Rents are rising and some tenants are finding themselves priced out of previously affordable homes.
A report released by BNZ earlier this year found that higher than expected migration is one of the strongest drivers of rental inflation.
Figures from Stats NZ found that annual rental price inflation for new tenancies rose from 4.1% in July to 6.2% in August.
Analysis by BNZ chief economist Mike Jones found that the costs of owning a house was still higher than renting it but he cautioned against any conclusions.
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“It’s not necessarily the case that renting will turn out to be the most cost-effective option over the long-term,” he said.
“First, inflation tends to deflate the value of borrowers’ debt over time, while rent payments tend to rise with inflation. But more importantly, what happens to house prices ends up being the key swing factor. And no one knows what’s going to happen there.”
He added: “It’s hard to put values in the spreadsheet for things like security of tenure and being able to hang your pictures up or renovate. When it comes down to it, these may well end up being the most important in the decision.”
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The pressure in the rental market, especially around supply, is evident in the country’s most expensive city, Queenstown.
Earlier this year, OneRoof reported that people in the tourist hub were sleeping in their cars such was the shortage of affordable rental accommodation.
Queenstown economist Benje Patterson said at the time: “We’ve actually been losing rentals at the same time as we still had pretty sharp population growth. There are physically enough beds and enough sheets in this town to house everyone, it’s just availability and use of housing.
“Put it this way, if someone gave me a crowbar and immunity from prosecution, you could solve it overnight.”
Rising rents and a shortage of options have added to the stresses of many in the sector. But despite what people may think, landlords cannot raise rents when it suits them. Under the Residential Tenancies Act, landlords are, in most cases, only allowed to increase rents once every 12 months.
BNZ chief economist Mike Jones: "It’s hard to put values in the spreadsheet for things like security of tenure and being able to hang your pictures up or renovate." Photo / Fiona Goodall
Angela Maynard, of the Tenants Protection Association (Auckland), said the majority of landlords do stick to the rules, which include among other things notifying a tenant of a rental increase at least 60 days prior in writing (a text message is not sufficient).
When landlords break the rules, tenants can refuse to accept the rent increase, and if that doesn’t work, they can apply to the Tenancy Tribunal to have the increase overturned.
Maynard recommended all tenants read the Residential Tenancies Act. “If they can’t read it online or find reading an act difficult, as a lot of people do, then we recommend they read Renting and You, which is published by Tenancy Services,” she said.
Andrew Nicol, managing director at Opes Partners, said landlords can’t just pick a number and increase the rent by that, with the Residential Tenancies Act stating that rent rises have to be in line with the market.
And he advised that it’s better for landlords to increase rents by a small amount annually than have a single large increase after a number of years.
Queenstown residents in March take to the streets to raise awareness about the shortage of rental accommodation in the city. Photo / Otago Daily Times
Where rent increases exceed market rent, tenants can apply to the Tenancy Tribunal to have the rent reduced, although market rent challenges are notoriously difficult to fight. The exact figure is sometimes contentious. In the case of challenges about market rents, the tenant must apply to the tribunal within three months of the beginning of the tenancy or the date of the last rent review.
There are a number of exceptions to the rules around rent rises. For example a landlord can apply to the tribunal to have the rent increased within the 12-month period if unforeseen expenses have arisen since the rent was last increased. Another example is boarding house landlords, who can increase rent with only 28 days’ written notice.
Tenants can apply to the tribunal to end a fixed term tenancy early if they have received notice of a rent increase by an amount which they could not have foreseen, the increase is substantial, or it will cause serious hardship.
Opes managing partner Andrew Nicol says rent increases have to be based on market data. Photo / Supplied
The first thing a tenant should do if they believe the landlord has breached the rules for increasing rents is to talk to them. Tenancy Services has guidance about how to go about this.
The tips include preparing a budget, and the tenants discussing their situation with the landlord. Tenants should not agree to a figure that they know will end in rent arrears, the advice says.
Where tenants do not accept rent increases, landlords can apply to the tribunal to have the rent increase enforced.
Maynard said the first thing she would ask a tenant facing a rent increase was whether or not they were in a fixed term tenancy or a periodic tenancy. “Quite often we find that the [rent increase] is invalid for some reason. Quite often tenants call up about a rent increase and you find they’ve already had a rent increase within the last year, or they haven’t been given 60 days. Or perhaps it hasn’t been given in writing,” she said.
“Some landlords try to get around [the law] if they think they can hoodwink the tenants – although we only see the really bad landlords. Most landlords are complying with valid reason.”
The rent increase question can be difficult for landlords. On one hand, if their costs are going up – investment property is a business – they need to charge more to make ends meet sometimes. On the other hand, it may not be worth risking losing good tenants for the sake of $20 a week, Nicol said.
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