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Rental Supply Issues Persist

Rental Supply Issues Persist

There’s clear reasons why there’s a rental supply problem and with increased compliance costs it doesn’t look like it’ll improve, writes Andrew King.

By: Andrew King

1 February 2018

Recent data from Trade Me indicates there is a lack of adequate rental property supply in many parts of New Zealand. There could be a few reasons for this.

The majority of rental properties in New Zealand are managed by their owners. Often these owners do not keep up-to-date with changing rental prices and only increase their rent when they are seeking a new tenant. As rental prices have increased quite significantly in a variety of areas, many tenants may be choosing to stay in their properties rather than pay a higher rental price in a new home.

It is also possible that people are choosing other methods to market their rental properties such as roadside signs, brochures on notice boards, leaflet drops and new online sources such as Facebook Marketplace.

Obstacles Persist

However, I think the main reason for Trade Me figures showing a lack of available rental properties is that supply is starting to fall.

First, we lost the ability to claim depreciation; LVR restrictions were introduced and then increased to require a 40% deposit; minimum standards were introduced; and the cost of insurance, rates and maintenance increased. Now we have additional costs through the Healthy Homes Act, plus ringfencing of losses and of course the potential for a Capital Gains Tax. On top of that we have had two outrageous High Court decisions regarding tenant liability for damage and unlawful tenancies.

❝You cannot continue to add regulations and other cost increases and not expect there to be an effect on supply of rental property❞

Is it any wonder that people are having to sell their rentals and many are now unable to buy rentals that they otherwise would have?

People seem to believe that it is easy and profitable to provide rental property that costs and obstacles can continue to be placed in our way and we, the private sector, will still supply 85% of homes to tenants.

As the NZPIF has been saying for a long time, you cannot continue to add regulations and other cost increases and not expect there to be an effect on supply of rental property.

Time to Reassess

Unfortunately, it is the tenants who are ultimately affected, again, as we have been
saying for a long time. Rental prices have increased at a faster rate than general inflation since 2010.

It is ironic that some tenant groups and commentators have recently complained about a shortage of rental properties and rental price increases, then called on Government to apply rent controls in response. This would result in even fewer rental properties being available.

It appears that some media outlets are starting to realise that the harder it is to provide rental properties the harder it is for tenants to find suitable accommodation and the more expensive that accommodation will be. It would be nice if this message was heard by many more people and they actually understood it.

Not all rental property owners will be affected equally of course. Some will no doubt see their rental yields improving as rental prices inevitably continue to increase. We all need to keep a good eye on the rental market and increase our rental prices at least near to market levels. Small rental increases over time are better than sudden and large increases once cost increases have been established.