But increases in the market may be even higher, landlord says
Rent increases are gathering pace once again, but the extent of the increase may have been underestimated by official statistics, according to property investors.
Stats NZ reported in July a 4.1% lift in rent prices for both newly let and existing tenancies, back to a level of annual increase not seen since September 2022, and well above the 3.2% of July two years ago.
But according to property investor Peter Lewis, the increases happening in the market were likely even higher than that, Stuff reported.
According to Stats NZ, properties were included in the stock, or existing, tenancy measure for two years after a bond was lodged. But the bond would drop out of the dataset if no other bond was lodged.
Not many landlords topped up a bond when rent rose, Lewis said.
“I regularly reset my rents as my many costs increase – as all NZ businesses do – but I have never taken a top-up of any bond, although this is legally permissible,” he said.
“Thus, all my rent levels are, according to government statistics, still at the levels of one, four or eight years ago. I am working on increases of around 7%, but this in no way offsets larger percentage increases in council rates, insurance premiums and maintenance expenses let alone the frightening increase in my already sizeable tax bill.”
Stats NZ said a property that was dropped out of the stock data would be incorporated again the next time a bond was lodged.
“The coverage of the tenancy bond data is very high, including most rental properties in New Zealand,” it said.
Many investors were only now working out how the removal of tax deductibility of interest costs would impact them, Lewis said.
“Many have tried to ignore the reality of their situation, hoping it will just go away,” he said.
“However, this current government seems hell-bent on punishing residential landlords at any cost, even as the number of available rentals drops and their Housing NZ waiting lists increase.”
Another property investor, Graeme Fowler, said the last time he increased his rents, they rose by 5%, which he said was roughly in line with inflation.
“We always review the rents annually,” Fowler said. “We tend to be around 5% below what the market rents are.”
Kelly Eckhold, Westpac chief economist, said the July increase was bigger than their team had predicted.
“There’s a lot of persistence in that series,” Eckhold said.
He said increasing rental returns could bring more people into the housing market.
Westpac forecasts house prices to increase by 8% in 2024.
“If we think forward to housing market trends next year, basically we don’t see a very big role for investors in that market for the foreseeable future due to the high level of interest rates and the constraints on the tax deductibility of interest,” Eckhold said. “To the extent to which rents start to rise, that changes that equation a bit.”
Eckhold said that if National came into power after the election and rolled back the tax deductibility change, that could impact house prices.
Miles Workman, ANZ senior economist, said the factors driving rents would be household incomes, and supply and demand dynamics.
Workman said landlords were not necessarily able to pass on the full extent of any increased costs such as interest to tenants.
“If a landlord faces higher costs – regulation, rates, insurance, changes to tax settings, there will generally be limits around how much of that can be passed through to higher rents,” he told Stuff.
“That might sound like a good deal for renters, but this dynamic can also lead to fewer landlords willing to provide rental accommodation, meaning lower rental supply and potentially worse social outcomes overall.”
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