Should rents rise or should there be a cap on them? Photo / Ted Baghurst
Q: Your recent analysis rightly noted that owning a home often costs more than renting the same property, once all expenses are considered. This implies renting may be the more sensible financial option, but it also raises a key question: why would anyone provide rental housing at a loss?
If rents are lower than the true cost of ownership, landlords are effectively subsidising tenants. Even the goal of eventual capital gains now seems uncertain.
While a few property owners may be willing to absorb ongoing losses out of generosity, most landlords understandably expect some return on their investment. When that return doesn’t materialise many will simply leave the market, reducing the rental supply.
Despite being frequently portrayed as greedy or exploitative, the reality is that landlords are often absorbing losses by keeping rents below true cost. For rental supply to remain stable and viable, rents should reflect the genuine costs of long-term ownership, something they often do not today.
Rather than vilifying landlords perhaps we should recognise that they have been too charitable for too long. A more honest conclusion from your analysis is that rents need to rise significantly to make the provision of rental housing a financially sustainable market.
A: It’s true that some landlords’ expenses are higher than the rent they receive, especially if they have a large mortgage. But most of them are in it for the expected capital gain when they sell – in many cases untaxed.
You’re right that such a gain is less certain these days, with house prices seesawing. But most experts expect prices to continue to rise over the long term. And nobody should invest in property – or shares for that matter - without being willing to stick with it for at least 10 years.
You don’t need a big gain to do well. If you invest in rental property with a mortgage, you receive the gain not only on your deposit but also on the borrowed money.
While it’s true that many landlords don’t raise rents to keep pace with costs, they tend to be rewarded by having good relationships with long-term tenants. And then they usually sell at a considerable gain. They shouldn’t be vilified, but nor should they be praised as charitable.
I certainly wouldn’t advocate for artificially raising rents. For one thing, many tenants struggle to pay current rents. And their lives are usually tougher than most landlords’ lives. But in any case, market forces take care of these things. If dissatisfied landlords leave the market, the remaining ones will be able to charge more because there’ll be a shortage of properties.
Q: It was good to read the letter from the pensioner who manages very well on NZ Super. I couldn’t help thinking, however, she wouldn’t be doing so well if she were obliged to hand over $400 or so every week to a landlord, as so many superannuitants do.
Government policy could change that of course, by introducing caps on rent, but they have no will to do so. That’s what’s missing?
A: I’m afraid I don’t support capping rents any more than raising them. It’s a lovely idea to make life easier for struggling superannuitants, but almost every economist would agree that it wouldn’t work well. Many landlords would simply switch to investing elsewhere, reducing the supply of rental housing. And scarcity pushes up prices.
By the way, a letter in a March column said this, in part: “I am going on 70, live a VERY happy, simple, content life. Never owned a home. Never wanted to. I have no investments, shares, etc and save on the pension … I am renting on the tip of a peninsula for very cheap rent.”
So it can be done, but most of us would not find it easy.
Q: I read that the Government will extend the Government KiwiSaver contribution to 16 and 17-year-olds from July 1, 2025. If I or my son pays $1042 into his KiwiSaver before June 30, 2025, presumably he will receive the maximum $521 Government contribution this year?
My son mentioned he would prefer access to the $1042 now as he is saving to go to university, but we both like the idea of “free” money, even if that money can’t be touched until he retires, or, if he uses his KiwiSaver as a deposit for his first home - if that is still an option when he comes to buy his first house?
What would be your recommendation for right now please? Get the free money by putting $1042 into his KiwiSaver or put the $1042 into a savings account that he can access for uni? And any recommendations for a savings account please. He turns 18 at the end of November.
A: Sorry, but your son won’t be eligible for the Government contribution on money he deposits in the next few days - by June 30. The change in rules for 16 and 17-year-olds applies to money deposited from July 1 on. They will get their first Government contribution in mid-2026.
What about the next KiwiSaver year? If it’s going to be a financial struggle for your son at uni, perhaps that’s where the money should go. But if he will manage without that $1042, by all means get it into KiwiSaver where it has many years to compound.
On which savings account, I suggest you go to interest.co.nz and find an account paying relatively high interest.
Q: I’m afraid that I really must take exception to your comment in a recent column that “Young people are the only clear winners in the Budget announcements about KiwiSaver”. There are no winners.
The extension of the annual Government contribution to 16- and 17-year-olds will be quickly offset by the halving of that annual contribution.
The increase in compulsory employer contributions is a benefit, but given that most 16- or 17-year-olds will only be in part-time, minimum wage work (if employed at all), those employer contributions are unlikely to compensate for a lifetime of halved annual Government contributions.
The only “winners” can be seen elsewhere in the Budget, where a portion of those saved KiwiSaver contributions, taken from young people saving for their first home, has been gifted to home-owning superannuitants as an increased rate rebate.
A: I get what you’re saying. Over all, the KiwiSaver changes in this year’s Budget were really disappointing. I was just trying to look on the bright side. And I do think it’s good that 16 and 17s may be enticed into KiwiSaver. It’s still worth belonging.
Your last paragraph refers to changes to rates rebates - reductions in rates for people on lower incomes – for those over 65.
From July 1, “the income abatement threshold to be eligible for the maximum rebate for SuperGold Cardholders and their households will be lifted from $31,510 to $45,000 – about the rate for a couple receiving superannuation”, says the Government. “The maximum rebate for the scheme will also increase from $790 to $805.”
It’s worth checking whether you are eligible.
Q: I’m sure I won’t be the only person to respond to last week’s letter about the high costs of rest-home care. I have walked a similar path to your correspondent with a partner in private hospital care. The funds disappear fast.
However, I do have this advice for him. If he is unable to cope with keeping house without help, he needs to visit his doctor and ask for a Needs Assessment referral.
Assessors visit your home to see how much help you need with housework, showering etc, then they employ staff to carry this out.
Any help provided is reassessed regularly, and over time the help may increase as the needs do. The government sees that helping folk stay in their own homes as long as possible is cheaper than them paying for rest home care for those without funds to pay themselves.
If they feel he is coping well on his own, then he can choose to continue to pay for private help.
A: Good idea. This is a great service, which not only keeps government costs down but also boosts happiness. Most people much prefer staying in their home to moving to a care facility.
Q: With reference to the 14 June letter about increasing your health insurance excess to $4000 and putting the premium savings into another account, there are some aspects about health insurance which are perhaps overlooked with this strategy.
My wife is a practice manager for a private practice. She makes the following points concerning most health insurance policies. Unless the policy is for full cover, it is likely the following restrictions are in place:
A: Thanks for this. You raise some important points. But we should note that these conditions don’t always apply. For example, I have an excess on my health insurance, but your third restriction doesn’t apply to me.
Q: I’m responding to the correspondent who advised that they had put an annual excess of $4000 on their health insurance policies, and your response that it would work well, as they would know that they would not pay more than that for health expenses.
I would suggest that they “read the fine print”, as with some health insurance the excess applies to each person on the policy. So, if there are two members on the policy and they both claim within the same claims year, both will need to pay the excess of $4000 before being reimbursed for any healthcare services they receive.
I realise that this provision might vary between insurers, and in different policies within the same insurer, but it’s important that you confirm exactly how any excess is to be applied.
A: Good point. If you have health insurance, clearly it pays to understand the details.
Q: You recently have mentioned accessing a reverse mortgage or home reversion for a major medical event or medical purposes. If I have a mortgage-free apartment (82 square metres), can I access either of these or do they not apply to apartments, please?
A: Apartment owners can probably get a reverse mortgage, but not home reversion – at least at this stage.
Says Heartland Bank: “In general, we do provide reverse mortgages to people living in residential apartments, so long as it is their principal residence, or secondary property built using conventional construction and in good repair.” A secondary property is a rental property, holiday home or similar.
“It must also meet our minimum property value criteria. Some locations and property types will have restrictions and, in some cases, may not qualify for a Heartland Bank reverse mortgage. The property should be mortgage-free but if there is a small mortgage outstanding it must be repaid when the Heartland Reverse mortgage begins - this can be done by using part of the loan.”
And from SBS: “An apartment of this size does not preclude our consideration for a reverse equity mortgage. However, there are also a number of other factors to consider, so we would suggest your reader contacts us for a full assessment.”
However, Lifetime, the only provider of home reversion, says, “Our Lifetime Home product, which offers an alternative to a reverse mortgage, is not currently available for apartments, even if mortgage-free.”
Lifetime adds, though, “We recognise the importance of apartment living for retirees and the challenges of funding medical needs in retirement. We continue to review our offerings and hope to provide solutions for apartment owners in the future.”
By the way, as noted in a recent Q&A, people with a “licence to occupy” in a retirement village can’t get a reverse mortgage or home reversion.
* Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a director of Financial Services Complaints Ltd (FSCL) and a former director of the Financial Markets Authority. Her opinions do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@maryholm.com or click here. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.
Federated Farmers launched a petition to change KiwiSaver rules urgently.