Tenants and landlords are both feeling the pinch as the flow-on effects of rising interest rates and higher taxes hit the rental market.
Rotorua tenants are forking out $50 a week more than a year ago, new data shows, while new tax rules are putting landlords out of pocket in the region of between $6000 and $9000 annually.
Latest TradeMe figures show the median weekly rent in Rotorua last month was $540, which was up 10 per cent year-on-year.
The number of rental listings in the district also fell by 5 per cent while demand increased by 12 per cent.
Property investors say landlords are trying not to increase rents amid the rising cost of living but the extra tax burden would have to be passed on to tenants or owners might have to consider selling and, for some, it had put the role of a landlord in the “too-hard basket”.
Last week, NZME reported fears were rife that the rental pool could shrink further due to high-interest rates, higher tax bills, and increasing costs for insurance, rates, and maintenance.
The comments come as the latest TradeMe figures revealed Rotorua’s median weekly rent last month was $540, up 10 per cent from $490 in January 2022.
Rotorua Property Investors Association president Sally Copeland said landlords were now feeling the effects of no longer being able to deduct interest as a business expense.
“This is creating an estimated additional tax expense in the region of $6000 to $9000 per property in a lot of cases.
“I know a lot of landlords are trying not to increase rents as people are struggling with the increased cost of living, but those increased costs are also affecting landlords.
“Eventually the additional tax burden will have to be passed to tenants or the owners may have to consider selling as they can’t carry the expense.”
Copeland said the impact of the tax-deductible rules would become more significant when the 2023 financial year ends on March 31.
For houses purchased before March 27, 2021, only 75 per cent of interest was deductible in this financial year. The next year, only 50 per cent and the following year will be 25 per cent, she said.
“As the percentage diminishes, the tax cost to landlords will be increased, which in turn will see either rents rise or perhaps investors will consider selling their properties as they can’t afford to keep them.”
Rotorua Budget Advisory Service manager Pakanui Tuhura said agreed it seemed no one was winning in the current rental market.
“For non-commercial landlords and their tenants, the landlords have to make a choice whether or not to hand on the loss of rental to their tenants. If they don’t then the landlord suffers, if they do then the tenant suffers.”
Tuhura said rentals were unaffordable for appropriate housing so clients were making do with “affordable inappropriate housing” or cutting back on spending in other areas.
“The recent cyclone/flooding didn’t really strike Rotorua badly but it did highlight how necessary it is to have a roof over your head during inclement weather.
“People unable to afford rentals with contents insurance are foregoing the contents insurance and other important and necessary costs to afford rent. Many landlords are doing their best to keep the rents steady for good tenants but I have not heard of any landlords out there reducing their rents.”
The problem was, he said, household incomes for low and middle-income earners were not keeping up with the cost of living, and “if you can’t increase income then you have to decrease costs”.
Tuhura said many of their clients were now reducing costs, including food budgets, which was affecting their health.
“Strangely some clients seem to have enough money to own and operate cellphones and access social media while unable to afford food. At the end of the day, people will prioritise what is important to them and budget accordingly.”
Rotorua Rentals director Pauline Evans said there were limited options for tenants.
“We have some excellent clients in need of accommodation.”
Evans said there was “good demand” for rental properties.
“We gauge this in a number of ways. The most telling is when we advertise properties for rent and the phone calls, walk-ins, and email communications go nuts.
“This indicates that there is still a high demand from the market for good property. Many times when we have a property we know we already have a client for it.”
In the current market, tenants who they had placed into rentals were most grateful for the opportunity to have a permanent base they can make their home, she said.
“In previous years, tenants seemed to not think of long-term tenancies as they had choice and could move around pretty much as and when they wanted.”
Now, she said, there was not much choice in rental accommodation as some owners had sold.
“With the changes to our industry, it has made the role of being a landlord for some in the too-hard basket.”
As a result, some had sold their properties and others had placed their properties into short-term accommodation, which reduced the rental pool and gave tenants less choice, she said.
This had a flow-on effect with rents continuing to rise.