Rental squeeze to intensify

Wednesday 31 January 2018

The current rental market squeeze is only likely to get worse as investors leave the market and the rental shortage worsens, the Property Institute is predicting.

By Miriam Bell

Property Institute CEO, Ashley Church says the housing polices of the new government, combined with uncertainty around housing investment over the next few years, will ‘”scare” some investors out of the market.

This will have a growing impact on the number of dwellings available for rental and will start to become a problem in the second half of 2018.

“While the cycles of property investment are largely predictable, there are always a number of less experienced property investors who panic, and sell, when a market flattens or who decide not to invest further during downturns.

“This means that an increasing number of rentals will convert to owner occupied dwellings – putting pressure on the rental market at a time when the demand for housing, both rental and owner occupied, is already acute.”

In turn, the cost of renting will continue to rise and this will replace the cost of housing as the number one housing issue in 2018, according to another of the Institute’s annual predictions*.

“While it’s normal to see rent increases in the period following a property boom – the environment in which they will take place in 2018 will be made worse,” Church says.

“This is because of a combination of ongoing high migration which has exacerbated rental demand, the LVRs which have closed investors out of the market, and the new government’s policy plans.”

Investor advocates have long been warning that the higher compliance costs associated with the Healthy Homes Guarantee Act, the removal of negative gearing and Labour’s plans on the capital gains tax front will prompt many landlords to raise rents.

Trade Me Property’s regular rental market data shows that rents are on the rise, while the amount of rental stock available is falling, in many markets around the country.

At the same time, the Wellington rental market, which is particularly tight on the supply front, has been the centre of claims that landlords are exploiting tenants with unfair rent rises.

This prompted Finance Minister Grant Robertson to suggest that tenants should “dob in” landlords who were doing so.

Landlords were outraged by this suggestion, pointing out that the costs of maintaining a rental property have also increased significantly and that it is not illegal to raise rents.

However, the current rental squeeze is only likely to get worse as landlords exit the market - and there is already evidence of a decline in investor activity.

The latest Reserve Bank new mortgage lending data shows that the share of new lending going to investors has hit a new low of less than 21%.

Likewise, recent CoreLogic research reveals that the share of sales going to mortgaged investors has fallen to less than 25%.

As the market flattens further, along with prospects for capital gain, new government policy is bedded in, and the current negative backlash against landlords continues that exodus will only increase.

Church says the results of all this are that we are in for big rent increases in some parts of the country over the next couple of years.

*The Property Institute is also predicting that house prices will continue to flatten, that longer term mortgage rates will continue to rise, that new home construction will slowly increase and that the LVRs will be relaxed further in 2018.

Read more:

Looking ahead to 2018 

Healthy Homes now law 

Rents shoot up due to limited stock 

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