The demise of Airbnb plus double-digit unemployment will lead to an inevitable drop in rents. The question is, how much by?
Firstly, before I start this piece, I want to praise the New Zealand government for how they have acted during this worldwide crisis. The world is looking at New Zealand in admiration which also sends a beacon of hope to other nations struggling to deal with this pandemic. Prime Minister Jacinda Ardern and her team have done a remarkable job in acting decisively, making tough decisions quickly which has probably led to thousands of lives being saved. Simon Bridges must also be praised for not playing party politics and assisting through heading the select committee. Yes, we are not out of the woods yet, by any stretch of the imagination. However, we have seen the necessary steps taken to restrict and hopefully even eliminate COVID-19 from our shores.

There is, however, an enormous price to pay for the decisions that have been taken to protect us from this hideous virus. Thousands of hard-working Kiwi’s will lose their livelihoods through absolutely no fault of their own. Many businesses both large and small have or will go insolvent. We will also see mass layoffs across the country and our once buoyant Tourism sector has been absolutely decimated. This is no criticism of the Government, what was the alternative? Let the virus run amok and watch thousands of Kiwi’s die along with our health service crippled? No thank you. The economy will recover though it will take years to do so. The alternative was not worth contemplating and a lockdown was inevitable at some point in time.
As the initial shock has passed and we get used to being in our own ‘bubbles’, thoughts begin to look at what the long term fall out will be when the dust finally settles from this crisis. The question our industry is probably asking the most at the moment is what is going to happen with rents both in terms of defaults and price?
Government response appropriate
In my opinion, the Government was largely right in it’s the initial response to protecting tenants with the introduction of COVID-19 Emergency Response Legislation Bill. We all know the content of this Bill by now as we have had to deal and work through numerous scenarios as we entered the Level 4 lockdown period. Tenant’s needed to be protected however it is debatable that allowing tenants the right to move was the right thing to do. It seems unnecessary to allow tenants to move unless there were certain circumstances such as the threat of domestic violence. Overall though, the Government has done a good job in the most challenging of circumstances.
Yes, some landlords have been left exposed and are now sat there with empty properties and no rent, even though they may have had a tenant due to move in. In other cases, landlords have had to make alternative arrangements as they were due to move back into a property which was being used as a rental. I genuinely feel for people in these scenarios, yet the reality of the situation means that there are always going to be victims.
We are now hopefully over the halfway point of the lockdown period and it has been nearly a month since the borders were closed to non-New Zealand residents. As such, we are already starting to see the initial impact in terms of what could potentially happen with the rental market in New Zealand.
Survey highlights concerns of companies
We have introduced a fortnightly survey during the crisis in an attempt to gauge what will happen with rents both in terms of defaults and price. Different companies in different regions have differing opinions. The initial response is that companies in regions with higher rents are more likely to see a greater fall as a percentage and have a higher default rate. Property Management companies in Auckland and Wellington are predicting default rates in excess of 20%. This is concerning and if they are correct, 1 in 5 tenancies will fall into arrears.
REVIEW WEEK 1 RENT DEFAULT SURVEY

After the first week of the lockdown, companies who completed the survey highlighted a rise in arrears from 3.23% at the beginning of the crisis to 6.57%. This is inevitably going to rise and some areas, such as Queenstown, are going to be hit far worse than others.
The concerns highlighted in this survey indicate how important it is to have an open and constructive dialogue with both tenants and landlords alike. The traditional methods of a zero tolerance to rent arrears approach can no longer apply. There is an enormous amount of emotion, fear and stress involved in the current climate. Tenants and landlords will both be feeling the pain and strain financially as well as emotionally. Unfortunately, there will also be people taking advantage of the situation claiming hardship when they are not distressed or simply refusing to pay rent without dialogue with their Property Manager. What can you do in these situations now that applying for termination is no longer possible unless the tenant is 60 days or more in arrears? It is not an easy answer.
Take our second COVID-19 Rent Default Survey
Getting the balance right between protecting landlords and tenants whilst following the letter of the law and fully respecting each individual case generated by the situation can be extremely precarious. As many Property Managers are finding out, this must be done on a case by case scenario and delicately so.
Falling rents are inevitable. The question is by how much?
Opinions about how much rents will fall, if indeed they will fall, seem to be split not just within our survey, but by influential market commenters.
Over 40% of offices surveyed believe rents will hold. The rest seem split as to how much they will fall by. No one believes we will see rents fall by greater than 20%. Industry commenters such as Ashley Church of Oneroof believe that rents will hold in the long term due to a lack of supply whilst others such as Economist Tony Alexander believe that there will be a drop in rents and landlords need to be ready for this.
I am of the opinion that rents will inevitably drop and at a guess using more gut feeling than analysing any data, I believe that nationwide we could see a drop by as much as 10%. There will be variances in different locations. For example, Queenstown may see a 20% drop whilst some lower-income towns such as Whanganui, Invercargill or Levin may hardly see a change due to the relatively low rents that these towns demand.
Likewise in the main centres, different suburbs may see differing scenarios. High-end rental suburbs may see a bigger hit as employers lay off staff or freelance workers find that their inflow of work dries up. However, suburbs such as Mangere or Manurewa in South Auckland and Stokes Valley in the Hutt Valley will likely fare better. The apartment market in Auckland will be hit hard in the absence of overseas students.
What I have come to learn from the years that I have spent working in this industry is that rent is primarily dictated by the two things. Peoples income and supply v demand. If rents exceed more than 40% of the tenant’s net income, then they will likely struggle with payments. Incomes are going to decrease and rents will follow suit. There are other factors that will also contribute to falling rents.
Airbnb set to flood the market
It is hard to find positives in these hard times however one potential positive is the demise of Airbnb leading to a much needed increase of supply of long term rental property. I have long been of the opinion that Airbnb has contributed very little to society and the negatives around it far outweigh the positives. Many landlords have made decisions to seek better returns and avoid the compliance enforced on them by Government policy such as Healthy Homes. This has led to a surge in what would typically be long term rental properties moving to the short term market. Just when we saw a massive need for rental accommodation, a shortage is created partly through landlords opting for Airbnb instead. This has helped fuel the rental shortage with a record number of tenants seeking accommodation supplements and emergency housing.

Once we come out of the lockdown, it will be fascinating to compare how many rental properties are available on platforms such as Trade Me compared to the same period last year. The short term market has been handed, in the short to medium term at least, a near fatal blow.
All you have to do is look at places like Queenstown and Wanaka to get a glimpse of what is coming. As the borders were closed and bookings cancelled, many Airbnb hosts scrambled to get their properties onto the market before the lockdown took place. Expect to see a lot of ex-Airbnb properties available to rent very soon.
No wage growth and high unemployment adds to pressure on rents
Who knows how bad unemployment will get in the coming months. Some are predicting double-digit unemployment with the outcome of this meaning there will be a huge supply of talent looking for work and this will put downward pressure on wages. I used to argue that Property Management had real issues in retaining talent due to the high pressure that the job entailed. I no longer see that as being a problem.
The net income for New Zealanders will be negatively impacted and this, in turn with an increased supply of rental property will lead to an inevitable drop in rents.
There are other factors that we need to take into consideration as well. Net migration and a lack of oversea’s students will lead to a drop in demand in student accommodation and younger renters may actually move back in with their parents to save money if they find that they have lost their source of income. In the long term, I would not be surprised to see some commercial office space convert to residential as well as many people will continue to work from home post-pandemic as well as many commercial tenants will go to the wall leading to a glut of commercial property being available.
Places like Christchurch will fare better as rents are already more affordable in the Garden City compared to other highly populated regions such as Auckland and Wellington however overall, most, if not all regions will see a significant drop in rents.
Will landlords sell on mass or will they hold?
It has been suggested that many landlords will sell on mass, but realistically I think this is highly unlikely. Although many Property Management companies will see revenues drop due to decreasing rents, I believe that this will be offset through a decrease in the natural churn rate of lost managements. Typically, we see a fair percentage of churn when landlords leave due to many of them selling. If a rent roll of 500 loses 100 properties a year, roughly 30% of these are likely to be sold.
However, my belief is that the only sales we will see are landlords in distress as they are forced to release capital or through mortgagee sales. A drop in sales will be good news for Property Management businesses but potentially bad news for real estate teams. It is very hard to predict what will happen in terms of volume of sales and house prices. I suspect that many vendors will go into a holding pattern, waiting to see what the fallout of the crisis will be. In one of his recent releases, the brilliant economist Tony Alexander has commented how hard it is to predict what will happen to the volume of sales but he is estimating that there could be as much as a 40% drop in property transactions.
People will be very nervous making any sort of capital investment unless they are getting it at a perceived bargain price. The unpredictability of the entire situation will leave many potential vendors waiting on the sideline as they assess what is happening on the field of play. Some vendors may even turn to renting out a property that they would have typically sold if the property market dips, similar to what happened in 2008 post-GFC.
There will also be opportunity. I’ve got no doubt that there will be many landlords who will have plenty of equity with minimal debt who will be waiting for the lockdown to end. Add record low interest rates into the mix and many cashed up investors will be looking to re-enter the market. However, I do not expect them to go into a market prepared to pay prices pre-crisis. What I think will happen is that we will see a classic ‘Mexican standoff’ between vendors and purchasers with the only sales that we will see are vendors who are forced into selling.
I conclude with a word of warning to Property Management businesses up and down the country. All businesses will look to tighten their belts and assess where they can cut costs. Landlords are no different. Some will be looking at the Property Management fee as a potential saving as many may turn to DIY self-management. Make sure that you are servicing your clients. They will need a professional Property Manager more than ever as we have to deal with any number of issues whilst the Healthy Homes standards and the proposed RTA Amendment bill are still lurking in the background and not going away. Make sure that you look after your consumers both landlord and tenant alike and of course, look after each other.
Good luck, stay home, save lives and let’s continue to flatten the curve.
David Faulkner
Great article thanks! I feel we’ll be OK in Chch after surviving the EQs, this seems much less scary.
As ever Claire thank you. I agree, I think Christchurch will handle the situation really well. Due to relatively low rents after the rebuild meeting demand and also the resilience of the city, I think Christchurch is well placed. Keep safe and stay in that bubble!!
I’m really pleased I have kept my rents well below market rates as my tenants have been with me for ages and I couldn’t put rents up hugely whilst they were still renting!! So I’m not expecting to be too badly affected. I have a big portfolio and one empty property with a tenant due to move in after lockdown. Hopefully things will be all good here in Hawkes Bay. But I think a lot of rents are really high here. I’m an outlier in that regard. Really enjoyed the article and I concur. Julia Llewellyn.
Thanks Julia, and good luck going forward.
Hi David
We do both AirBNB management and standard property management. I can tell you that the most commonly cited reason that owners state when opting for AirBNB is their extreme annoyance with the RTA,Tenancy Tribunal and how they are perceived by the government. They tend to believe that the tenant has much more power than they should and quite frankly they would look at the Covid regulations and current RTA reform bill as further proof of that. Whilst overall I agree with your article I suspect that several AirBNB owners will look to sell first and rent later if they could not get a reasonable price. I also suspect that the lessening of Kiwisaver deposits will slow down the purchase of homes by first home buyers who are typically renters. Very hard to put the crystal ball to good use here as there are many possibilities for our economy but the short term outlook is not great for property owners. Howver this is an unusual sitautuon and if you are in property investment fr the long term I see no reason to get out of it. I would rather be in property than shares!
Hi Kevin and thanks for reading the article. I agree wholeheartedly with your comments around being in the long term and yes, many landlords choose short term because of frustrations with the long term that you highlight. It is very, very hard to assess what will happen. Look after yourself and hopefully, we will get back to some normality in the near future
Hi David, long time no talk! I’m going to print this one off and see just how ‘on the ball’ you turn out to be with your predictions. Tony Alexander will be pleased to see that you have referred to him as brilliant 🙂
My predictions in a snap-shot:
1. rent defaults 5-10% (I’m thinking closer to 5%)
2. PM Churn rate about zero. Landlords selling will be off-set by the likes of airbnb business and investors taking advantage of the market
3. There won’t be a mass sell off by landlords
4. Rents will drop in some areas (Queenstown etc) and stay reasonably static in other areas due to the demand. The biggest pressure on rents will be on the likes of one and two bed properties.
You heard it here 🙂
Hi Milton,
Hope you are keeping safe in the deep south! Print it off!! Very environmentally damaging!!!:) So the only difference from what I am saying is you think rents will drop closer to 5% than 10%. I hope you are right!!
A great article!
I have a small Business here in QT looking after the short and long term property managers providing Gas safety assurance throughout all Gas appliances.
I believe this town will be hit the hardest that obviously caters for a lot of tourism.
The service sectors such as Electricians, Plumbers, Cleaners, Carpet restorations, AC Engineers…etc will all be hit and here’s hoping that they’re prepared and positioned well to accommodate these uncertain times.
With what you say regarding the professionalism remaining intact can’t be underestimated enough at this stage. I would just like to add…Keeping the small Businesses active is the strongest part of any economy.
Kind regards
GasmanQt
Well said Gasman!! Yes, I really feel for Queenstown and the region as a whole. Such a wonderful place and I have plenty of friends down there. Queenstown will bounce back but it will take time. Good luck, keep safe and yes, small business (which we are as well) is vital to the New Zealand economy.
Thanks for the interesting read David.
While I agree with many of your observations, I do think the impact of former AirBnB properties “flooding the market” is overstated. Certainly this will increase rental supply in tourist hotspots but the vast majority of the residential rental accommodation is in New Zealand’s cities and as such these are superior barometer of the overall rental housing market.
So what for example is happening the largest rental market in New Zealand – Auckland?
Given New Zealand borders have been closed for entry to anyone except permanent residents or citizens for around one (1) month already, and given we are three (3) weeks into a level 4 lockdown thereby affording AirBnB owners plenty of time to list their properties (if they choose) on the mainstream rental market – one might anticipate supply of rental accommodation in Auckland to have increased.
But it hasn’t.
Data from Trademe which is a reasonable but not perfect proxy of rental availability in New Zealand shows that as of today, 15th April 2020, there are around 3500 properties available for rental in the Auckland per the all district sort.
On exactly the same date, one year ago, for the same sort, Trademe reported 4332 rental listings.
That represents a significant twenty per cent (20%) year over year decline.
Professional property managers (PM’s) are highly tuned to market conditions and are well aware of rental supply issues for their respective territories. Many PM’s have felt this directly through on going and in some cases accelerating reductions in their rent rolls. Landlords have been leaving the market.
The – in some places severe – rental shortage may explain why over 40% of the property management offices you surveyed believe rents will hold. Certainly rental payment defaults will increase whilst lockdown conditions exist and for some time beyond, but unless unemployment draws close to the worse case scenarios presented by Treasury, a significant portion of the defaults will be accounted for as rent deferral (the delayed payment of rental) rather than drastic declines in payable weekly rents.
Thanks Ralph and sorry about the delay in responding. You back up your argument with good data. I have long argued that the issues we have around rental shortages are that the we do not have enough of the right type of property and 3,000 plus available rentals does not highlight a shortage. You could well be right.
On a separate note, I do know of companies that deal with long and short term. One company reported a 90% conversion from short to long term. I accept that it is very hard to predict and ‘flood the market’ may not be the right expression. Anyway, time will tell.
Keep safe