In the last 12 months, we have seen skyrocketing rents. In many parts of New Zealand rents increased by over 10%.

We have all seen the headlines. Teachers forced to bunk in with their bosses, over 10,000 households waiting for public housing, up from 4530 the same time last year. We have even seen disturbing headlines such as ‘sex for rent’. Almost daily now, we see stories across New Zealand of people struggling to secure rental properties and rising rents forcing people out of their homes.

Queues upon queues of desperate tenants, battling to try and secure a battered, run-down rental property and being forced to pay more. In one case I witnessed in Wellington, about a group of twenty tenants turned up to a viewing trying to secure a tiny one bedroom flat in which the bedroom so small, the double bed of the vacating tenant had to sit in the lounge. Although habitable, it was tired, dated and more akin to something out of Victorian Britain. The asking price? A bargain at $410 a week. There was no shortage of applicants. The young solo parent who lived in the property was being forced to move because she could not keep up with the rent.

As I left the property, I couldn’t help but feel a sense of nausea and concern as to where this rental shortage is heading. It is not just limited to the cities. In Gisborne, a place where traditionally there has been no shortage of rental properties, I went into an office where the weekly rent had increased by 25% over four years with nearly half of that increase over the last 12 months. Surely it wasn’t meant to be like this?

Why have things gone so badly wrong?

There are a multitude of reasons, but ultimately, one of the main reasons is that the vast majority of investors, whom own one or maybe two properties have found it just too hard with the prospect of having to invest thousands of dollars to make properties compliant leading to diminishing returns. Then, add on the prospect of the removal of negative gearing which leads to the inability to offset losses against landlords personal income leading to a tax break. Many landlords have decided to cash up and sell as the cost of owning a rental property becomes too expensive without the required return.

Back in 2016, legislation was passed that meant that every rental property in New Zealand would have to be insulated where it was practicable to do so. The deadline for completion is the 1st July 2019. That date is fast approaching and there could be as many as 75,000 properties that will soon become non-compliant and technically, unable to be rented. This gave landlords three years to get their properties compliant and insulated before the standards became mandatory.

Typically, many landlords were oblivious to this or simply just put it off and ignored it. We estimate that there is still approximately 10 to 15% of rental dwellings non-compliant and the insulation industry does not have the capacity to get the work complete. Best estimate is that 50,000 dwellings can be insulated a year according to one leading insulation provider. We believe that there could be as many as 75,000 non-compliant properties when the 1st July 2019 deadline strikes. Any landlord with a dwelling that is not insulated by 1st July 2019 could well face $4,000 exemplary damages through the Tenancy Tribunal and be issued a work order ensure that the work is done. Ignore that and you could face an extra $3,000 in exemplary damages.

Because many landlords have been slack or have left it too late, we believe that we will see a surge of rental properties put on the market for sale as the deadline approaches. The reality is that much of our rental stock is in poor condition and many landlords will not want to throw money anyway spending thousands to make a property compliant. This could be good news for first home buyers and savvy investors but bad news for tenants leading to an even greater shortage of rental stock.

At a time when we need our landlords to invest in their properties attacking negative gearing is not the right solution and if anything, it is making matters worse. The potential for mass selling of our rental stock leading to increased rents is a realistic prospect.

Whether many on the left of the political equation like it or not, New Zealand needs a strong and professionally run private rental sector. Targeting them has simply backfired.

For obligation free advice, we are more than happy to take calls anytime on 04 212 6395. We look forward to working with you through 2019.

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