superannuation funds reached 165 billion in 2022 or 8% of total assets under management, up from just 30 billion (3% of AUM) a decade ago.
While Shamubeel is right on many points he is lacking a 'how it happens at the coal face' reality.
Take for example his comments on the 'success' of the Christchurch rebuild.
There are four main reasons for the rapid build at reasonable (by NZ standards) prices.
1. Emergency powers were enacted which enabled a more presumptive right to just get on with it. After all, a quick bad rebuild would always look better than the damage the earthquakes caused.
2. In such a natural emergency, everyone was more compliment, for example, what is the equivalent of a Super track policy which was seen as good, is the very thing that is being criticized today in the Coalitions Fast Track approach.
3. Christchurch is unique in that two other competing councils' boundaries, namely Selwyn and Waimakariri, come in so close to Christchurch that they are seen as part of Christchurch. These councils were the beneficiaries of many Christchurch ratepayers crossing the border to become their ratepayers. These councils actively sought these 'customers'. Competition, handed to you by a disaster, is good.
4. The earthquakes created a huge supply hole which was mainly funded by EQC and insurers. This money was just replacing what was lost so did not add to the price as it normally would do.
What it did not do was lower the landbanked price of land as the owners of this land were basically cross-subsidized by the Insurance money.
I did a comparison at the time between a real subdivision budget via standard NZ costs, and if I had been able to do it via the Texas model I have experience in. It still showed, despite the earthquakes, that the raw land development cost on 'good ground' was approx. twice the price it should have been.
The same land price issue also happened with MDRS, ie more smaller houses that are dearer on a $m2 is not the right definition of whether your housing policy is working.
NZ: We need better quality rentals at lower prices
Also NZ: We must increase costs and make life more difficult for landlords
Rents are 95% determined by our bureaucrats (council rates, interest rates, legislation, tax, banking regulation, immigration). If it's all so attractive, why is there so little institutional build to rent development? Why are the Super Fund not active in this instead of f+++++g around with light rail?
Instead of trying to solve the problem, our politicians use landlords as a political football to score points.
'NZ' is only asking for cheaper rentals because the idea of owning your own family home has largely been pushed out of reach for many. The real problem is house/section prices, not rent levels.
It is a bit like when stats NZ measures the CPI and steak is now too expensive for most people to buy, so they switch it out to include pre-cooked sausages instead. The problem isn't that the price of pre-cooked sausages went up 20c per kg last month, the problem is that people can't afford to eat steak anymore!
No one who knows anything about property takes Eaqub seriously. Yip, he advised everyone not to buy before prices rose, then bought a house for himself at the peak of the market overpaying. You should be safe doing the opposite of what he's telling everyone to do.
"I've been a long time fan of institutional landlords rather than accidental landlords. When you are in the business of land lording, you want to have as little turnover as possible, whereas if you're an accidental landlord, you are much more interested in having quick turnover and being able to sell it off and all those other bits and pieces. The tenant is kind of incidental to the story and a bit of an annoyance, really."
Yes, in terms of build to rent and only because 10 year rental is provided.
But no otherwise.
You only have to look at the US where oligopoly institutional landlords are extracting excess profits and jacking up rents.
The only way of NZ's housing mess is:
a) cut the inbound immigration rate to something sustainable
b) for the government to build a lot more social housing
c) the private sector to build more general market housing
d) more efficient house building - there are simply no economies of scale in NZ
e) reducing building supplies costs would also help.
The current government's policy of zoning 30 years of land will hardly help todays issue with excess demand and too little supply - its a long term policy & cant provide the immediate infrastructure shortfall. Its going to take government to actually fund some of the shortfall as the previous government started to do.
Very much on the fence with this one.
On the one hand, there are too many stories of incompetent, disinterested, or downright malicious and unprofessional landlords. We do have tenancy laws to address this but in practice many (if not most) tenants are unwilling to stand up for their rights when the cost of getting on the wrong side of a landlord can be literally life-changing (e.g. kicked out without any easy option to stay in a school zone). Small time landlords are also more likely to move a tenant on in order to sell.
On the other hand, institutional landlords, while maybe more likely to act professionally, are probably more inclined to review rents at every opportunity and adjust to meet the market rate, so on average will probably charge more. I imagine they'd be less inclined to value a good long term tenant or to see their relationship as one with a fellow community member. I assume they would be quicker to put the pressure on with less regard for a tenant's circumstances (hey - it's just business, right?)
I think if we are going to go down the route of encouraging institutional landlords we should first look at where it works well and where it doesn't. I suspect that it would work best if combined with changes like encouraging more long term leases (e.g. 5 years) together with allowing tenants more leeway to treat a property more like a home (e.g. paint, keep a pet, etc). These are things that tenants dealing with large landlords in some countries expect.
Eaqub says build to rent offers two types of security; tenure security and financial security.
Is this a set up for Blackrock type landlords subject to taxes, which they may avoid with the right ownership structures?
What happens if diminishing numbers of owner occupiers are deemed to be renting from themselves - can they be taxed on that imputed amount at sometime in the future? Could these imputed and real rental cash flows qualify for inclusion in GDP calculations as they are in the US?
Globalist plan around the world, destroy small landlords by tax attacks and legislation, destroy housing market price by high interest rates. The big players (even banks in the UK) then buy up the properties at low prices and rent them out. Result the rich hold more wealth, everyone else rents. Rents become more expensive due to big players admin costs and profit margins.
Sham mentions that renters have things more difficult than ten years ago. If a generic renter had bought a generic house ten years ago, how would they have fared financially compared with being a renter? My guess, and a lot of other people's guesses would be that buying would have been financially better. All the older people I know who rent bitterly regret not buying when they could have.
Funnily enough Sham was vocal in his opposition to house ownership
There's always a joker in the pack
There's always a lonely clown
And there is a jester, just a fool
As foolish as he can be
There's always a joker, that's the rule
But fate deals the hand and I see
The joker is me
The joker is me
The joker is me
But come on sit23, you could be renting off Blackrock. They would be amazing landlords, I mean apart from being one of the most ruthless firms on the planet.
Dear Blackrock, Can I paint my daughters room pink?
Dear Tenant, Yes, if we can microchip and vaccinate her so we can monitor her carbon footprint.
Yes, if we can microchip and vaccinate her so we can monitor her carbon footprint. Hmmmmm....
It seems a requirement for politicians to be unscrupulous liars. We need more like Robert Fico. Link
Trust the gov't. Digital ID is a necessary part of the control grid they want to complete with the introduction of central bank digital currency (CBDC). We must say no. Obviously they will lie as much as they did about Covid and dangerous injections to get people to sign up. Link
People, there are some low quality and trolling comments here, in some cases unrelated - or barely related - to the topic. Please stick to the topic and comment on the issues, not individuals. And end the childish name calling.
There's a reminder of what we expect here - https://www.interest.co.nz/news/65027/here-are-results-our-commenting-policy-review
Thank you.
Isnt it strange that the harder you make it for landlords, the more difficult it becomes for tenants? Its almost like the two things are ... you know, connected or something? Surely after 6 years of Jacinda's War On Landlords, tenants should be living in absolute bliss by now.
The only thing making it difficult for tenants is increased competition from other potential tenants (AKA population increase courtesy of stupid immigration policy).
Take immigration away and rents will drop just like they did during covid boarder closures. Landlords with empty properties get ever more reasonable on what is 'acceptable' in 'their' homes.
So weird how 'accidental landlords' became so common.
Could it be that we are all just more prone to 'accidents' or maybe they aren't accidents after all.
It's a stupid term that makes it sound like no choice was made, which is clearly nonsense. I suspect it's a popular term for those who never saw themselves as a 'landlord type' and are living in denial of the choices they made. You are what you do people.
BTR developments are expensive to build and subsequently need high rents to justify the investment. In Australia, they are targeted at high income earning professionals. They definitely have their place, but its not for the bottom end of the market. I’ve heard that the 1 bed apartments at Sylvia park are about 750 per week to rent for a single bedroom. Sounds expensive for a small apartment in a block of 295. This definitely isn't a flash neighbourhood. Theres social housing within shouting distance across the road.
I see there being a lot of student visa / migrants in these places working gig economy /kfc jobs to afford it. My main concern is that innovative thinking is generally stifled by both the work and living situation which could hold the country back as a whole.
Also the econo.y seems to be sucked up by it.
They rent to immigrants, who struggle to get rentals elsewhere due to not having rental references or steady employment histories. The BTR mob exploit these people who are forced to take whatever they can get, and pay through the nose for it. See the article I linked above - 24 different nationalities in one BTR building.
Great podcast - thanks!
My biggest takeaways from Shamubeel:
The accommodation supplement is a subsidy without a solution
[and] Bandaids grow to become a festering mess
And great follow up from you, Gareth with the statistic that:
364,000 households are receiving the accommodation supplement
And then Shamubeel estimated that all of government housing/accommodation support was costing us
Upwards of 5 billion dollars per annum
New Zealand is not alone with a housing problem. We always get the policies we deserve. No property investor is an accidental landlord. Sure there will always be transitional tenants and landlords as jobs, health, and age impact on us all. This happens to the good and bad in society. The more government restrictions and laws that are created the more victims are created as people fall through the gaps. Governments are never good at running businesses be they be housing, steel mills, shops, or religions.
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