Blog » Will rents really increase as a result of property market legislation changes?

Will rents really increase as a result of property market legislation changes?

Alide Elkink  |  March 29, 2021

If the media reporting is representational of widespread views, the changes to the property market announced by the Government this week have not made renters happy. They claim the changes do nothing to help them. In this they are quite correct – the changes were not intended to help them. They were specifically intended to deter investors from purchasing properties in an attempt to tip the balance in favour of first home buyers. The Residential Tenancies Amendment Act (RTAA) 2020, introduced in August last year, made the changes intended to help renters.

Why are renters unhappy?

One outcome, renters claim, is that rents will inevitably go up. But will the situation be as bad for renters as they make it out to be?

The principal argument concerns the ruling that investors will no longer be able to offset the interest on repayments against their tax bills and they will therefore pass the costs onto tenants in the form of rent increases. This new ruling currently applies only to properties purchased after 27 March 2021 but will be phased in to all investment properties regardless of when they were purchased over the next 4 years. It will not apply to new builds in the hope that this will encourage investors to build rather than buy existing housing stock.

The benefits of becoming a property investor are certainly diminished by the new rulings but, depending on how long they have had their portfolios, existing investors will either be minimally affected or not affected at all, by the new policies. These owners are unlikely to immediately be considering rent increases.

Changes in the RTAA

Furthermore, other factors against the likelihood of rent increases appear to be completely overlooked by the media reporting. These are that:

  • under the RTAA, rent increases may only occur once in a 12 month period, and
  • the removal of the 90-day “no cause” termination of a tenancy means that landlords are no longer able to terminate a tenancy without giving a reason, then re-let at a higher rent.

These reasons belie the main concerns raised by renters.

Rents are market-driven

Rents are market-driven. Supply and demand are the rent-drivers, but while rental properties are in short supply in some parts of NZ, Wellington is not currently severely affected by shortages. With no significant shortage, if the rent on a property is too high, it will be more difficult to let, and if a landlord attempts to increase the rent beyond the market rate, tenants will simply leave.

Landlords may not overcharge

Another point not realised by many renters but that can deter landlords from raising rents to much is that if a landlord is charging significantly higher rent than that of other similar properties in the same area, the Tenancy Tribunal can make an order to reduce the rent. To bring this about, the tenant must provide evidence that their rent is substantially higher that of similar rentals in the area.

Our view

At Nightingales, we believe rents will be less affected by the latest changes to the property market than many claim. We also believe that it is ethically wrong for landlords to increase rents as a result of the changes to the property market as recently, particularly in the past year, they have benefited both from substantial capital gains and decreasing interest rates, resulting in increased equity and reduced outgoings on their properties.