Government policies will ruin the private rental property market, investors say

Government policies are reducing the supply of rentals and driving up their prices, a Christchurch investor has said.

Bruce Pyott has been investing in residential and commercial real estate for 30 years, but says he has never seen such a lack of rental accommodation.

There are 671 Christchurch properties advertised on Trade Me, and two years ago the average was between 1,350 and 1,450, he says. “I’ve only noticed going below 800 once in over 20 years, and that was after the earthquakes.”

It’s a similar story in rental markets in New Zealand, with recent figures from Trade Me showing that there were 10% fewer rental properties for rent on the site in November 2021 than in November 2016, and 6% less than in 2020.

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Rents have also risen steadily, with rents for new tenants rising 5.8% and rents for all tenants, including existing tenants, rising 3.7% in the year ending December, according to the latest figures from Statistics NZ.

Pyott blames government policies aimed at curbing investor activity.

The new policies include changes to the rules relating to the ring-fencing of rental losses, the extension of the clear line test to 10 years and the elimination of the deductibility of interest on rental income.

Changes were also made to tenancy laws and the introduction of healthy house standards.

The rental market is tight with a growing shortage of properties and rising rents.

Braden Fastier / Stuff

The rental market is tight with a growing shortage of properties and rising rents.

Pyott says interest rates are also rising, all of which is creating huge financial pressure for many homeowners. As a result, places are rapidly disappearing from the market and rents are rising.

“It’s a disaster for tenants because private landlords are providing 80% of the rent, and who else is going to do it if they move out? The government spends billions and can barely accommodate 20%.

While there are incentives to invest in new properties, most renter families want a tidy and healthy second-hand three-bedroom home with an affordable garage and yard, he says.

“The government has made this almost impossible to provide, and the same tenants can’t afford a new version of the same thing because the cost of new build means higher rents.”

Auckland investor Kristin Sutherland, who is president of the region’s investors association, says the government has imposed a huge amount of change on the rental market in a relatively short time.

Much of it was passed in haste and with little consultation, and it made investors nervous, worried and attacked, she said.

“The data doesn’t seem to reflect that yet, but many investors are selling or planning to sell, and that’s likely to increase as people file their tax returns and realize what their bottom line will be under the new rules.

“It will be increasingly difficult for more marginal tenants to find rental properties, and rents will continue to rise as investors try to cover their increased costs.

“There is a limit to how far rents can go, but they will be pushed up and that will put more pressure on tenants at a time when costs are rising everywhere.”

Auckland Property Investors Association chair Kristin Sutherland said the government had introduced huge changes to the rental market.

Provided

Auckland Property Investors Association chair Kristin Sutherland said the government had introduced huge changes to the rental market.

Associate Housing Minister Poto Williams told the media last week that rent control was among proposals being considered to help struggling tenants.

But Sutherland said when rent controls have been introduced in other places, they have often had perverse consequences and ended up hurting the people they were meant to help.

“Hopefully the government will look closely at foreign examples before making a decision on this.”

Penny D. Jackson