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World of pain coming and landlords give up

Too many good landlords are getting out of housing market, says Tim Kearins, Century 21 boss.

Wednesday, May 24th 2023, 10:16AM 3 Comments

by Sally Lindsay

“Often the best landlords are the mum and dads, but unfortunately many are now exiting the market as it has become too tough.”

He says the pressures on rental stock have only grown, not helped by the Auckland floods and Cyclone Gabrielle earlier this year. Then there’s more regulation and a loss of tax deductibility on landlords’ mortgage interest costs.

“Housing supply is coming on stream, but the demand is huge, particularly when considering strong inbound migration, people living longer, and more families banding together under one roof to minimise cost,” says Kearins.

Today, the Reserve Bank could make it tougher for landlords by lifting the OCR to its stated ceiling to 5.75%. Most economists are predicting it will go higher by the end of the year.

Open letter

One mortgage boss kicking against any rise in the OCR is Squirrel boss David Cunningham, who says there is still a world of pain to come for Kiwi homeowners – that includes investors.

In an open letter to Reserve Bank governor Adrian Orr, Cunningham says: “I believe it is now time for you to watch, worry and wait rather than throwing more fire-power at the inflationary dragon. A dragon that (many signs would suggest) is already on death’s door.

“Governor Orr: Don’t kill the economy, and inflict even more pain on top of what’s already coming for Kiwi households, just to slay the dragon that little bit faster.

“In my opinion, forging ahead with any more OCR hikes at this point would be lunacy. “And I don’t think the RBNZ is run by lunatics.”

“To illustrate the point, in April 2021 the two-year fixed mortgage rate was 2.6%. Today it’s about 6.6%. On a $500,000 home loan, that’s another $384 per week to find, which adds up to about $20,000 per year.

“Without a pay rise of almost $30,000 a year (pre-tax) that money’s only coming from one place: reducing household spending elsewhere.

“Economics 101 says that if demand goes down as a result of us all spending less, the downturn will ripple through the labour market and wage growth, and ultimately dampen inflation.

“The Reserve Bank needs to allow time for these transition mechanisms to do what they will inevitably do,” says Cunningham.

Main point of debate

“There’s no prizes for kicking someone when they’re down. There’s a pretty unanimous sense across the financial markets right now that there will be another hike today.

“The main point of debate seems to be whether you’ll go a little easier on us at 0.25%, or push harder with 0.50% - although, increasingly, markets are pricing the latter as a possibility.

“Ultimately, if that is the path you take, you’ll have the markets’ backing. For the most part anyway. Many are saying that lifting the OCR is exactly what you, and the Reserve Bank, need to do right now. ‘A stitch in time saves nine’ and all that.

But I beg to differ.

No matter how I look at it, my sense is that raising the OCR further is the last thing the Reserve Bank should do right now.

Earlier this month, the Reserve Bank published a survey of Kiwi business leaders and professional forecasters about expectations for inflation will be in the future. The survey shows expectations one year from now have fallen by 0.8% compared to the December 2022 quarter. While average expectations around inflation two years from now fell by 0.5% to 2.79% – it is a figure that’s within your target 1-3% range.

“While some might argue there’s cause for concern because wholesale interest rates have shifted upwards over the past week – in my opinion that shift is inconsistent with underlying economic factors.

“In fact, I’d suggest the rises are being driven by financial markets participants. After all, who benefits most from financial market volatility, if not the financial market traders?

“What would I do? I’d hold the OCR at 5.25%, but make it clear that this rate is unlikely to be lowered during 2023. That will ensure the tightening monetary conditions for households are delivered, and see wholesale interest rates revert to the level they were after the April OCR review.

“Patience is what’s needed here – and I know the Reserve Bank has it in spades.”

More landlords needed

Kearins says there is pain for the thousands in emergency housing including motels and the more than 20,000 people on the public housing waiting list. “The social need is massive, and we see it every day in Palmerston North,” he says.

In March MBIE’s Tenancy Services Rental Bond Data shows median rents nationwide are up $175 per week since 2017 – reaching $575.

Kearins says the housing market needs more landlords, not fewer, but sadly many have chosen to invest elsewhere, such as commercial property syndications, or keep their money in the bank given rising term deposit returns.

“A final nail in the coffin for many mum and dad landlords has been the loss of tax deductibility on interest costs.” That is now being incrementally phased out. Currently at 50%, it moves to 25% on 1 April 2024, and then to zero on 1 April 2025.

“With the cost of living crisis in full swing, it’s a tough time for tenants, and with all the red-tape and expense, it’s tough for landlords,” says Kearins.

Tags: landlords

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Comments from our readers

On 23 May 2023 at 11:23 pm Gregory Young said:
Economics 101- Inflation is a man made tool to persuade markets. It is NOT a natural occurring by-product of markets. Look throughout history: a massive world event ( Covid ), massive money printing and splashing around by certain governments ( like Labour who funded a vaccine that doesn't even have the efficacy rates they originally said it did ) enriching the top ( Bill Gates who according to this report has made $310 million from his vaccine investments: https://www.clarkcountytoday.com/news/pfizer-vaccine-bonanza-slows-but-bill-gates-sold-early-made-huge-profits/). Now the Reserve Bank, a privately owned bank, wants its loans paid back with interest and hence you have inflation. All man made to keep the cycle of money moving to the top of the pyramid. What we really need is a true independent market that is not controlled by monopolies, big companies, governments and Reserve Banks, just a true natural market based on supply and demand. We also need to improve the quality of some tenants. A good idea is a tenant course which covers budgeting, cleaning and communication. Tenants can do the course for free and get a certificate afterwards. A fairer RTA is needed to equally punish both offending landlords and tenants, not a blanket approach but rather a targeted approach to actual offenders. While it’s easy to punish landlords in fines and you could and should do the same to tenants, the real challenge comes when nobody wants to rent to the tenant anymore because of their shady past. What do we do with these folk who just won't co-operate within societal laws? We can’t just keep placing them in emergency housing at the cost of the law abiding tax payer in the hope of reform. And while shark bait is a solution many have contemplated, it’s not a reality and therein lies the conundrum.
On 24 May 2023 at 1:08 am Geoff Hall said:
1oo % agree with the best Landlords getting out of the Rental market. Most of the people I know have left or are leaving the rental market. When our house in Queenstown reaches the end of the present Tenancy agreement , then it will be sold. I am over this Government telling me what I can and cannot do with my rental house. The house is relatively new and would always comply with the regulations imposed. Now the last straw is that MBIE is to do an audit on my Healthy Homes Statement. Because I did it , following the worksheet provided by Tenancy Services NZ, and the original plans to calculate the Kw of heat required to comply, it is to be Audited. No one who paid for a professional Healthy Homes Statement is being Audited, Just private calculated ones. MBIE also require the method of the workings to establish the Kw of heating required.
I have just recieved a copy of a Healthy Homes Statement from ( Landlord Solutions Ltd) for a property in Auckland and it does not have half of what I had to provide my Rental Manager in Queenstown.
The result of this is that a good tenant family will be looking for a new home next winter, and at the present escalation of rent prices, it could almost double. ( we have chosen to keep the rent low since Covid to help the family stay in the rental house, looking after us as landlords and the family as tenants.)
That will be one less house available in an extremely competitive rental market, which is not going to change for some time in Queenstown.
On 24 May 2023 at 8:42 am Terumi Kamata said:
I am a typical mum & pop investor, purchased an investment property in 2013~2015. I have 8 years long tenant at my Manurewa, have not increased rental only $10 per week over the past 8 years as I always wanted to support their family.

Now I have no choice but to sell the house as I can't sustain tripled mortgage rate in addition to government tax on revenue (rental).

Only wealthy cash rich investors will be able to sustain I fear.

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Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.45 7.05 6.85
ANZ 8.64 7.99 7.49 7.35
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.39 6.89 6.75
ASB Bank 8.64 7.39 6.89 6.65
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
Basecorp Finance 9.60 - - -
Bluestone 9.24 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Classic - 7.29 6.85 6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 ▼7.89 ▼7.45 ▼7.25
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - ▼7.09 - -
Co-operative Bank - Owner Occ 8.40 ▼7.29 6.89 6.75
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 ▼7.79 7.39 7.25
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.69 6.45 6.19
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.85 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.79 7.59 7.29
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 8.35 7.89 7.65
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 7.35 6.89 6.75
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.90 7.39 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
Resimac - LVR < 80% 8.84 8.30 7.89 7.69
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 9.30 8.89 8.69
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.95 7.45 7.29
SBS Bank Special - 7.45 6.95 6.79
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 7.05 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 8.19 7.55 7.55
Lender Flt 1yr 2yr 3yr
TSB Special 8.64 7.39 6.75 6.75
Unity 8.64 6.99 6.85 -
Unity First Home Buyer special - - 6.45 -
Wairarapa Building Society 8.60 7.15 6.85 -
Westpac 8.64 7.89 7.49 7.25
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.29 6.89 6.65
Median 8.64 7.45 7.37 6.77

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