Diana Clement: Why landlords get a bad rap

Auckland's rental crisis isn't abating any time soon. While tenants may view their landlords as greedy, that's not always true, says Auckland Property Investors' Association president Andrew Bruce.

The average landlord owns 1.3 properties and isn't a rich-lister, he says.

Rent increases aren't keeping pace with property prices, says Bruce. The average Auckland home has risen in value by 46 per cent since the last council valuations in 2014.

At the same time landlords' costs and risks have increased. And they fear that paying for compulsory property warrants of fitness could exacerbate the problem.

Barfoot & Thompson director Kiri Barfoot says new council valuations are likely to result in council rate increases for landlords. Also, earthquake levies on insurance rose by 20 cents per $100 of cover from 15c on November 1. From July 1, 2019 insulation will be compulsory in all rental homes. This all comes at a financial cost.

Investors and first home buyers

It's not just tenants who blame landlords for their woes. Landlords are the bogeymen for first home buyers, many of whom are convinced that investors have locked them out of the market by driving prices up.

According to Barfoot & Thompson's latest tenant survey, almost 60 per cent of renters want to buy a house in the next two to five years. But they are held back by price increases and the requirement for a 20 per cent deposit and tough lending restrictions by banks.

Andrew King, executive officer of the New Zealand Property Investors' Federation says investors leaving the Auckland market isn't necessarily a good thing. Rented houses in Auckland contain an average of 3.9 people says King and owner-occupied 2.1 people.

Every rental property sold to an owner-occupier effectively displaces on average 1.8 people.

The Labour/NZ First coalition government hasn't had sufficient time in the hot seat to make a difference to tenants or landlords. But a number of its policies could affect the Auckland rental market.

A possible capital gains tax in future or the removal of negative gearing for landlords will likely make it harder for people to buy a rental property and force some to sell their existing ones, says King.

Immigration

Labour's immigration policy aims to limit the ability of foreign students in low-level courses to take paying jobs, along with those who have completed study below university level. Labour estimates these changes will reduce net migration by 20,000 to 30,000, reducing pressure on rentals.

Auckland's housing supply is limited by regulations, materials costs, the availability of skilled workers, and zoning rules and fewer homes being built than consented or needed. In 2016 only 6000 homes were built in Auckland, well short of the 13,000 needed.

The Government has announced moves to increase home building. However, changes take time.

Different rental markets

Auckland has many rental markets, not just one. Supply and demand for studio apartments in downtown Auckland is a different beast to standalone homes in Otahuhu or coastal properties in East Coast Bays.

Barfoot & Thompson figures show the largest rent increases in terms of property size over the past year to October were for one-bedroom homes, which averaged $359 a week, rising 6.02 per cent from $339 in the third quarter of 2016.

Townhouses are more desirable than other types of one-bedroom properties, says Barfoot.

Demand for smaller properties is being pushed by younger people moving on from flatting to renting on their own because they can't buy a property, she says.

The agency's latest quarterly rental figures show that demand for rentals in Ponsonby, Grey Lynn, Mt Eden and all the old Auckland City suburbs, is strong thanks to short commutes, outdoor space, parking and proximity to shopping, dining and entertainment areas.

"I wouldn't expect rent to flatten out as house prices in Auckland have," says Barfoot. "Just as Auckland rents didn't increase at double-digit rates along with house prices last year, or the year before."

This certainly isn't music to tenants' ears. Angela Maynard, co-ordinator for Tenants Protection Association (Auckland), says that over the past year the TPA has fielded many more cases of waged and salaried tenants who can't make ends meet and have built up rent arrears.

Their income hasn't kept pace with six-monthly rent increases, says Maynard.

She is also seeing more families doubling up in rentals to make ends meet, which ultimately degrades those properties and has other negative effects for landlords.

"Professional landlords who are properly capitalised and want to keep their tenants should not put rents up, forcing people out," she says. "They could end up with much worse tenants."

Alan Johnson, policy analyst for the Salvation Army's Social Policy and Parliamentary Unit, says wages and salary rises have fallen markedly behind rents in the past 18 months.

He says this is making it particularly hard for those at the bottom of the heap who may have precarious incomes.

He fears that landlords renting properties to holiday accommodation firms at the higher end of the market is having a flow-on effect down the chain.

"Ultimately it's a bit like musical chairs. When the music stops someone is left without a chair."

Maynard believes the Auckland market is in desperate need of rent controls and a change in tenancy laws to require just cause for eviction rather than the current 90 days' notice with no reason.

Data from property valuation firm QV shows the highest median rents are unsurprisingly in Ponsonby/Freemans Bay at $695/week followed by St Heliers/Glendowie, Kohimarama, Remuera and Mission Bay/Orakei, which are all in the $600s.

Gross yield, which reflects the return on investment for landlords, ranges from 5.7 per cent in Central West (inner city), down to 1.5 per cent in Epsom.

Most suburbs are returning lower yields than the cost of mortgage interest.

Rents have been dropping in many parts of Auckland, according to QV data.

Worst hit suburbs are Westmere/Surrey Crescent (-24.2 per cent), Epsom (-16.7) and Balmoral (-13.1)

The highest rent increases over the past year were in Grey Lynn/Arch Hill (14.3), Three Kings (12.7) and St Johns (12.6).