Andrew King: Rental prices in NZ are actually quite reasonable

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Low interest rates are said to be the only factor keeping rental prices from increasing at a faster rate. Photo / Doug Sherring
Low interest rates are said to be the only factor keeping rental prices from increasing at a faster rate. Photo / Doug Sherring

It has been suggested that landlords are responsible for rental property overcrowding and even hot-bedding, but this is unlikely to be the case.

There doesn't appear to be any adverts for hot bedding on Trade Me or in newspapers, which indicates that it is a tenant driven initiative to save money rather than a landlord initiative to increase profits.

According to Barfoot and Thompson, over the past year three bedroom rental properties in Auckland have increased by 5.6% (from $477 to $504), compared to house prices over the same period increasing 11.1%. House prices increased by an even higher 14.5% in the year to December 2014.

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The reality of renting in Auckland

Low interest rates are probably the only factor that are keeping rental prices from increasing at a faster rate. All other costs, such as insurance, maintenance, water and council rates have increased dramatically over the last few years.

In addition to cost increases, law changes have also increased the cost of rental properties and contributed to rental price increases.

This photo accompanied a Facebook ad for a room-mate to share a master-room with three other people. Photo / Facebook
This photo accompanied a Facebook ad for a room-mate to share a master-room with three other people. Photo / Facebook

The ability to claim depreciation, a deduction available to all other businesses, has been removed from rental property.

LAQC structures for rental property have also been removed.

Rental property loans have been reclassified from residential to investment and had a higher risk weighting applied to them. Loan to value ratios have been restricted making it harder to provide rental property. Auckland rental properties now require a 30% deposit to buy. Insulation in rental properties is to be compulsory whether the tenant wants it or not.

Rental prices in New Zealand are actually quite reasonable compared to other countries. The cost of renting in the UK is about the same as owning your own home, but it is far cheaper to rent than own your home in Auckland.

Renting the average Auckland home costs about $30,000 a year, but to buy it would cost the new owner over $43,000 a year. So renting the average Auckland property is around $255 per week cheaper than owning it.

There is no real ability for rental property owners to absorb increasing costs. Therefore every time a cost increase or some form of restriction is applied to the provision of rental property, it puts pressure on rental price increases.

With renting being a cheaper option than owning, there are only three alternatives tenants have for lowering their rental costs. Choose to live in a cheaper area, accept a lower quality rental property or get more people to move in and share the costs.

Invariably having more people living in a rental property increases wear and tear and increases costs for the owner.

Owners are allowed to limit the number of people residing in a rental by placing a maximum number of occupants on the tenancy agreement. The Auckland Property Investors' Association recommends their members do this so they have some control over tenants overcrowding their property.

At the end of the day overcrowding isn't good for the tenants health and well being, nor it is it any good for the rental property.

The Salvation Army recently said that Government needs to look at increasing accommodation help for low income people. With rental property owners unable to lower or absorb rental property cost increases, the Salvation Army's proposal may be the best way for conditions to improve for tenants.

- NZ Herald

Andrew King is chief executive of New Zealand Property Investors Federation.

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