Look on any Hawke’s Bay social media page and you’ll see a familiar plea: ‘I desperately need a rental, can anyone help?’ Ask those in the rental market and they’ll tell you how tough it is to find a property available for rent, let alone beat out all of the other potential tenants to secure one.
In fact, it’s not just tough; for those navigating the undersupplied rental pool, finding a home is virtually impossible. Think of up to 60 people attending a viewing, leaving 59 disappointed and still looking. For the young couples, families and elderly who make up the growing rental demographic, the experience is the same – there simply aren’t enough properties to go around.
Adding to mounting pressure on the rental market is the biggest overhaul of tenancy laws the country has seen in 35 years. Aimed at improving security and living conditions for renters and dampening the growth of the property market, the third and final phase of the changes come into effect in August.
While warmer, safer, drier homes are a win-win for everyone, for many landlords, making the necessary changes to comply with the new requirements is costly. Other new requirements – including an extension of the bright-line test and the removal of interest tax deductions – have infuriated investors, who say they’re being unfairly targeted. As a result, an increasing number are selling up, taking yet more stock off the market.
With little progress on the rental supply and demand imbalance in Hawke’s Bay, many tenants are left wondering how they’ll find a place to call home.
Population, house values and rent on the rise
The population of Hawke’s Bay has risen by 10% since 2013 to more than 160,000 – putting huge pressure on the housing market. A strong agricultural sector, bringing seasonal workers, an increase of people relocating to the popular region and Covid returnees who have the opportunity to work remotely, have all added to the Bay’s housing woes.
Low home-ownership rates and escalating house prices are also making it increasingly harder for Kiwis to buy a home. New Zealand’s rate of home ownership is at 64.5% – the lowest it’s been since 1951. House values have soared, with the average price in Hastings $797,000 and in Napier $798,000 – both up 14% in three months, according to QV. The figure is almost double the national rate of growth for the same period.
The rising cost of housing is forcing a growing number of people into the rental pool, with many having to accept their home ownership dream may never be realised. Latest figures from CoreLogic show first home buyers’ share of the property market has fallen to its lowest level in three years. In the first three months of 2021, first home buyers made up 21.5% of the market, the lowest level since 2018. The declining market share hints at “fatigue and a growing struggle to keep up with other buyer groups and ever-rising deposit requirements and property values,” said the report.
Low rental stock has also forced hundreds into emergency housing in Hawke’s Bay. Latest figures show 1,700 people are in emergency housing in the region, with 741 applicants on Napier’s social housing waitlist – the highest per capita in the country. About half of the city’s motels are fully occupied with people who have nowhere else to go, and no respite in sight.
Cost of being a tenant
While house prices have increased, so have rents. New Zealand rents saw the largest year-on-year increase in two and a half years in March, growing by 6% to $540 per week, according to the latest Trade Me Rental Price Index. Median weekly rent also increased nationally in March, compared to the same month last year. Hawke’s Bay saw the biggest increase (13.8%), with rents reaching an all-time high of $535. More applicants looking for a home and not enough properties to cater for demand continues to drive up prices across every region in the country for limited stock.
It’s an all-too familiar story for tenants. Their landlord decides to sell, or to move back in and they urgently need to find a new home. Clean, tidy, with impeccable references and well-paying jobs, many still find themselves in limbo, struggling to find somewhere to go.
At Oxygen Property Management in Napier, regional manager Jamie Richardson has watched the rental prices creep up over the years, while stock has remained low. It’s not uncommon to have 30-60 applicants for a vacant property, she says. “Sometimes you see the same families attend viewings, which is really sad because you can only give one applicant one property. So one family has a home, but what about the other 30 or 40 that have come along?”. One family the company worked with, actively looked for a rental for 15 months while overextending their welcome with family members before finally securing a property. In addition to the usual families and singles, Oxygen also has a number of elderly tenants actively trying to find a property, and often with little success.
Thomas Weber and his wife relocated from Auckland to Hawke’s Bay in May. The couple have been living with their daughter while looking for a rental property in Napier or Hastings that fits their criteria – three or four bedrooms with a large living area and dog friendly so they can keep their English staffy. The couple are willing to pay up to a maximum of $800 per week, “but for that it has to be really nice”, says Weber. Even with a substantial budget, Weber has been surprised at the lack of stock available and high prices, which he describes as “like Auckland”.
While researching for this article I came across a listing for a Havelock North home for rent. The three-bedroom property was described as handy to schools and the village, with good sized bedrooms and living areas, a large flat section, ample parking and a single garage. Rent was $690 per week.
Within a day, the listing attracted 103 comments that give an insight into the current rental climate. Many comments are negative and abusive, labelling the rental a ‘crazy price’, ‘outrageous’, and ‘a rip-off’. ‘That price is disgusting people have got so greedy!’ vents one person. ‘Why would a landlord buy a home with repayment like that, and then expect a tenant to pay it off for them’, asks another. Yet, alongside those comments are a huge number of people saying they want to rent the property.
In the last two years the Government has introduced a glut of new requirements for rentals, aimed at dampening the rampant growth of the property market and increasing the wellbeing, comfort and security of tenants.
The healthy homes standards were passed into law in 2019 and focus on providing warmer, drier homes for tenants. They place heating, insulation, ventilation, drainage and draught prevention requirements on all rentals.
In 2020, further changes were announced. Landlords can no longer end a tenancy without cause. If they want to sell, they’ll need to give three months’ notice. Tenants are allowed to make minor changes such as hanging pictures on the wall and even painting a wall in the property to make it feel more like a home, as long as they pay for any associated costs and the reversal of any changes when the tenancy ends. Landlords cannot prevent tenants from having fibre installed, and rental bidding on properties is prohibited under the new measures.
The third and final phase of these changes, which comes into effect in August, will allow tenants experiencing family violence to end a tenancy without financial penalty. In the instance of a landlord suffering physical assault from a tenant, they will be able to issue a 14-day notice to terminate the tenancy.
Perhaps the most controversial changes were announced this year, aimed at hitting investors in the back pocket and discouraging them from buying multiple properties, then selling them off for a quick profit. The first is doubling the bright-line test from five to 10 years for property bought on or after 27 March 2021 and the second is removing the ability to claim mortgage interest as a tax deduction.
A New Zealand Property Investors’ (NZPIF) survey found the Government’s new tax laws will substantially affect rental property owners – increasing costs by about $3140 per property, per year. On average respondents also face around $15,000 in higher taxes. To offset the tax increases, 77% said they were likely to increase rent prices, with a further 9% saying they might do so. The expected rental increase is between $21 and $30 per week. However, this is only a short-term fix, says NZPIF executive officer, Sharon Cullwick, who is based in Hawke’s Bay. “You can’t keep putting the rent up; it’s too hard on tenants. They can’t afford it.”
The recent rental system shake-up has been a long time coming. Originally designed in the 1980s, it has failed to evolve with the changing nature of renters, which now includes a growing number of families and life-time renters, along with the traditional young couples and singles.
At Oxygen, property managers encouraged landlords to improve the standards of their properties even before the legislative changes came into effect and they slowly got them on board. A higher standard of property means a higher rental return, so owners could see the benefits. Generally, they’ve had a good reaction from landlords to the healthy homes requirements, says Richardson. “It’s better for everyone to have a warm, dry home to live in.”
Thomas Weber says the new legislation is a step towards the kind of standards tenants receive in his native Germany. “I think it was about time … we are a first world country and we should have first world standards. I don’t think anyone should be cold in their house and pay rent for that.” In Germany more people rent than buy, often staying in the same property for many years. They also have a lot more freedom to turn it into a home, in some cases even making renovations to the property, says Weber.
When people think of property investors, they imagine “big rich fat cat landlords with a number of houses”, but it’s simply not true, says Oxygen business development manager Tai Kekena. In fact, only 20% of New Zealand investors own more than two properties, with the vast majority mum and dad investors who own one or two.
The extra costs associated with the new requirements will cause some landlords to delay maintenance, other than what they have to do for healthy homes, says Cullwick. For others, the impact will be more extreme. Larger investors might sell one or two properties to fund the changes across their portfolio, but for many smaller investors, the cost will force them out of the market, says Cullwick. If they’re going to sell, they’re best to do it now rather than in a few years’ time when a lot of investors realise they can’t afford to hold onto the property, she says.
At Property Brokers Property Management in Hastings, a growing number of landlords are retreating from the market – typically those that don’t have a large portfolio as it’s simply “got too hard for them”, says regional manager, Joe Snee.
Cullwick agrees, saying there has been an increase in properties coming on the market following the legislative changes. In particular, this has impacted lower socioeconomic areas such as Flaxmere and Maraenui. “I think it’s a lot to do with the landlords looking at their portfolios and realising they have to sell, maybe a couple of properties to keep the balance of them.”
Aucklander Mark Evans bought an investment property in Maraenui in 2017. He has adhered to the legislative changes, putting in insulation and a heat pump, on top of a new stove, bathroom renovations and all of the usual maintenance and repair costs that come with owning a property. He has also kept rent increases minimal in an effort to keep good tenants.
However, when his current tenant gave notice, coupled with uncertainty around residential investments and a good increase in capital value he decided the time was right to call it quits. “Sometimes until you sell you don’t get a yield because you’re getting very modest returns.” Evans plans to look at other options for investing his money.
Out of the seven properties Tremains residential sales consultant, Leon Dear, has on the go, six are rental properties for sale. “What this tells me is investors are selling up, which is unfortunate for tenants but a bonus for first home buyers” he says. The changes in legislation have “given them that little extra push” to sell, make a profit and do something else with their money, says Dear.
As investors typically buy lower end properties, more of these homes are likely to go on the market, as an increasing number of investors decide to sell, opening up a wider range of stock. While this is great news for first home buyers, it adds further pressure to the rental market. As Dear points out, one rental property could be home for up to four tenants. When it’s sold, one person leaves the rental pool as a new homeowner, but the others are plunged back into it, adding further pressure to the market. “We need more rentals so people have somewhere to live.”
Those that are selling up are looking for other investment opportunities such as commercial property and new builds that are exempt from the legislative changes. Investors are also turning their back on traditional rentals in favour of Air BnB for obvious reasons, says Dear. “Why would you rent a house out when you can Air BnB it, make triple the money and have none of these regulations?”
Private rental property owners are not the problem. They are part of the solution and should be treated as such, says Cullwick. “A property investor has to be in the business of making money — according to the IRD we are a business.” However, the Government is sending the opposite message, she says.
Many landlords will avoid putting up rents, if they can, and take on the cost of changes themselves, under the expectation there will be capital gains. If there aren’t, why would they stay in the business? “There’s got to be something in it for landlords”, says Cullwick.
Healthy home standards are accepted as a positive move, but the timing of the changes, during a housing crisis, has drawn criticism. What should have been a 20-year plan, has been implemented in five years, forcing landlords out of the market and further reducing the rental pool, says Cullwick.
The reality is, it’s getting increasingly difficult to save a deposit for a first home. Owning your own home remains a dream for most Kiwis, but an increasingly elusive one. Only 25% of current tenants can afford to buy a house. The rest are stuck in a rental market with few options and the likelihood of increased rent. All tenants deserve a home that’s warm, dry and secure. Somewhere they can call home and know that their landlord can’t force them out without cause.
Landlords also need to be supported, as business owners who provide an essential service. Most landlords want to do the right thing and look after their tenants, but the legislative changes are making it harder to be a landlord, they say, fuelling a climate of uncertainty and extra costs.
Lack of supply remains the major factor in house price and rent inflation. In Hawkes’ Bay we need to build more houses or both tenants and landlords will continue to pay the price.