Monthly Landlord Newsletters

Rent Market Plateauing or Increasing? It depends on the data

Residential rents are a hot topic once again, with conflicting reports from various sources leaving us uncertain whether they are plateauing or increasing.

Interest.co.nz has reported that the median rent in February dropped from $575 to $560, based on bond data. Contrary to other reports, the article notes that rents stabilised in the middle of last year. However, if the trend of decreasing rent rates continues, landlords may face difficulty recovering their rising costs, such as interest rates. 

Earlier reports from Stuff suggested that rents were set to increase in line with landlords' increasing costs, as evidenced by Trade Me and Tony Alexander survey data  (which indicated that over 80% of landlords expected to raise rents). However, as another Stuff article notes, the Trade Me data is based on advertised rental rates and does not reflect actual rent collected, as per the bond data.

So, what does this mean for the rent market? Well, as Interest.co.nz highlights, if the bond data reflects a new trend of decreasing rent rates, it could signal more challenging times ahead for landlords dealing with rising costs.

Acknowledgement of landlord’s increasing costs

It's becoming increasingly clear that landlords' costs are on the rise. It’s been reassuring to see this reflected more frequently in media coverage over the past month. Even mainstream media outlets and other non-business-oriented sites have picked up the issue.

For example, Propertyscouts Director, Ryan Weir, recently spoke to Stuff about the challenges faced by around a third of landlords, who are struggling with higher mortgage rates and changes to interest deductibility rules.

More recently, Stuff reporter, Miriam Bell, reported that the most recent phase of changes to interest deductibility rules will result in one landlord paying an extra $6,000 a year on their tax bill. 

With the interest deductibility rules set to be fully phased in by 2025. It's concerning to think about the potential long-term impact on landlords' costs.

Housing crisis in Queenstown

As winter approaches there’s growing concern about the lack of Queenstown rental accommodation, with some locals sleeping in cars and tents.

Some employers have taken matters into their own hands, buying their own workers' accommodation. Others are taking a more novel approach such as a local cafe offering vouchers in exchange for help finding staff digs. But it's clear this isn’t enough to meet the shortfall.

Last month, Housing Minister Megan Woods faced local business leaders’ burning questions on the issue. Among them: why doesn’t the government make it easier to rent fixed term over the winter season, and why Airbnb’s aren’t subject to healthy home regulations?

Local paper, Mountain Scene reported that Woods’ response was to “build their way out” of the problem. But is that the answer? Local economist Benje Patterson told business leaders earlier last month there were plenty of houses in Queenstown, but many of them sit empty. It's a complex issue with no easy solution, but it leaves us wondering why more isn’t being done to encourage rentals rather than Airbnb.

For the time being, the tight market should be to the advantage of property owners who do rent their Queenstown properties, with plenty of high-quality tenants to pick from. The sheer number of applicants can be overwhelming but luckily our experienced property managers are pros at filtering and vetting prospective tenants.  

Building crisis easing?

For anyone looking to invest in a new build, there’s hope the building supply crisis is easing, but don’t get too excited yet.

Core Logic are reporting that construction costs for the March quarter only increased by 0.6%, well below the 2% increases recorded previously.  That’s according to the Cordell Construction Cost Index – a quarterly industry report that measures residential construction costs to build a ‘standard’ 200 sqm house in New Zealand. 

CoreLogic Chief Property Economist, Kelvin Davidson, put the decline down to rising interest rates and a decrease in new homes, but added the Cyclone Gabrielle Re-build may ramp costs up again.

Landlord harassment allegations arise from neighbours’ dispute

Another tenancy tribunal case highlights how property owners can get embroiled in neighbourly disputes when they own neighbouring tenancies. 

The NZ Herald reported on a landlord accused of harassment following a long-winded saga between their two tenants.  The dispute seemingly started when one tenant told the other they couldn’t use their carpark anymore.  Matters soon escalated with allegations of privacy breaches and an alleged “violent assault”. 

The property owner eventually issued a 90-day notice to both tenants on the basis the premises were to be converted to commercial premises. However, one of the tenants lodged a tenancy tribunal complaint against the property owner, alleging that the owner had encouraged their neighbours to harass them. The tribunal ultimately disagreed with the tenant’s claim.

As mentioned last month, owners of multiple, adjoining properties have an obligation to take reasonable steps to ensure their tenants aren’t interfering with each other’s reasonable peace and quiet. The property owner’s interventions were not clearly explained in this article, but it seems the bad blood between tenants ran so deep that little would have helped the situation.

The Latest Ask An Expert from Within the NZ Property Investor Magazine

Question 

After the Auckland Anniversary Day floods, my three-level townhouse rental was damaged. The ground floor, including a garage, bedroom, ensuite, and courtyard access, was flooded and needs remedial work that will take several months. As a retiree, I cannot afford for the rental property to remain vacant, so I am considering renting out only the top two levels. However, I am unsure about the process and increasing the rent once the remedial work is complete.

Answer

I'm sorry to hear about the damage to your rental property caused by the Auckland Anniversary Day floods. I understand that this is a difficult time for you.

Before moving forward, it's important to consider a few things. Firstly, make sure there is no damage to the upper levels of the property, as flooding can cause significant damage from capillary action. Any dampness, mould, or moisture on the upper levels could be a violation of Healthy Homes Regulations.

Secondly, you'll need to determine a suitable rent for the tenancy that excludes the ground floor, and consider a rent subsidy to compensate for the disruption caused by the remedial work. Additionally, decide on the rent once the remedial work is complete and the property is fully restored.

When advertising the property, make it clear that the ground floor is initially excluded from the tenancy due to floor damage. Be sure to mention the starting rent, the indicative duration of the remedial work and the anticipated rent once the ground floor is included, so prospective tenants are aware of the situation. 

Prior to entering into a tenancy agreement, it is advisable to discuss the entire situation with your tenants to prevent potential disputes.  

Take steps to ensure that you don't interfere with the tenant's quiet enjoyment of the premises during the remedial work. This includes minimising disruption caused by tradespeople, only carrying out work during reasonable hours, and keeping tenants informed of any work taking place.  Consider putting the ground floor on an electrical check meter or having some sockets metered, so you can reimburse the tenants for the electricity used by the tradespeople.

Finally, once the ground floor is restored and made available to the tenants, you can increase the rent as it constitutes a material benefit to the tenant, even if it's within 12 months of the tenancy commencing. Section 28 of the RTA allows rent increases with tenant consent and this variation would need to be recorded in writing.

Tony Alexander Investor Insights Summary

Key points from the most recent investor insights are:

• 13% of investors report it's easier to find good tenants, the highest reading since March 2022.
• A trend towards a preference for standalone dwellings over townhouses among investors looking for new or used properties.
• New interest rate uncertainty has led to a slight rise in the average term investors plan to fix their rate for.
• Removal of interest expense deductibility is becoming more important for investors looking to sell.
• Fewer investors are selling to finance another property purchase.
• Fewer investors are contemplating selling because they are concerned about future house price falls.
• Building consents down to 48,000 for the year to February, indicating a possible reversal of the construction boom.
• Net migration gain of 58,000 in the year to February is likely to increase pressure on the housing market.
• Consumer prices have increased by 17% since 2019, with little data on consumer reactions due to structural and behavioural changes since the last significant cost of living increase 30 years ago.

Seasonal update - Winter is near

It's important to prioritise property maintenance before winter arrives! If your property has a working fireplace, it's your responsibility to clean the chimney. The tenant, on the other hand, should handle day-to-day cleaning, such as sweeping ashes from the hearth. Annual sweeping and inspections are necessary to ensure safety and maintain insurance coverage. If your property has a fireplace, ask your property manager to schedule a chimney sweep to avoid chimney fires and prevent soot buildup that could invalidate your insurance.

Quote to ponder

“In the real estate business, you learn more about people, and you learn more about community issues, you learn more about life, you learn more about the impact of government, probably than any other profession that I know of.” 
         - Johnny Isakson, U.S. senator

Disclaimer 

Given the opinions expressed in parts of the email it’s important that we make it clear that the contents are opinions and observations and made in good faith.   

Propertyscouts NZ (2020) Limited, trading as Propertyscouts, and its associated parties (including directors, agents, employees, officers or otherwise) have attempted to provide   this information to the best of their ability but do not make any representations or warranties of any nature (intended or implied) as to the accuracy of the information on this communication. All recipients of this communication should conduct and rely on their own enquiries in relation to the information on this communication.
The information available on the properties listed for sale, rent or otherwise, has been obtained from the vendor or landlord of the property and the appropriate professional service providers. We do not and cannot verify or guarantee the accuracy of the information obtained in relation to the properties.

The information and/or materials available in this communication are intended to be general information only and may be changed at any time, without notice to you. The information and/or materials in this communication should not be relied on under any circumstances as a substitute for legal, financial, real estate, or other professional and/or expert advice. To the maximum extent permitted by law, Propertyscouts and its associated parties disclaim all liability, responsibility, and negligence for any direct or indirect loss or damage suffered by any person arising from the information and/or materials presented in this communication or any information and/or materials that arise from it.