Bond data puts a spotlight on Government policy against landlords

Data released by MBIE highlights the growing dilemma that tenants are facing due to a shortage of rental properties across the country.

At the end of 2021, there were 383,220 active bonds held by Tenancy Services, up from 380,295. However, the net increase in active bonds has dropped to the lowest level since records began in 1993. Many of our regions have witnessed a decline in active bonds, which is the first sign that Government intervention is having a detrimental effect on the rental market leading to a shortage of supply.

In 2021 the net increase in active bonds rose by 2,925. This is the lowest increase on record. Over the period of 2011 to 2020, the average net increase in bonds has tracked at 7,361, and since records began in 1993 has tracked at an average of 10,079. The data shows that fewer bonds are being lodged, and as landlords vacate the market, tenants have fewer properties to pick from, leading to overinflated rent increases.

Trade Me data showed that the national median rent had increased by $40 for December 2021 v December 20201 at $560 per week. Many regions across the country show double-digit percentage growth. Meanwhile, MBIE data for the same period showed the median rent for December 2021 was a record $540 per week and an increase of 10.2% against December 2020, where the median rent was $490 per week.2

Worryingly, since the Government’s tax changes around interest deductibility came into effect on the 1st of October 2021, there has been a steady decrease in active bonds. Between September 2021 and December 2021, there was a drop of –3,522 active bonds.

This could be a sign that Government policy around interest deductibility is starting to bite and is having a detrimental impact on tenants across the country.

As our social housing waitlist increases to 25,000, a reduction in available rental housing will mean that this list is likely to grow as the shortage of supply, compounded with increased costs for landlords, means that rental inflation is expected to continue at its current projected rate of around 10% per annum. Many landlords review rents at the start of the year, with so many new tenancies commencing. 

This is the first opportunity many have had to review rents since the Government housing policy announcement in March 2021. As interest deductibility kicks in and the idea of rent controls has been discussed, many investors will naturally look to increase their revenue against the unexpected tax bill they are likely to receive. Many will take advantage of the capital gains that their properties have made and will vacate the market. 

Regions experience a decline in rental properties. 

Some areas are experiencing a dramatic decrease in rental housing. Since 2017, Gisborne has seen a steady decline in rental housing with a drop of –162 active bonds since January 2017. During this period, the median rent in Gisborne has increased from $280 per week to $473 per week, an increase of 69%.  

Meanwhile, in 2021, Auckland and Wellington witnessed their first net drop in active bonds in history. Auckland witnessed a net decline of –1134 active bonds, whilst Wellington saw a net drop of –348. 

Reopening borders and CCCFA is likely to lead to increased demand for rentals. 

As and when the border opens, we may see a net increase in migration, leading to an even greater demand for a reduced rental pool. This will further strain the rental market if landlords continue to vacate. 

Also, changes to the Credit Contracts and Consumer Finance Act 2003 (CCCFA) have had a detrimental impact on first home buyers as tighter restrictions on lending are negatively impacting their ability to obtain finance. This means that many potential first home buyers may find themselves stuck in the rental market. Roughly about one-third of New Zealanders rent. This has increased steadily over time, with homeownership rates peaking at 73.8% in 19913. 

Finance Minister Grant Roberston announced that they wanted to ‘tilt the balance’ towards first home buyers and away from speculators when they made the Government announce its radical housing package in March 2021. However, many believed that the attack on landlords was short-sighted and would lead to inevitable rent increases. Many landlords have since decided that enough is enough, and data here highlights that landlords are vacating the market.  

Some hold the theory that a property transferring from the rental pool to homeownership will lead to a net reduction in the pool of tenants. However, this is unlikely to be the case. Many first home buyers may be living with parents to reduce costs, so they can save for their deposit. Also, more people typically reside in rental accommodation than owner-occupied accommodation, meaning that a reduction in the rental housing stock does not necessarily lead to a net reduction in the pool of tenants. 

Tax ‘loophole’ decision needs to be reviewed. 

The evidence highlighted here shows that landlords provide a valuable service to New Zealand, housing roughly one-third of the population. Targeting landlords and accusing them of exploiting ‘tax loopholes’ is the wrong tactic. Without private landlords, housing tenants falls squarely on the state, and with a social housing waitlist increasing by nearly 20,000 in a five-year period, the state cannot achieve this alone. 

It is all very well allowing investors to offset interest on new builds, but the issue here is that only a small percentage of tenants can afford to rent a new build, and there is also only a limited supply. The best thing this Government can do is to review and reverse its policy on interest deductibility.  

1 Trade Me Property News 28 January 2022: https://www.trademe.co.nz/c/property/news/rents-climb-40-per-week-in-one-year

2 MBIE Rental Bond Data January 1993 to December 2021. https://www.tenancy.govt.nz/about-tenancy-services/data-and-statistics/rental-bond-data/

3 The state of housing in Aotearoa New Zealand. 15th December 2020 https://www.stats.govt.nz/infographics/the-state-of-housing-in-aotearoa-new-zealand