Property Report: The big rental squeeze

Out of reach: The housing crisis is pushing up the price of rentals.

The Auckland housing crisis is creating tough challenges for renters as well as home buyers.

Chase Property Management director Sam Coutts says they're just aren't enough rental properties available to meet the high demand in Auckland. There is a reason for that.

"If you're looking for rental yields, you're not necessarily going to pick Auckland for cash flow purposes. The value of properties goes up quite rapidly but the rental prices don't move along with it, then the actual yield from rental income drops down," Coutts says.

For people looking to rent, prices are still moving up faster than inflation. If wages don't grow in line with rents, then Coutts says the city becomes, to some degree, unaffordable.

As the council pushes ahead with intensification of housing, renters have to move well out of the city or cram into housing with multiple flatmates.

The situation with students is even more dire with some having to share rooms. And they could be the lucky ones because rental properties are so hard to get into.

With up to 80 people applying for one property, it helps to be one of the first ones to apply and to have impeccable references.

Bribes

It begs the question if some prospects might offer agents or landlords a bit of a sweetener.

"We've never had anyone bribe us; as a company we couldn't. But I imagine that there are cases out there."

Prospective renters also need a wad of cash -- four weeks' rent for the bond and another week's worth of rent for the letting agency fee. The average rent for a three-bedroom home is between $450 and $550. So you're looking at a good $2500 just to secure the property. Some landowners don't use letting agency but Coutts says there is a danger with that.

"A landlord who manages his own property isn't always as on the ball with doing rent increases.

"By New Zealand law, we can increase rent every 180 days with the correct notices." Coutts says landlords may not bother increasing their rent for a couple of years and then stick the renters with a sudden sharp increase. The letting agency is more likely to put the rent up $10 per week each year.

Inspections

Prospective renters should do a thorough inspection of the property. Check the heating, security, location and if it has off-street parking. See if it is a leaky home or if it is damp and has mildew.

But before you start looking, get your references together. Coutts suggests that first-time renters such as students talk to their parents about being guarantors.

A letting agent can also speak with someone's employer to see if they're reliable and a good worker.

The main thing landlords look for is that the rent is being paid and the property being cared for and clean.

Large real estate agencies such as Harcourts are well known for their residential and commercial property sales but some also run significant property management services. Harcourts CEO Chris Kennedy says they manage properties through their 191 offices.

"We manage in excess of 20,000 properties across New Zealand through our franchises. So it's quite a substantial part of our property business," he says.

Some 7000 of those properties are in the Auckland area. Last year saw an 8.5 per cent growth in the number of properties available but that's still not enough. Kennedy says some home owners are just sitting on vacant properties.

"They're buying and just on-selling in a relatively short period of time. We've seen those who are buying them and sitting on them."

Kennedy acknowledges that renting out a property is not always the best thing for the property owners.

"In some situations you put tenants in and they don't look after the property. At best the properties get knocked around a little bit and then you have to spend money tidying them up."

Kennedy admits it doesn't make a lot of sense to leave a home vacant when you can potentially receive tax relief from negative gearing on the investment.

Home owners who are not renting out their homes and leaving them vacant are most likely looking to turn the property over fairly quickly. Long-term investors are more likely to rent the home out.

Location

The challenge for tenants is working out what parts of the city they can afford. "People want to live in nice areas, and people want to live in great areas and good location," says Kennedy. "But they are always dictated by the amount of rent that's charged in those areas."

People unable to pay premium rents are forced to live in areas deemed to be not so good.

People who rent come from all demographics. They could be retirees who have sold their property or young families saving up for their first home.

Kennedy says it's a good idea for two couples to share a four-bedroom, two-bathroom home that's renting for $500-$600 a week. Renters may be tempted to move way out west or way down south for lower rents, but the commute might not be worth it.

"Sometimes you're better to pay a little bit more rent and come into the city where there's no need for a motor-vehicle, fuel and all those sorts of things. You can commute relatively well around the city via bus, bikes, etc."

• David Maida is a freelance writer at davidmaida.com