A Tenancy Services spokesperson said there was nothing in the Residential Tenancies Act 1986 that precluded a tenant indicating what they would be willing to pay for a rental property.
"The process of rental bidding reverses the offer/acceptance role that usually occurs. It is the potential tenants who make the offer - it is then the decision of the landlord which offer they accept.
"This process removes the landlord from the rent-setting equation and allows the prospective tenant to be an active participant in the setting of 'market rent'."
Napier woman Reydun Apuwai successfully bid on the rental property she now lives in after searching for months last year.
After "house hopping" with two children and even living in a motel for several months, Apuwai said she saw a private property advertised and applied for it.
"They messaged me the next day and said because of the high demand the rent was going up from $330 to $340."
She viewed the property and, wanting to get her children back into normal routines, told the landlord she was able to pay up to $360 for rent.
She was shortlisted as one of two potential tenants the next day.
"I think by me saying that, I was in with a chance. There were so many people there [at the viewing] so I was quite surprised when they rang up to say it was out of me and another person."
Apuwai said it was incredibly difficult to find a rental property and it had got worse over the years.
"Especially in Hawke's Bay, it is shocking. I've had friends and family who have been in my situation too," she said.
Tremain Real Estate managing director Simon Tremain said rental bidding wasn't condoned or practised by Tremains, adding applicants were only put forward based on their references.
"It's not about someone saying they'll pay another $10, it's about having the best tenants for the property."
However, he said private rental properties were "absolutely" different.
The Tenancy Tribunal confirmed the Ministry of Business, Innovation and Employment had received queries about rental bidding but believed it was "allowable" under the Act.
"Any party who feels that they are being asked to pay rent that exceeds 'market rent' has the ability to apply to the Tenancy Tribunal who can review and determine the appropriate amount of rent for a residential property."
Tukituki candidates Lawrence Yule of National and Anna Lorck of Labour agreed the answer to the rental shortage was to build more houses.
"I accept there is a shortage of housing at the moment in all forms, where that's private or public sector, and the only way we're going to address that is building more houses and help is on its way to do that if National gets back into power," Yule said.
Lorck said there weren't enough affordable houses to meet all budgets.
"The answer to addressing the lack of rentals and ensuring there are rentals for all budgets is to ensure we build more houses for all budgets," Lorck said.
