… You Think Tenants Are Stressed?
It’s time to change the narrative and understand the intricacies of the rental equation, writes Greg Watson.
2 September 2023
Most are familiar with the saying “the straw that broke the camel’s back”. For landlords today, this idiom has taken on a weightier significance. It feels like they’re not merely dealing with one or two straws, but an overwhelming haystack that threatens to bury their financial stability and investment aspirations.
Media and political narratives have a tendency for painting landlords in stark, contrasting colours. The dominant image is often that of a heartless, profit-driven individual, amassing multiple subpar properties and evicting tenants at the faintest whiff of complaint. In these tales, the tenant is almost invariably the downtrodden victim, battling deteriorating living conditions, the perpetual fear of eviction, and arbitrary rent increases.
This portrayal, while cinematic, belongs more in a Dickensian novel than in the nuanced realities of today’s housing market. If we were to frame it as a fairy tale, landlords would be the villainous overlords, with tenants awaiting the heroic intervention of media or political saviours. But life isn’t a fairy tale, and the narrative requires a deeper dive.
In actuality, a substantial majority of landlords are deeply invested, both emotionally and financially, in their tenants’ wellbeing. Data suggests that approximately 20 per cent of landlords intentionally set their rental prices below market rates as an act of goodwill and support. Moreover, 93 per cent of landlords possess three or fewer rental properties, with the majority having just one or two.
The often-overlooked fact is that many landlords are “mum and dad” investors. These are individuals striving to secure their family’s future, not through extravagant means, but through calculated, long-term investments in the property market. They harbour a genuine desire to offer homes that mirror the comfort and safety of their own residences.
However, the journey of a landlord is far from smooth sailing. Financial challenges are a constant companion:
Inflation: Not only are costs like insurance, repairs, and property management on the rise, but landlords also grapple with escalating personal household expenses.
OCR’s role: The Reserve Bank’s interventions to stabilise the housing market often have unintended consequences for landlords.
Soaring interest rates: Recent hikes mean that landlords are often caught off guard, with rates that have nearly doubled in a short span.
Declining property values: Many landlords face the bleak reality of their recent investments depreciating in value, signalling potential losses.
Tax nuances: Legislative shifts can introduce unanticipated tax burdens, throwing financial plans into disarray.
Loan complexity: The transition from interest-only loans to principal and interest can see monthly payments skyrocket.
Equity fluctuations: Market volatility can erode the equity of rental properties, reducing a landlord’s net worth.
Meeting housing standards: Complying with standards, such as the Healthy Homes initiative, demands considerable financial outlay, often sourced from personal savings.
I am currently reluctantly selling a rental property as I can’t afford the $250 to $300 per week that I need to top it up from my single income family budget. Mortgage repayments on that home went from around $890 per month to around $2,100 per month recently, so it will most likely become one less property in the rental market.
The property market is indeed cyclical, with ebbs and flows. However, countless “mum and dad" investors find themselves battling the tide, endeavouring to keep their rental properties afloat amid a sea of challenges. It’s time we broadened our perspectives, considering the intricacies on both sides of the rental equation.
Greg Watson is an experienced property manager who excels in providing informed advice and continuously improving the property management service. He is a recognised industry expert, winning national awards and contributing to industry standards. Phone 06 353 7274, www.watsonrealestate.nz