The recent weather events, longer waiting list for state housing and approximately 60 000 new immigrants expected in New Zealand has heightened the property shortage. In short, demand is strongly outweighing supply and more rental houses are needed nationwide.
One would think that people would be clamouring to buy property to offer as rentals, but this is in fact not the case.
There are several reasons for this: latest figures show approximately 70 percent of mortgage holders are worried about making repayments in light of the spate of interest rate hikes, and around 11 percent are saying that they will need to sell in the next year. In addition, the Green Party’s proposal to cap how much landlords can increase rent every year, although well-intentioned from a tenant perspective, could bring unwanted consequences as it disincentivises people from becoming landlords or maintaining their houses to a good standard. In cities overseas where rent control schemes are in place, it is well documented that landlords will do the absolute minimum because changes in the market can’t be reflected in the price, and they are unable to recover their costs.
A 2018 study in the US examined how rent control affected tenants and housing markets and it was found that it appeared to help tenants in the short run, but over time it decreased their affordability, fuelled gentrification and created negative spillovers on the surrounding neighbourhood. It was also found that rent controls lead to a “mismatch” between tenants and rental units. Once a tenant has secured a rent-controlled property they may not choose to move in the future and give up their rent control, even if their housing needs have changed, i.e. downsizing. It was also found that rent on rent-controlled properties was about 40 percent below the price of nearby non-controlled properties. Effectively it will mean fewer landlords and a more dysfunctional private rental market.
But is it all doom and gloom with property sales prices dropping, interest rates climbing and proposed rent control measures?
On a positive note, several articles have recently appeared in the newspapers presenting solutions to the rental shortage problem. The National party are indicating that they want to make changes to some of the rules around tax and tenancy to encourage more landlords into the market. They are also saying that incentives need to be put into place to encourage the building of more houses.
Looking at the property market historically, we believe that now is the time to purchase a rental property as property prices are going to flatten out soon and then start a slow steady climb as the market recovers. Interest rates will also slowly start to drop-off, and we also are of the opinion that the rent control proposal will not come into place as the cons far outweigh the pros as the policy will actually do the opposite of what they are trying to do.
Interested in starting or growing your rental portfolio and want to speak to a financial expert on how you can achieve this goal? Wealth Management Strategies provides financial coaching to help client’s budget and strategize towards the goal of purchasing rental property.
To arrange a FREE 1-hour consultation with Fiona Milde to discuss your financial and lending position, please email [email protected] or call 09 303 3677. That first or next rental property could be closer than you think!
General Manager – Chantel de Vos
Ph: 021 341 089
Warm regards,
The Benchmark Property Management team