Rental Predictions for 2024: Steady As She Goes
Everyone likes to make predictions at the start of a new year, and I am no different. The 20’s have so far been a tumultuous decade, and no one could have foreseen the events that have unfolded.
Rising house prices caused by an influx of cheap money due to the pandemic have ultimately led to rising inflation. Government spending hasn’t helped, nor have regressive policies aimed at property investors and speculators.
One of the main issues I had with our previous government was the way they blanketed every landlord as a speculator after they announced their policy around removing landlords' ability to offset interest against income.
This announcement made no sense; I am sure that this has contributed to rising rents over the last two years.
Landlords would attempt to limit the damage by increasing rents, and rental inflation has increased dramatically over the last few years. Inflation has been the biggest issue over the last two years, and as many investors come of low interest rates, the cost of servicing mortgages has increased significantly for many.
With a change of Government, there appears to be a change in confidence. A reversal of this punitive tax policy and sending a clear message to the Reserve Bank of New Zealand that their only mandate is to control inflation gives hope that confidence in the economy and housing will improve.
What will happen with rents?
We have witnessed unprecedented rental growth in the last three to four years, particularly throughout provincial New Zealand. Data obtained from Tenancy Services from bonds lodged highlights how rents have increased significantly more than the traditional 4 to 5% increase that has traditionally occurred since records began in 1993.
As the graph demonstrates, rents in New Zealand have increased at a rate far greater than has traditionally happened since about 2017.
On viewing this graph, if you go by the trendline, rents are currently about five years ahead of where the trendline projects them to be. My personal view is that rents will gradually stabilise across the country. Immigration will have an impact.
A staggering net migration of close to 130,000 will put a strain on our rental market. However, rents can only increase by so much, and people's income will dictate what they can afford in rent.
I still anticipate that rents will increase but I would budget for a more traditional increase of around 4 to 5% rather than the double-digit figures we have seen in many of our regions across the country.
What will happen with the Residential Tenancies Act?
The National-led coalition has indicated that they will reverse some of the changes the previous Government made to the Residential Tenancies Act (RTA) concerning giving tenants notice. In the RTA amendment bill in 2020, changes were made that ensured that landlords had to give valid notice to a tenant to end a tenancy.
Before this change, the landlord could end a tenancy, giving a minimum of 90-days' notice without change. I see no reason why the Coalition Government would backtrack on their view to reverse this.
However, once the bill is introduced to reverse this, expect a vibrant and passionate debate not just within the grounds of Parliament but also between groups such as Renters Utd and Property Investor Associations.
One positive for tenants is that the new Coalition seems to be very keen to promote pet-friendly rental properties.
Personally, I am very happy to hear about this. The ACT Party have campaigned to allow tenants to have pets, and landlords can charge an extra pet bond on top of the four weeks they are entitled to. However, the Tribunal is already making rulings against landlords who do not allow pets.
The Tribunal argues that nothing in the RTA stops tenants from having pets, so writing a clause into a Tenancy Agreement is unenforceable. The Tribunal may have already beaten the Act Party to this.
What will happen with the Property Management industry?
Labour had started the process to regulate property management, similar to how the real estate industry is regulated and run. Although The ACT Party is anti-regulation, when the bill was passed through its first reading in Parliament, National voted in favour of the bill passing, though they did indicate scepticism as to whether the bill would do what it is intended to do.
The Act Party voted against the bill and currently, it is sitting with the select committee, with the report due on the 29th of February 2024.
The Vast majority within the industry want to see regulation happen, and I see no reason this bill will not make its way through Parliament this year.
A result of this is that many smaller companies will likely sell due to the work and potential cost involved in compliance with the bill once it becomes law. I expect the industry to consolidate with fewer companies managing more properties.
Property Management General Manager | Property Brokers