As New Zealand fast heads into a coronavirus prompted recession, it seems safe to assume that there will be large scale job losses, particularly in industries like air travel, tourism and hospitality.
That’s prompted many – both landlords and tenants – to start asking what could happen if a tenant loses their job and struggles to pay the rent.
Tenant advocacy groups have been quick to start calling for rent freezes, government mandated rent controls and a ban on evictions.
Independent economist Tony Alexander doesn’t go that far but, in his most recent newsletter, he does say that landlords should “give back some of the capital gains you have earned over this housing cycle by holding off rent rises and cutting rent for tenants”.
His reasoning for this is that recession hits the lower end of the socioeconomic spectrum harder than those higher up and a higher proportion of those people rent than higher income earners.
In a similar vein, property management consultancy Real-iQ’s director, David Faulkner, says that rents will have to drop or else there will be a major problem with rent arrears.
“I can even see the government putting in place rent controls. Which I would be completely opposed to in normal circumstances, but these are extreme times. So I think we should be dropping rents to soften the blow for people.”
Landlords themselves say it’s not that simple. They still have to pay mortgages, rates, insurance, and maintenance costs after all – and there’s been no talk of mortgage or rate freezes.
But that does not mean landlords are not empathetic about the potential problems that could arise for tenants.
NZ Property Investors Federation executive officer Sharon Cullwick says landlords have to be sympathetic to tenants who lose their jobs because of the coronavirus downturn.
It is simply not the time for landlords to be heavy-handed but landlords do need to know what is going on for a tenant, she says.
“There are things that can be done but tenants have to talk to their landlords about their situation as soon as they run into financial problems. They can’t wait until they’ve racked up weeks of rent arrears.
“A good landlord will be on top of rent and one thing that they can do is if a tenant misses a week of rent the landlord can write a letter for the tenant to take to WINZ and WINZ will usually help out.”
If a landlord has a tenant who is a good tenant and has been in the property for a long time, the landlord might want to look at discounting their rent for an agreed-on period of time, Cullwick says.
“But only if the landlord is in a financial position where they can afford to do so because, ultimately, a rental property is a business and the landlord still has to pay their mortgage and costs.”
Keeping the lines of communication open will be key going forward, she adds.
While it’s uncertain how deep or how long this recession might be, it’s also important to remember that it’s not the first time New Zealand has gone through an extremely painful economic downturn.
The Global Financial Crisis (GFC) is 2008, the Asian Crisis in 1997, even the Stock Market Crash of 1987 all occurred relatively recently – and New Zealand’s economy, including the rental market, made it through.
Property investor Nick Gentle, who runs IFindProperty, held properties through the GFC when work was hard to get and sometimes tenants got into strife.
He says that giving people a break on rent when times were tough was pretty easy to do every now and then and they always paid it back when they could.
“We're talking a small discount for a while - not putting rents up for a bit, maybe letting them pay two weeks rent a bit later and spread out because the car needed fixing. Not a free ride for weeks and months like I've seen implied.”
He says experienced investors who have been through previous recessions will have done this.
“It's nothing particularly stressful and in terms of pennies on the dollar vs your overall asset value and income it’s a small blip.
“I’d suggest putting a little bit of extra money into your operating account and calling it the ‘rainy day fund to help others’. If nothing else you'll feel good about it in advance.”
There’s been a lot of hand wringing, and media beat-up, on this topic in recent days, Gentle says.
“Much of it is because many tenants won’t have personally experienced this type of economic uncertainty before. We’ve had a strong economy for a long time. Many people will have worked their whole lives so they will be embarrassed to need financial help at all.”
People are not going to be moving around much for a while so if it gets tight then sit down with your tenant, or ask your property manager to, and talk, he recommends.
“Look at what government support is available (and how to get it) or what you can do and get through it together.”
A lot of proactive landlords are already sending messages to their tenants telling them to get in touch if things get tight so they could see how they can help, Gentle says.
“This is a business and sometimes you need to support your customers.”
To that end, it’s worth noting that the Government’s Covid-19 economic response package, which is intended to help support people who lose their jobs because of coronavirus, is relevant here.
It contains $5.1 billion in wage subsidies for affected businesses in all sectors and regions; $126 million in COVID-19 leave and self-isolation support; and provision for a permanent $25 per week benefit increase.
The Government has indicated that it is not a one-off and there will be more to come, including for larger scale employers with workforces that may be affected.
Additionally, landlords with relevant insurance, should talk to their insurers. That’s because some landlord insurance policies do have cover for lost rent.
Whether rent lost due to a tenants’ loss of employment would be covered is another question but these are extraordinary times, so it’s probably useful to find out.
Some landlords might also find it helpful to check out Tenancy Services’ new Covid-19 webpage here.
Finally, landlords should bear in mind that while many tenants will be affected by coronavirus related job losses, the majority are unlikely to be.
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