Rise Of The 'Accidental Landlord'
Fourteen years on, we are likely to witness history repeating itself as accidental landlords surface again, writes David Faulkner.
1 June 2022
Astagnant housing market may see some vendors choosing to rent their properties instead of trying to sell them. REINZ data shows there’s been a significant drop in sales activity. In March 2021, there were 10,151 sales. Fast forward to March 2022, and this dropped by 33.5 per cent to 6,752*.
People still move for various reasons, including employment transfer, divorce, and changes in life such as a growing family needing more space. But individuals and families may decide to rent out their property instead of selling, earning an income from the rent to cover some of the mortgage payments.
Similarly, after the global financial crisis back in 2008, floating interest rates reached 10.7 per cent, and sales volumes dropped dramatically. I remember this well as I was three years into my new career as a property manager. We ran a marketing campaign promoting our services for those struggling to sell and picked up many properties as people decided their best option was to rent out the property so they could move on. The term “Accidental Landlord” became common language within our industry.
Fourteen years on, we are now likely to witness history repeating itself. Vendors who would have typically sold may decide to rent out instead. There is no doubt house prices have grown unsustainably over the past two to three years, and this has been well documented. What will be interesting to observe is what will happen to house prices over the next few months.
‘As the sales market cools we may see the classic stalemate between purchasers and vendors’
Back in 2008 we saw a slight dip, but overall, property values held and remained flat. In 2019 prices increased substantially across New Zealand. As the sales market cools we may see the classic stalemate between purchasers and vendors. Many may rent out their property if offers come well below vendor expectations.
This can become problematic from a property management perspective. Seasoned investors understand that running a rental portfolio is like running a business. Although there can be challenging situations, investors know that this is just part and parcel of being a landlord. “Accidental Landlords” typically need more touch time and greater education. The property is likely to have an emotional attachment to the accidental landlord, meaning they may have unrealistic expectations regarding how a tenant may look after the property.
Without stereotyping tenants, the reality is that renters typically do not look after properties with the same amount of care that a homeowner will.
It is also likely accidental landlords will need to be educated regarding their rights and responsibilities under the Residential Tenancies Act and ensure their homes are Healthy Homes compliant. Accidental landlords are likely to be short-term clients rather than someone who holds a rental property for the long term. However, this was how I got started in property, and I am still a landlord today.
One of the benefits of the rise of accidental landlords will be much needed rental stock added to the market. In many parts of NZ, rental properties are in significant demand as many investors sold their stock in 2021. This has led to rents increasing at alarming rates. Trade Me data has shown a rent rise of 8.5 per cent and, outside Auckland, 10.2 per cent for February 2022**. This may result in rents cooling, which will be welcome news for tenants. It may also result in a better quality of product becoming available.
The next few months will be extremely interesting, and I will welcome new landlords to the market, whether accidental or not. NZ needs more landlords, not fewer.