Some landlords are selling up after the introduction of new regulations and property managers warn the emergence of developers in the marketplace could open the door to future slums.
Last year the Government spent $52.8 million leasing properties nationwide including $1.57m in the Bay of Plenty and Kāinga Ora said it was a support mechanism to meet short and medium-term demand for public housing.
''Often, they house customers that require bespoke, wraparound services, for example, Women's Refuge or rehabilitation services,'' a spokesperson said.
''It also helps with transitional housing, which provides short-term housing and wraparound services for some families.''
No exact figures were available but data from Tenancy Services shows in the Bay of Plenty active bond numbers had dropped by 177 in one year.
Meanwhile, Trade Me statistics revealed demand for rental properties across the region had consistently outweighed supply.
Core Logic said the market share for mortgaged investors in both Tauranga and Rotorua had held but acknowledged some landlords would have no choice but to sell if they could not cover their higher tax bills.
One landlord, who had investment properties for 23 years, said she would be selling off most of her portfolio after calculated returns of .7 per cent due to ''ridiculous'' government regulations and increased costs.
Tauranga Rentals owner Dan Lusby said he was aware of private developers who had built apartments with no decks or outside areas that had become magnets for gangs and other trouble.
In his view, these developers were ''all about the money'' and they had ''little empathy for tenants''.
''They will sell to one investor'' and he feared this could set a precedent and lead to slum blocks.
In 2019 the Government opened the gateway for developers to become Community Housing Providers which meant they can get generous government subsidies - up to 150 per cent of market rent for 25 years for any houses they build.
Lusby said his staff was consistently prospecting for rentals because a lot of older landlords had sold up.
Tauranga Property Investors Association president Juli Tolley said there was not enough housing in many regions
''In the last few weeks, I have reviewed hundreds of rental applications and well over 50 per cent of them were people in emergency housing or living in crowded conditions with family or friends trying to find their own place.''
A large number of these were due to properties being sold, she said.
''If more landlords exit, it will worsen unless the Government has some miraculous solution for providing housing in the demand areas fairly rapidly.''
Since the announcement of the removal of interest deductibility, investors had put a lot of buying plans on hold.
Rotorua Property Investors Association president Debbie Van Den Broek said some landlords were disillusioned.
''It has just become too difficult, too unpleasant, and not worth the effort. Especially for beginners.''
She said renters most at risk of any fallout would be families and people with pets.
Van Den Broek acknowledged it was great to see first-home buyers on the property ladder but not everyone had a deposit.
In her view, only the Government had the ability to not make a profit on providing rental accommodation ''as they have their own personal bottomless 'Give a Little Page' being the taxpayer''.
Rotorua Rentals director Pauline Evans said the rental market was ''dire''.
"We definitely have fewer properties available than ever before''.
Recently a lady in her 70s, living with her son, had had to move out for the owner to move in.
''They have not been able to find accommodation and she is now in emergency accommodation, away from her son. I am sure this is a story most property managers have experienced.''
She believed the Government's perceived lack of support or understanding of property investors was continuing to stall new investors to come into the market.
Evans also had experiences of developers building houses that were sold to the Government, at what she deemed to be highly inflated purchase prices.
''Those houses are looking awful, no one is caring for the small grounds and gardens, there are cars parked on front lawns, generally, an air of 'I don't care'.''
The company did engage with community trust providers but only two ''have interaction and communication with my company and the clients on a regular basis''.
''In the past, we have been let down by empty air promises from some community providers as to what they will do and it simply hasn't happened.''
Tenancy Services dispute resolution national manager Allan Galloway said bond records showed the total number of bonds lodged rather than the actual number of rental properties.
There may be multiple bonds lodged against a single premise, for example four individual tenants' bonds living in one dwelling.
Figures show on April 30 there were 22,974 active bonds in the Bay of Plenty compared to
23,151 in April last year.
Trade Me Property sales director Gavin Lloyd said demand for rental properties consistently outweighed supply in Tauranga and Rotorua.
In April 2019 market supply in the Bay of Plenty was 20 per cent compared to 13 per cent last month. Demand for rentals over the same timeframes jumped from 47 per cent to 113 per cent.
Core Logic chief property economist Kelvin Davidson said mortgaged investors statistics reveal in Tauranga the market share was 28 per cent (versus long-run average of 24 per cent) and 34 per cent in Rotorua (versus average of 29 per cent).
For recent investors, it's probably cheaper to hold on and wear the extra tax costs than to sell and have to pay Brightline tax, he said.
''Those who sell will have to put their money elsewhere, and bank deposits aren't exactly appealing at present.''
A Ministry of Housing and Urban Development spokesperson said developers and landlords did not let public housing directly to public housing tenants but they could by being registered with a Community Housing Provider.
Public housing tenants pay an income-related rent that was usually 25 per cent of their household income.
The Government then paid the Income Related Rent Subsidy which covered the rest of the rent.
From July 1 maximum market rent limits were being replaced with a principles-based approach to setting rent levels for CHPs.
A Kāinga Ora - Homes and Communities Ministry spokesperson said it was also leasing in areas where demand for affordable rental housing was high.
Data revealed nationally it spent $52.8m last year on leasing properties and $17.7m for the first four months of this year. Over the same timeframes, it spent $1.5m and $497,453 while in Rotorua it was $21,216 and $7332.
All the leases in Tauranga and Rotorua were for long-term public/state housing.