Landlord claims: Fair warning or scaremongering?
Landlords say Labour's plans to change the New Zealand rental market will drive up rental prices and reduce the amount of property available.
But is that a warning that plans to help tenants could backfire, or just the scaremongering some have claimed?
Just over 800 of the NZ Property Investors Federation's members responded to an online survey. Almost three-quarters of them said they would increase their rents if Labour's policies were introduced. More than half said they would put rents up between $20 and $40 a week. Almost 13 per cent would put rents up more than $40.
Property Investors Federation executive officer Andrew King said he had been told by a number of members that they would have to sell properties if the changes were introduced.
* Labour strengthens renters' rights with limits on rent rises, 90 day notices
* Rents could rise under Labour policy, property sector warns
* Labour to shut down 'negative gearing' tax break in crackdown on property investors
Economist Shamubeel Eaqub said, for such a survey to be credible, it would have to be scientifically rigorous, which this was not. The way it was administered made it self-selecting. Those with concerns were more likely to respond.
Infometrics chief forecaster Gareth Kiernan said the respondents could also be more likely to be long-term investors.
"There's also some question about the survey design – if the questions have been structured as presented in the report, then respondents have been asked a whole lot of questions about things that have or will potentially negatively impact them and then asked how they feel about Labour's policies… by which point in time they're likely to have been put in a distinctly negative frame of mind and potentially overreact when answering the later questions."
Labour would require landlords to give their tenants' 90 days' notice to move, remove "no-cause" terminations and limit rent increases to once a year. The formula for increases would need to be set in tenancy agreements and letting fees would be abolished. Labour would also pass the Healthy Homes Bill, introducing heating and insulation requirements.
It also wants to ring-fence property losses, so that those investors whose rent payments don't cover their mortgage will no longer be able to claim their top-up payments against their other income. A capital gains tax is also on its to-do list.
THE ECONOMISTS' VIEW
Eaqub said he put little faith in the federation's survey "of people who are really self-interested and say this will happen even though they have nothing to back it up".
He said rents made no sense compared to house prices, and the biggest driver of the rents charged was tenants' ability to pay.
He pointed to rental yields – in Auckland, investors can only get about 3 per cent, gross, in rent from the purchase of a property. If rents could rise to improve that return, they would have, he said. "They're idiots. The market doesn't work like that, it's far more complex. People's ability to pay is what really matters."
The biggest factor for landlords' income was their vacancy rates, he said.
He said that did not mean Labour's policies would not have negative effects for some people. Some landlords could have difficulty moving people on when they wanted to, he said. But some tenants might be willing to pay more for a property if they knew they would be able to stay in it. "A lot of the conversation seems to place people at the extremes – tenants are feckless and landlords are nasty. It's not true."
BNZ chief economist Tony Alexander said it was not unreasonable to suggest rents could rise.
"When changes come along which push up the cost of doing a thing, and reduce the number of people doing that thing and increase the cost, it pushes up the price of the output."
Budget 2010 changed the rules so landlords could no longer claim depreciation on their rental properties. This allowed them to reduce the income they paid tax on, by writing off a bit of the value of their properties each year.
When this change was introduced, it was warned that rents could be expected to rise.
King says they did. Eaqub says they didn't. Corelogic head of research Nick Goodall said his data did not show anything significant.
"There was a slight lift in median rent in late 2011 after rents stayed relatively flat throughout the year, but nothing out of the ordinary when you compare to the rest of the time series."
He said the pace of rent growth had hovered around 3 per cent per year from 2010 until 2013, peaking at 6.6 per cent in October 2012.
"I don't think there's anything clear-cut there to attribute any increase to the change in the way depreciation affected the amount of rent charged."
King says what Labour is proposing is more wide-ranging than the depreciation move. "Removing depreciation never had as big an effect as a capital gains tax or ring-fencing. Labour is looking at not one of those but both."
Kiernan said the bright-line test introduced in 2015, which applied a capital gains tax to an investment property sold within two years, had made little difference to rents.
"The most significant of the changes is the possible introduction of a more comprehensive capital gains tax, which will reduce the overall after-tax returns for all property investors.
"This change might lead to a reduction in the supply of rental property as investors sell and switch to other assets that now look relatively more attractive – but presumably this dynamic would be accompanied by relatively cheaper house prices encouraging more first-home buyers to enter the market, limiting rent increases, as well as meaning that rental yields improved if house prices fell."
* Comments on this article have closed.