1. Home
  2.  / Getting The Balancing Act Right
Getting The Balancing Act Right

Getting The Balancing Act Right

Achieving the correct mix between essential maintenance, discretionary upgrades and street appeal to maximise returns long-term is vital, writes Jeremy Gray, of Builderscrack.

By: Jeremy Gray

3 December 2023

Like many people working in and around the New Zealand property industry, I’m waiting with bated breath to see the next government find their feet and communicate a concrete policy around housing and infrastructure. Within the uncertainty of change there are signals that many are holding still.

The current volume and nature of jobs posted on Builderscrack implies many property owners are focused on core maintenance and preserving value, rather than the higher volumes of new builds and large renovations we saw in 2021. This job data also paints a picture of two broad segments of property owners: those more leveraged, and those carrying little or no debt.

Interest deductibility and interest rates generally have little effect on property owners carrying low debt, while those who are highly leveraged are currently looking at ways to balance the books.

Nuanced Metrics

There are two metrics which nuance these extremes in a useful way:

  • RBNZ’s Household Debt Servicing (as percentage of disposable income) currently sits at 8 per cent, up from 5 per cent in December 2021, but is a long way short of the 16 per cent peak in 2008.
  • Household Debt (as a percentage of household nominal disposable income) currently sits at 165 per cent – below the last 10-year average.

These two metrics reveal that for the average household, both the total debt held and the cost of debt servicing (as a percentage of disposable income) remain low compared to the long-term average. This is attributed to the loan to value ratio (LVR) limits. Even with the cost-of-living pain, at a macro level these metrics suggest the pain isn’t from debt servicing, but inflation generally.

With inflation pressures small job types are trending.

Rental Income

At one end, an investor carrying the maximum 65 per cent (or $585,000 debt on a QV average $900,000 property, fixed at 7 per cent and paid over 30 years) will be paying $47,000 a year, with around $40,000 a year of that in interest in year one. Today, if that investor’s rental income was taxed at 33 per cent, at the current phased-in rate of 50 per cent, the investor loses $7,750 in interest deductions, and $15,500 on July 1, 2025.

At the other end, an investor carrying no debt is unaffected. Laws around interest deductibility are beginning to more heavily impact balance sheets for highly leveraged investors, and ways these investors are looking to balance the books is through reducing expenses and maximising yield.

There’s demand for jobs which will increase rent.


We have seen an increase in words like “quote”, “estimate” and “cheap”, “used”, “repurposed” and “second-hand” used in job descriptions. Segmenting and reading these job descriptions individually reveals a much stronger appetite for cost savings now, relative to 2020/21.

There is a balance to be found in investing in quality maintenance to preserve property value and protect capital gains while not undermining yield by investing in upgrades that don’t preserve value or improve cash flow.

When having certain jobs undertaken, tradespeople will approach the same problem in a different way, and there can be a large variance in costs for a similar outcome. For other jobs, cost and quality of repair are tightly coupled. Builderscrack generally advises getting two or three quotes and working to understand how each quote is made up to make an informed decision on the best way forward.

Maximising Yield

Increasing rental yield carries an element of risk. It can be through general project risk, added debt, or tenant disruptions. When properly costed, maximising yield through smart capital improvements offers a good return for suitable properties. Although these are generally not deductible expenses, there are several jobs we see which seek to grow rental income proportional to property value.

While total activity in this area has dropped from the peak of 2020/21, we are still seeing strong demand for:

  • Sleepouts, portable buildings, garage conversions and generally increasing the number of tenants that can comfortably occupy a home by expanding the liveable footprint with outbuildings.
  • Basic reconfiguring of the house without changing the footprint, often involving reconfiguring doors, walls and unused space (like lofts and second living areas) to accommodate more tenants.
  • Alterations involving changing the house’s footprint, typically to increase the number of bedrooms, and often done alongside door/wall reconfiguration.
  • Larger projects including self-contained minor residential units, and major home reconfigurations, typically into multiple units, and other work to establish new builds.
Delaying maintenance costs more long-term.

Positive Signals

One of the big signals supporting the case for investing to increase yield is record annual net migration at 110,200 to August 2023. This, combined with a 30 per cent drop in building consents from September 2021 to September 2023, suggests demand is only increasing on our housing stock. Investors able to finance projects to comfortably increase the number of occupants in existing properties might fit well with a more conservative strategy in the existing climate of change.

Investors should be mindful that putting off essential maintenance to preserve cash flow on paper often costs more in the long run than doing it at the time. Getting the right balance between essential maintenance, discretionary upgrades and street appeal to maximise returns long-term is vital.

While we’re not yet out of the woods in terms of inflation, and interest rates may well rise further, net migration and a reduction in building activity is likely to act as a counterbalance to the ongoing downward pressure on house prices. Projects that increase the number of occupants a property can comfortably house have good potential in the current climate.

Builderscrack.co.nz matches property owners who need work done with the right local pros using innovative, patented NZ-made tech. From Kaitaia to Bluff, builders to cleaners, repairs to renovations, it’s done!