House prices may be beginning to slow down, but the latest figures from Stats NZ show rents are still on the way up
The Mt Roskill house that Mitchell Watene rented until earlier this year when flooding drove him and his flatmates across town always had its issues.
Noisy neighbours and stringent pet policies from the landlord aside, the Auckland man says there were high levels of dampness and makeshift solutions in the place of legitimate renovations, such as a horizontal light switch covering a hole in the drywall, not connected to anything.
Fit for human habitation is perhaps a subjective judgment, but it seems that the place certainly flirted with such categorisation.
So when an email appeared earlier this year informing him in a succinct and professional tone that rent would be increasing by five percent, one could reasonably expect some kind of increase in service.
Especially considering that over the six or seven years he and his flatmates have lived in the place, they collectively paid around $200,000 in rent - enough for their own deposit on a house.
Instead, the property manager informed them that the rent increase was legally allowed and no further justification was given.
“I don’t think that it’s fair if there’s no increase or service or change at all for us,” Watene said. “Especially when we already have some of the highest rents in the world around here.”
The downpours of late March brought a torrent of water through the ground floor of the property, and it took the property manager two weeks to send someone out to assess the damage, which turned out to be Category 3 water damage, when potentially contaminated black water seeps into porous materials like wood.
Yet no blind eye was cast over Watene and company by the inevitable spectre of rent increases.
It’s a foregone conclusion for the 1.6 million New Zealanders who rent - the same as the population of Auckland. Rents go up, not down - even if house prices are finally beginning to slow.
It appears that the very beginning of the year may have been the peak for the cycle of house prices, with figures in most regions showing the average property price beginning to decelerate, according to the Real Estate Institute of New Zealand’s latest monthly report.
But while there may have been an end to the seemingly unstoppable soaring of property values, for the third of New Zealanders who rent, the long-awaited exhalation of relief may still be some time away.
Figures released last week by Stats NZ show ongoing increases in how much people are paying to rent, with new lease contracts being set at 6.9 percent on the year before, and the rental stock in general going up 3.9 percent.
And with inflationary pressures and supply chain uncertainties pushing up prices at the grocery check-out and gas station - especially once the Government’s three-month relaxation of petrol’s excise tax is up - rent hikes are liable to hit already vulnerable families hard.
New Zealand already has a long-term trend of increasing housing unaffordability for low-income households, according to reports from the Ministry of Social Development.
International comparisons of housing affordability paint a dire picture for New Zealand, with the highest housing affordability stress for low-income households in the OECD. This means 61 percent of people spend more than 40 percent of their income on rent.
A rule of thumb cited ad infinitum around the world is the 30 percent rule, advising people never to spend more than a third of their gross income on rent.
But in New Zealand, it is becoming harder and harder for many families to even come close to this ratio of income to rent.
Property investment adviser Sharon Cullwick said inflation was a likely driver for much of the rent increases, as well as the expected peaks and troughs of the housing market.
“It always works that the property cycle goes like a clock - after every boom there is a bust,” she said.
She said a greater supply of housing would see rents start to taper off, but Government incentives for first-home buyers eat into that supply in turn.
“This Government has made it clear they want more first home buyers to go into the market,” she said. “If more first home buyers go into the market, that means the actual amount of houses that are available for tenants is being reduced also.”
Other factors that may dissuade buyers from purchasing properties to rent them include interest rates and the ten-year bright line test which discourages selling the property within the decade.
Less rental properties means less supply and higher rents - the unfortunate fallout of would-be landlords holding onto their cash.
“We have 25,000 people on the emergency waiting list for housing at the moment,” Cullwick said. “Those people need a house to live in.”
Property Council CEO Leonie Freeman said landlords deciding to jump ship on the investor market led to higher rents.
“My take is with the amount of government legislation, more people are moving their investment properties into short-term or Air B’n’b style arrangements,” she said. “Or if it’s too hard, they’ll sell it.”
She argues that the rental market is too heavily reliant on Mum and Dad investors, who are disincentivised to run rental properties when regulations come into play.
Along with the Property Council, Freeman is advocating for build-to-rent options, wherein private operators comprised of institutional investments rent medium to high-density housing out to people, often with longer-term agreements and more housing stability.
It’s a model that’s often seen in places like Europe.
Freeman wants to see the Government open up investment classes similar to those that cover retirement homes and student accommodation for buildings like this, with preliminary Property Council research showing a build-to-rent model could see 25,000 new homes available in the next ten years.
University of Auckland doctoral candidate of Sociology Jordan King has spent the last few years going deep on public policy and the housing market, and he disputes the idea that rent increases can be lain at the feet increased tax or legislation on investors.
“It’s in the interest of the landlord class to suggest that tax and regulations are impacting renters,” he said. “The real problem is that the state neglected to put the investment into public housing stock.”
He said the countries where stable rents are seen often include a hefty component of public and third sector (NGOs and not-for-profits) housing stock.
“For large swathes of people on fixed incomes, we cannot continue to have a rental system that continues to increase like this,” he said. “We need to invest in broader public housing.”
King agreed with Freeman that a build-to-rent model could help the issue, but cautioned that tight controls are necessary when handing the reins over to private industry.
Meanwhile, the latest data from the Real Estate Institute of New Zealand (REINZ) has shown a marked decrease in property sales over the last year in all provinces.
REINZ CEO Jen Baird said the market has entered a phase of weakened demand in the cycle, wherein the appetite for property investment seems to have fallen and attendance at auctions and open homes is falling.
This can be seen in the increase in median days to sell a property, which increased nine days on last year, from 29 to 38.
Last month, the total number of properties available for sale across the country went up a whopping 71 percent on the year before. Baird puts this down to the slowing pace of sales rather than a glut of new listings.
All of this contributes to less options for Kiwi renters, who are already more likely to live in damp, cold and mouldy houses than those who own their own homes, according to Stats NZ data.
Around a third of renters reported they can see their own breath inside, compared to just 13 percent of people who own their own homes. Meanwhile, just under a half of the country’s renters said there was mould in their home, compared with a third of home-owners.
And with higher rents and less options for prospective homes, renters may find themselves having to stomach bad conditions even despite the advances of the Healthy Homes Standards.
For Mitchell Watene, he managed to dodge this rent increase and find himself in a home that better fits his needs.
But like the more than a million other renters in the country, the rent increase sword of Damocles continues to swing somewhere above his head.
“Leeches,” he said. “It all exists just to funnel wealth upwards. And there’s not much you can do in that situation. It puts you in an awkward position unless you are willing to move at a moment’s notice.”
