Blog » Looking to the future - post Covid-19 rental market.

Looking to the future - post Covid-19 rental market.

Alide Elkink  |  April 21, 2020

Discussions by the Government about coming out of lockdown have been had and while this means more people can return to work, beyond dropping from level 4 to level 3 life will initially remain relatively unchanged for many.

In the rental market, we have had few tenants who have been unable to pay their rent so far as they have either continued to work or have received the 12-week wage subsidy. But financial difficulties for many will be far from over once the lockdown is relaxed and there will be renters who are likely to struggle to pay their rent in the future. This may have an ongoing implication of a loss of renters as renters find other accommodation options such as moving in with other family or into shared accommodation.

In addition, the market may experience an increased number of rentals available from previously non-existent sources such as the drop in demand for Airbnb (particularly in centre such as Queenstown) releasing more houses into the rental market, households with financial pressures taking on boarders, and hotels and motels moving into a rental model while the tourist industry is in the doldrums. Some landlords may react quickly to the situation and choose to reduce rents, encouraging tenants to move from a higher to a lower-rental property. The nett effect of all of these factors may result in an increased number of empty rental properties that may be difficult to fill.

In a DominionPost article on 4 April 2020, financial commentator Janine Starks, describes this as a potential threat to rental incomes and suggests that property owners should be aware of the implications an economic downturn may bring.

One option suggested to avoid this is that property owners could consider leniency to tenants who are unable to continue to pay rent at the rate that they have been paying by offering a rent discount or even a rent-free period in order to avoid the prospect of a vacant property.

Ms. Stark argues that for most owners, their rental property is a long-term investment that has benefited them with high capital gains and interest rates at historically low levels for the past several years. She points out that with capital gains at around 12.5% during 2019 and interest rates at around 4%, the offer of a 3-month rent free period will add only one quarter of the 4% annual cost, which is a relatively small amount when spread over a 10, 20 or 30 year investment. She strongly recommends that landlords consider this option on the grounds that it is a small addition short term cost that may help prevent or mitigate a longer term downturn in the rental property market.

While all rental situations need to be considered individually, at Nightingales we believe that by being able to offer tenants, who are struggling to pay their rent, options to get through the next  period of time will benefit both tenants and property owners.