Industry survey slams ‘out of touch’ Government with regards to their handling of the housing crisis. Nearly three-quarters of those surveyed express concern about their situation following the Government announcement.

The comments from one person surveyed summed up the feeling of the Property Management industry following the Government’s radical housing policy announcement on the 23rd of March. ‘Short-sighted. There will be no winners, more owners will sell and there will be fewer houses to rent.’

There is no doubt that the Government’s attack on landlords is bad news for our industry. Small businesses in particular could really struggle as the pool of investors begins to dry up. We have already seen emails from landlords to Property Management companies saying that they would rather leave their properties empty.

This prompted us to carry out a survey on the Property Management industry. We wanted to gauge the feelings and thoughts of the people who work at the coalface of our housing crisis. Their opinions were made loud and clear with many people condemning the Government’s handling of the crisis and nearly three-quarters of the 140 individuals surveyed expressing concerns that their situations will be negatively affected by the Government’s announcement.

Many expressed concerns in regards to the Government’s inability to listen and consult with industry stakeholders with others calling the policies ‘populist and idealistic’. The overall opinion was that this Government is making the situation worse rather than better. This was expressed in one of the questions when we asked if people agreed with the statement that the Government understood what was required in regards to the housing crisis. Over 57% of respondents strongly disagreed with this statement and in total 92.7% disapproved of the Government’s handling of the crisis.

Respondents condemn the Government in their handling of housing

In our survey, we asked respondents to give the Government a mark out of 100 in regards to how they are dealing with housing. The score probably did not come as a surprise.

When we asked what score out of 100% they would give the Government in regards to housing, the average score was 17% and just under 90% of respondents believed that the announcement would negatively affect tenants as well as landlords with a reduction of supply and an over-inflated increase in rents.

What has happened and what will happen with rents?

The chart below highlights what has happened with rents since they were monitored back in 1993. You can see the effects of the rent freeze towards the end of the chart when rents dip. Then, post-September 2020, we see a sudden spike in regards to rents. The information is collected by Tenancy Services and this relates to the data that they obtain when new bonds are being lodged. What the data fails to do is to identify what is happening with rents of current tenants though one can suspect that a large percentage of tenants would have experienced rent increases within the last six months.

This is why we may not see the true impact of the Governments stance on removing interest deductibility against rental income until October 2021 as many landlords will not be able to put up rents for at least another six months. As soon as landlords are able to increase rents, we may see many landlords become more aggressive with regards to rent increases due to the fact that they are gradually going to be paying taxes that just over a month ago, they would never even of had to contemplate.

Information sourced from Tenancy Services Rental bond data.

Ever since the rent freeze ended towards the end of September, rents have increased an average of 5.18% from the same month the previous year. Researching data provided by MBIE in regards to rents and bonds lodged since 1993, the median annual rent has increased by 4.2% per annum. The current annual inflation rate is at 1.5%. Over 64% of those surveyed believe that rents will increase by more than 5% in the next 12 months with over 20% believing that rents could increase in excess of 10%.

The feeling of many throughout the survey was that rents had increased due to the number of extra costs that landlords have been burdened with and many in the survey are saying that landlords are starting to sell because there is simply no incentive to own a rental property anymore. The extra costs that landlords will be liable for when the removal of the interest deductibility kicks in will see many landlords who stay the course with their investments put rents up more aggressively.

What about rent controls?

We asked in the survey whether participants believed that the Government should introduce rent controls meaning that rents could only be increased in line with inflation or if you made substantial improvements to the property. 86% believe that rent controls should not be introduced.

However, when we asked whether you believed that the Government would introduce rent controls, the majority of the respondents believed that they would with 57% of respondents saying that rent controls will be introduced. 16% didn’t think that they would be introduced whilst 27% were not sure whether they would be introduced or not.

Will the situation improve for tenants?

If the majority of respondents to our survey are correct, tenants are in for a very tough time. Many of our respondents believe that rents will increase substantially as well as predicting that there will be a shortage of rental properties available for tenants as many will not be in a position to purchase a property. With more properties selling or converting to AirBnB in an attempt to avoid the removal of the interest deductibility against rent, we will likely see a shortage of supply. This will lead to an increase in demand and marginalised tenants will find themselves in a precarious position as they may find it hard to secure a tenancy. Many expressed concerns with regards to the growing list of people dependant on the state for assistance with comments made around the number of people being housed in motels.

The consensus of opinion is that these changes will do nothing to improve the plight of tenants and will actually make their situation worse.

In particular, removing interest deductibility will impact tenants in a negative way. Over 70% of respondents strongly disagree and 21% disagree that this introduction will improve the situation for tenants. Only 4% of respondents believe that this policy will improve tenants situation.

What about the Bright Line Test?

There were mixed views in regards to the Bright Line Test but the majority of people (47%) believe that the status quo should remain and keep it at five years. 14% believe that the Government is right to extend it to 10 years whilst just under 8% believe a permanent Capital Gains Tax should be introduced to residential rental properties.

Whilst the majority of you believe that the Government is wrong in calling the removal of interest deductibility against rent a ‘tax loophole’. Nearly three-quarters of all respondents do not consider this to be a tax loophole.

How will the changes impact the Property Management industry?

Not good according to the survey and this again, is hardly a surprise. With fewer investors in the market, the pool of new business leads will shrink considerably and many landlords may turn to self-management in an attempt to control the costs. In our opinion, this is not good for all parties as many landlords lack the knowledge, time and skill to manage a rental property professionally. Recently, more and more landlords were turning to Property Managers as a result of the changes made by the Government in terms of increased legislation and compliance. The announcement in particular in regards to interest deductibility is going to negatively impact our industry as landlords will look to trim costs to make their investments stack up. Small businesses, in particular, may find it hard to grow their businesses as a result of this announcement and this could also have a negative impact on the value of rent rolls.

And finally, it is hardly a surprise to see that over 90% of you believe that the situation will be negative for landlords.

Comments from respondents below

Rather than pick out the odd comment, we believe it was only fair to highlight all the comments made by the individuals who completed the survey. The overwhelming majority are condemning the Governments response. Enjoy the comments below. I have altered the grammar and mistakes on some of the responses below.

Already 10% of my portfolio has gone on the market or sold since 1 January due to the number of changes and escalating cost. This is just removing homes from the rental market and increasing rent due to supply and demand. No A trained monkey could come up with better policies than the current government The housing crisis has got a lot worse, and for the government to create this so call housing policy will only cause further issues. Owners will look to sell, increase rents or change how they have their rentals set up which may include Air BnB, holiday houses etc. They have just removed the options for investors to purchase more rentals to help the tenants out and provide them with accommodation. I believe their focus should be put on providing more social housing, whether it is rebuilds or purchasing of rental properties. One comment as to why there are fewer rentals is – We are losing units to developers who are replacing them with homes for first homes buyers where are those tenants supposed to go? This is only one, there are too many people who work and are in state housing why they now are on a living wage? Time to give them notice oh you can’t do that it’s not kind Criminal. I feel their policies may be more applicable for City areas. In the small provincial town where I am, it is 100% taking homes out of the rental pool making it harder for tenants. Idealistic socialism! Counterproductive and counter-intuitive to a market shortfall Tired of the “landlord bashing” Rents will only increase and fewer properties will become available therefore making the housing shortage worse. It is not well developed or consulted Hold a snap election ASAP then we can get a real Govt Like a monkey with a shotgun, pretty cute, but very dangerous. I think the government understands the issue however the solutions they have are not matching. Therefore it comes down to execution rather than defining the problem When campaigning they said they would make rents cheaper and improve the housing situation, by it has worsened. Unfortunately, I believe the tenants will cope with the extra costs involved, fingers crossed these changes help create more homeownership however I don’t believe that will be the case. More transportable housing that people can afford will be better and warmer than the older houses we have now Hold a snap Election this Govt needs to be gone ASAP They have no idea what they are doing how to run an economy or the country. I hope the stupid people that voted for them last time see sense and don’t cite them in next time Labour is in it to get as many votes as possible to stay in power. The more people in social housing, emergency accommodation or on WINZ the better it is for them. They are a communist government in disguise. They don’t care what is really good for the country so long as it’s good for Labour. They don’t have a clue how to solve the housing crisis because if they did they wouldn’t be punishing landlords who provide the majority of housing. We have a wood shortage because we export our best wood – go figure! How are they going to build more houses! Next, we will be importing wood that is more expensive than our own. It feels like their policies have been rushed through without talking to the coal face to see what we see. We now have emergency housing tenants that are very unlikely to succeed in securing a rental property. These can be potentially good tenants but who will risk putting them into their rentals It’s great that the government want to make housing better for tenants and at most, this does need to happen but the way they have gone about it is wrong. If you introduce anything that makes landlords better their property and have to spend money, the flow-on effect will reach the tenant in the way of dearer rents. Unfortunately, they are penalising owners which means they will leave the industry. Houses are getting too expensive for landlords to buy to make money off and if you introduce rent controls, there will be no money to be made for a landlord/investor. Even first home buyers can’t afford the housing so who is actually going to buy all the stock once landlords leave the market?? Maybe the government will buy it in the form of state housing. Crazy as I don’t think the government have much clue as to the legislation they have written, it’s so confusing and makes no sense a lot of the time! There will be more of a shortage of rental accommodation as landlords will sell their rentals, the majority of tenants still won’t want to or can afford to buy and NZ taxpayers will fund the emergency accommodation. The government have too much control over what landlords do as it is but with the new laws it’s becoming quite a socialist country. The media only cover one side of the story, Property Managers who are trained in their fields are never approached about the housing and rental situation. Under this Government, the situation for emergency housing has increased because of their new legislation. It will not be improved any time soon under this Government. Yes a more consultative process Absolutely out of touch with the reality of the market and the effects that these retarded changes will have It is an uninformed policy with significant side effects they haven’t considered. They need to stop mucking around with the legal side and focus on how we can get more houses built. Healthy homes requirements are too high at a time when there is a high housing shortage. From 1 July 2021, there will be a further problem when properties that would normally come onto the rental market as the “accidental investor” when owners absent due to job or study transfers for a year won’t meet requirements, so they will leave them empty, not prepared to spend extra on a new bigger heat pump and extractor fans and reports as well as all the other risks perceived. Their homes may be perfectly average but not up to high enough standard. Better than people living in motels. I feel like they are slapping in these grandis policies on a national scale (very quickly too) and not actually playing out each eventuality that can occur. It seems aren’t rooted in reality. Why hamstring landlords and why not just pump out social housing and housing in general. Give the people on the ground every ability to fill the supply hole on a private and public level. Purpose-built emergency housing, social housing and lessen barriers to building privately. Bring supply up and naturally, the market will correct, more people will be able to purchase cheap homes due to the greater supply. Build small 1 and 2 bedroom houses/units so beneficiaries can live in them instead of motels. If they don’t want to live in them, work up and get out. At the moment governments and consecutive governments have made it more and more difficult to work out of poverty. No one can save with the rents they have to pay at the moment. They have no idea of the effect they have on the industry. It was highlighted when the PM stated in a press interview last year that she would be disappointed if Landlords increased rents because of the legislation changes. Go figure!! Property investment is a business and this government has no inclination to assist businesses. Sadly the tenants will miss out. Typical playing with end results NOT addressing the base causes of the problem THEY ARE TRYING TO DO THEIR BIT The Govt is in a very difficult position with no easy solutions but this housing policy appears to set up to help middle-class millennials (children of politicians) to get on the property ladder. It has very little thought to the well-being of long term tenants who are likely to suffer from these changes. Can we just call it a tax policy? It hasn’t done anything to address lack of housing, cost of building, homelessness, the difficulty for first home buyers to purchase, so how is it a housing policy??? Short term they may have a limited effect on curbing the number of investors buying property, but long term it will have very little effect. Those investors with large portfolios will just sell off a couple of properties to make it all work – they will be the least affected. Investors that own 1 or 2 properties may possibly hang in there and be in it for the long haul, as was their thinking when they first bought into an investment property. The problem is supply and demand, there are simply not enough houses to go around. The Govt can put all these other things in place to try to solve the problem of housing shortage, but it really just defers the problem. We need more housing. No They’re a bunch of wallies that consistently show us they have no real-life experience in owning rental properties or running a business. This is a supply & demand issue and removing interest cost deducibility is not going to address the true issues. Short sighted. Rents will go up to compensate for no tax incentive on mortgage interest. And first home buyers are renters first. Knee jerk and populist policy They obviously don’t understand what the impact will be in 12-18 months, this will impact landlords negatively but will be just as bad for tenants and still won’t help home buyers either, the housing crisis just got worse wait and see. A lot of landlords are now considering selling the properties making it harder for tenants to find new homes At least extending the bright-line test will mean owners will have to hold on to their properties for longer, but if there was a capital gains tax on investment properties only this would be fairest. Sadly once again the Government seem to fail to understand the rules and changes they put in place like this the more it makes it very difficult for the very people they are supposedly wanting to help. There are so many factors that contribute to the housing crisis. Immigration. The Osaki case and Insurance have a big impact as does the removal of the 90-day notice. We can no longer take a chance on someone that may have had a slight hiccup along the way. Tenants need to be held accountable for their actions and making owners claim insurance is ridiculous. I have always likened renting a house to renting a car, we don’t hire a car & make alterations, not pay for it and drop it back off and say oh well too bad get your insurance to pay for it. Why should the rental property be any different? To announce such a drastic change in the interest deductibility within our tax system was sudden and the government gave no indication that something like this was about to happen this causes uncertainty across a number of industries and people become cautious of the current government’s intentions. Particularly when they were advised against it. What about blocks of flats, a first home-owner is not going to buy them why penalise people trying to provide somewhere for people to live. If they want us to build houses then they need to sort out local governing bodies councils take too long, make the process difficult etc I believe they have targeted the wrong group of people landlords are not all bad. Regulate the industry!!! Push more private landlords to property management, to qualified people. Brightline is a Capital Gains tax, no other words should be used. It is only effective on speculators not investors, I have no concerns about it at all. Landlords are already starting to sell their investment properties, this may be good news for first home buyers, but it will create a shortage of investment properties for tenants who either do not want to own a home (their money is in their business for example) or for tenants who prefer to tenant (it does have it’s advantages, maintenance is done at no expense to the tenant, rates and insurance are paid for etc.) As a result, rents will rise, simple supply and demand Economics 101. They would have been better seriously increasing new builds and then encourage new build housing purchasing for everyone, no matter who you are. Tenants still need to live somewhere, this will eventually end up disadvantaging some. Poor judgement and lack of foresight! Landlords will continue to sell up as it’s just getting too hard to be a landlord. They need to build more houses & their policy doesn’t address the underlining supply issue They have not done their homework. They are listening to tenants rather than landlords who provide the housing that is so much in need at the moment. The RTA Amendments were meant to be a balance for both owners and tenants. NOT so, it now leans towards the rights of tenants. This Government is relying on the private sector to provide housing but not rewarding them in doing so, only if they build new homes. No comments The Govt needed to consult with the industry insiders before making reforms such as this They truly have no idea how much an owner of a rental property is helping the government house people because the government does not know how to. If the government keep stabbing investment owners they will have a bigger problem as people exit the industry and again they will have no idea how to house more people Short-sighted – there will be no winners – more owners will sell and there will be fewer houses to rent. First home buyers are now competing with Housing NZ in our area. I agree with the initiatives that will aid tenants, like more money to build new homes, but making things harder for landlords isn’t actually going to help, because the ones that they are actually targeting – the ones with multiple properties – are going to be the one who feels the impact the lease. They can sell one property and the other 19 will balance out. It’s the ‘mom and pop’ investors, who only own one or two extra houses – and who are usually the better, caring landlords, that are going to be hardest hit, and most likely to sell – good for first home buyers, but bad for the (probably long term) tenant who has to leave and enter a competitive market, and bad for the landlord who is counting on that investment for retirement. I’m speechless The process adapted to install this reeks of Muldoon The government need to take a step back and think long and hard about the changes that they make, and not just the impact that it has on the tenants (in their mind for the better), but what the impact is on the landlords as this is for the worse. They have no idea what a mess they are creating