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The Beehive
9 June, 2023
Market News

NZ residential rental market news, June 9

Sam Nicholls
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1 in 3 consider selling, zoning reforms causing low rent, and don't expect a boom.

This week's TLDRs...

Mum and dad investors are still facing topping up their repayments
    Rising interest rates and the inability to deduct mortgage interest as an expense make properties unattractive to mum and dad investors. 
    Mum and dad investors who borrow 100% for an investment property and use the equity in their home as a deposit face topping up their mortgage repayments by hundreds of dollars per week. 
    The shortfall, based on a 6.7% interest rate, is estimated to be $380 per week for nationwide median-priced properties. 
    In Auckland, the shortfall increases to $566, while it is lower in cheaper regions like the West Coast and Southland. 
    The calculations only consider mortgage repayments and do not include other expenses like rates, insurance, and maintenance. 
    Borrowing 100% of the property price makes it difficult for rent to cover the mortgage, creating a significant shortfall. 
    Reinstating interest deductibility, lowering interest rates, and increasing rents would make investment properties more appealing to mum and dad investors. 
    New-build properties are popular among investors because interest can still be deducted, reducing the cash burden. 
    However, even buying new-builds as investment properties is challenging due to doubled interest rates, rising council rates, higher insurance costs, and stricter tenancy rules. 
    These factors make it harder for investors to generate sufficient returns and maintain profitability in the property market. 
    Read the article

Report attributes low rent to 2016 zoning reforms, looks at medium density housing
    Research shows that Auckland families are paying significantly less in rent due to zoning reforms in 2016 which improved affordability for family-sized rentals in Auckland. 
    Rents for three-bedroom dwellings in Auckland are 22% to 35% less compared to a similar group before the zoning reform. 
    The impact on two-bedroom dwellings is less significant, with rents 14% to 22% less than the comparison group. 
    Auckland up-zoned three-quarters of its residential land in 2016, leading to a construction boom. 
    The introduction of standardized planning zones encouraged medium-density housing, partly as a way of preventing significant rent increases. 
    Without the zoning reforms, renting a three-bedroom home would have been 28% to 54% higher in 2022. 
    Land cost is often the most expensive part of a home, and affordable housing emerges when land is divided into more dwellings. 
    New Zealand's urban-zoned land is valued at a premium compared to rural-zoned land, indicating increasing demand for urban housing. 
    The National Party's revised policy seeks to develop more farmland to avoid dense construction in the suburbs.
    Read the report
Court of appeal to review combustible cladding case
    The Court of Appeal is reviewing claims regarding exterior building cladding that poses a fire safety risk. 
    The case involves a body corporate in Mt Maunganui and a commercial property owner in Auckland suing German company 3A Composites GmbH (3AC). 
    The building owners argue that the Alucobond PE cladding is highly flammable and contributes to rapid fire spreading. 
    The cladding was implicated in the Grenfell Tower fire in London in 2017, which resulted in numerous fatalities. 
    Estimates suggest that there are nearly 300 buildings in Auckland, Wellington, and Christchurch using various types of aluminium composite panels. 
    The outcome of the case will determine the cost of removing and replacing the cladding. 
    3AC defends the claim, stating that a review conducted after the Grenfell Tower fire did not find evidence of danger, but the use of the products should be assessed on a case-by-case basis.  
    Read the article
BNZ: Don't expect a boom in house prices
    BNZ's chief economist believes that the era of declining house prices is ending, but it doesn't imply a market boom. 
    BNZ's long-term forecast suggests that the market correction will likely reach a plateau in the middle of this year, with prices around 15% to 20% lower than the peak in late 2021. 
    According to the bank's latest Property Pulse, it appears that the correction has already ended, with prices currently approximately 16% below the peak. 
    The stabilisation of mortgage rates will contribute to the end of the downturn, although there is no indication of rates decreasing soon. 
    The prospect of mortgage rates stabilising is expected to boost buyer confidence and aid the recovery in various housing market indicators. 
    The increase in inward migration has implications for the market, especially as construction activity slows down. 
    The market may transition from downward pressure on prices to upward pressure as demand for housing potentially exceeds supply in 2024. 
    BNZ predicts a modest increase in prices of around 1% to 1.5% per quarter in the second half of this year and continuing through 2024. 
    Despite the recent correction, prices are still significantly higher compared to pre-Covid levels, and valuation metrics suggest they are not yet considered "cheap." 
    Factors such as elevated mortgage rates and sluggish economic conditions may limit the extent of the upturn in prices.
    Read the article

Greens ask for tenants' stories to spark reform
    The Green Party is launching a campaign to gather stories from renters about their subpar renting experiences. 
    StatsNZ data shows that renters are generally less satisfied with their accommodation compared to homeowners. 
    The campaign aims to make it impossible for the government to ignore the issues faced by renters. 
    Renters' stories are crucial to push for reforms and counter opposition from powerful lobbies. 
    Existing tenancy reforms, such as the Healthy Homes standards, are insufficient and place a burden on tenants. 
    The Green Party proposes a rental warrant of fitness to address these issues. 
    The party believes that affordable, warm, and dry homes are a basic human right denied to many renters. 
    Economic rules fail to prevent speculation and protect tenants, according to the Greens. 
    The presence of landlords in Parliament may hinder the understanding of the challenges faced by renters. 
    Read the article

Where to look at buying
    Many property investors initially choose to purchase properties near their own residences to mitigate risk and familiarise themselves with the area but as they gain experience, they tend to expand their searches. 
    Population growth, which can be found on Statistics New Zealand's website, is a crucial factor to consider when determining where to buy an investment property. 
    The Selwyn District, south of Christchurch, is projected to have the strongest growth at 47%, followed by Waikato District at 43%, Queenstown-Lakes at 38%, and Hamilton City at 33%. 
    Conversely, Buller District is projected to shrink by 15%, Ruapehu District by 9%, and Westland by 6%. 
    Areas with high housing demand growth often have higher growth in new housing supply, resulting in similar long-term price changes nationwide. 
    To analyse future housing supply, one can examine the number of consents issued for new dwellings, available on the Statistics NZ website. 
    Analysing building consents data can help identify areas with potential excess housing supply and inform investment decisions. 
    Read the article
45+ year old buyers only!
    A gated community in Auckland has age-restrictive rules that prevent millennials from living there. 
    A two-bedroom house in the Avondale Greens subdivision is listed for $640,000 but is only available to individuals over the age of 45. 
    The listing acknowledges that noisy neighbors, home maintenance projects, and crime statistics can spoil the "dream" of homeownership. 
    Avondale Gardens offers park-like greenery and a bookable functions space that includes air hockey and table tennis, which seems contradictory to the noise-free environment the community aims to provide. 
    The legality of the age-restrictive rules could be questionable if a buyer were to challenge them. 
    Read the article
$62,000 in arrears and eviction request was dismissed
    A landlord requested to evict tenants who were $62,238.90 behind in rent, but the request was dismissed by the Tenancy Tribunal. 
    The tenants, Terrence Lawton and Suchanan Senahan, agreed to pay off their debt to avoid losing their home. 
    In addition to rent arrears, the tenants also owed $1084.99 in water bills, resulting in a total debt of $63,344.33. 
    Adjudicator Jane Northwood ruled that the tenancy should continue if the tenants pay off the debt at a rate of $30 per week, in addition to their weekly rent of $640. 
    At this payment rate, the debt will be cleared by September 2063, taking approximately 40 years and five months or 2111 weekly payments. 
    However, the tenancy will be terminated if the tenants fail to pay the rent and rent arrears within two days of the due date. 
    Assuming the rent was $640 for the entire tenancy, the tenants did not pay their rent or water bill for approximately 97 weeks, equivalent to a little over a year and 10 months. 
    Read the article
1/3rd of landlords considering selling due to legislation
    One-third of landlords are considering selling their rental properties, raising concerns about a potential scarcity of rental accommodation. 
    Tax changes, rising interest rates, and costs associated with healthy home standards have already led some investors to leave the market. 
    A growing trend of owners selling multiple properties at once is observed, driven by financial pressures and increased compliance costs. 
    Landlords express frustration with the phased-out interest deductibility rule and new tenancy laws, making it difficult to remain in the rental market. 
    The Auckland Property Investors Association is concerned about the potential decrease in rental accommodation availability if more landlords exit the market. 
    First-home buyers may benefit from increased opportunities, but those unable to afford homeownership may face higher rents and reduced rental stock. 
    It is advised that potential first-home buyers enter the market if they can handle high-interest rates for a few more years. 
    Read the article

Queenstown council sitting on 30+ empty cabins
    More than 30 cabins owned by the Queenstown Lakes District Council are unoccupied despite the rental housing crisis in the region. 
    Housing advocates are frustrated, as people are living in dire conditions, resorting to camping in tents and cars during winter. 
    The council has not been forthcoming about the availability of cabins, causing trust issues among advocates. 
    Queenstown Mayor Glyn Lewers cites the high cost of bringing the cabins up to the government's Healthy Homes standards as a barrier. 
    Some of the cabins may need to be demolished due to their deteriorating condition and the prohibitive costs of renovation. 
    Lack of available builders in the region further hampers the progress of addressing the cabin issue. 
    Read the article

Insurers' cash offers do not cover flood damage
    Homeowners are receiving lowball cash offers from insurers that do not cover the cost of flood damage repairs. 
    Some Aucklanders have been offered significantly less than the quotes provided by their own tradies. 
    Insurers are withholding their scope of work and assessment, making it difficult for homeowners to compare and negotiate. 
    An Auckland resident received an insurer's scope of just over $20,000 for repairs estimated at around $90,000. 
    The insurer refused to share their scope, creating suspicion of undercutting. 
    The government's claims resolution service has received nearly 550 requests for help related to recent flooding, with many complaints concerning insurers' scope of work. 
    Some settlement offers are "full and final," transferring ongoing risk to homeowners. 
    Builders have observed insurers offering significantly lower amounts and omitting necessary repair work from their scope. 
    Read the article

The latest NZ real estate survey

The latest Real Estate survey contains a number of results suggesting the market has reached the bottom and improvement beckons.  

    The net proportions of agents seeing more people attending auctions and open homes are at their highest levels in over two years.
    FOOP – the fear of over-paying – has fallen to its lowest level since January 22.
    FOMO is trending up but remains low with only 9% of agents noting buyers displaying this worry.
    Buyers are becoming less relaxed about listings being plentiful.

Wellington Council to pilot official rental housing inspection service
    Wellington City Council announces new plan to address homelessness, unaffordable housing, and renters' rights, though the plan lacks funding and clear timeframes.
    Councillor Tamatha Paul highlights unacceptable housing standards and costs in Wellington.
    Council aims to provide all Wellingtonians with safe, warm, and dry housing.
    A rental inspection service is to be piloted for tenants to check accommodation quality and enforce Healthy Homes Standards.
    Council seeks more information about landlords and rental housing standards.
    Council plans to reinstate strategy to end homelessness, disappointed with current lack of plan.
    Frustration over low council spending on ending homelessness, calls for increased investment.
    Council to establish discussion forum with universities and polytechs for affordable student housing, considering conversion of old office buildings, funding details unclear.
    Read the article

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