Sixteen Years Behind Australia
As the industry becomes more specialised, are we seeing the end of the DIY landlord in New Zealand?
Property Brokers has spent the last six weeks holding events for clients and partners throughout the country speaking about the amendments to the Residential Tenancies Act, Healthy Homes Standards and the regulation of the industry. The events have been well received, and it has provided great insight into the temperament and tone of landlords, tenants, tradespeople and sales agents.
The overwhelming sentiment held amongst owners is that there is a growing realisation that to be a landlord, is becoming increasingly difficult, and it is an industry that is becoming highly specialised. The unintended side-effect of what the government has introduced is likely going to result in several significant shifts in how kiwis run their investment properties. Will owners be able to do it themselves? Will the new licensing regime be applied to all landlords or only 'large agencies' as detailed in the new legislation?
A well-regarded industry expert – Andrew King has pointed out for years that New Zealand is trailing behind Australia by roughly sixteen years with regards to how rental properties are managed, and the industry is regulated. If you are looking for any indication on where we are heading as an industry, look at our neighbours across the Tasman.
In Australia, 80% of rental properties are professionally managed as opposed to roughly 40-50% in New Zealand. Across every state in Australia, you have detailed licensing requirements and governance for Property Management. With the changes to the RTA and licensing regime, this inevitably is where New Zealand is heading. The DIY landlord could well be something of the past.
One of the amendments to the Residential Tenancies Act sees a significant increase in the legislation that requires landlords and agencies to keep records. Not only do they need documents for the current tenancy, but it is also a requirement to keep all records respectively for 12 months.
In our opinion, requirements in this specific area of the ACT are equivalent to the software that professional agencies use and pay for to comply with the regulations. At Property Brokers, we spend hundreds of thousands of dollars on an annual basis for subscriptions to software that enables us to hold money in trust accounts, manage maintenance, cope with the enquiry, and adhere to the stringent requirements around tenancy law.
Have a look at what is required now on a tenancy agreement under Section 13a of the RTA! If you don't have access to these systems, we don't see how it is going to be possible to meet this new requirement? A common theme that we have picked up on throughout the RTA Roadshow is that there's a growing trend of 'Mum & Dad' investors exiting the market. It is becoming too complicated, and many of them have been burnt badly in recent times. When these properties sell, they are going to owner-occupiers or large investors.
We see a continual decline in the available rental properties in New Zealand. Across provincial New Zealand, the amount of rental properties has only increased by 2.2% over the last year. Yet, we have a net immigration of 79,000 kiwis coming home since January 2020. It raises the big question, where are all the tenants going? We don't know. But what we do see is extremely low vacancy rates, longer-term tenancies and increasing rents.
We are also seeing an increase in the owner to property ratio throughout provincial New Zealand. The exit of the 'Mum & Dad' investors, has also provided an opportunity for large investors to build their portfolios. And with this, comes a shift in the expectation of how investment properties run. Large investors operate businesses, and therefore typically look to maximise rents and the ROI.
During the RTA Roadshow, I met an investor that just purchased 200 rental properties in Southland. He is running a business and will offset all the costs associated with meeting the Healthy Homes Standards, along with the potential cost of using an agency by maximising rents.
The reduced rental pool, increase in net immigration, and shift of ownership to large investors will result in one thing - large increases in rents. We already see a 13% increase in rents annually. The irony of this is; with an average rent of $468 across New Zealand, most kiwis renting properties in New Zealand would be able to service a mortgage. But in most instances, the deposit is a barrier to market, and they will continue to rent properties.
It has been fascinating to spend time listening and talking with investors from one end of the country to the other, and there is consistency wherever you go. It is becoming too complicated, private investors are shifting their management to agents, or they are selling. Large owners are getting bigger, and the cost of renting properties in New Zealand, no matter where you are, is increasing rapidly.
Right before our eyes, we are seeing 'generation rent' becoming a reality in New Zealand, and we are yet to understand what the implications of this will be. However, as this change happens, our industry also needs to advance. Agencies have an increasing responsibility to improve, and we must increase our knowledge and understanding of all aspects of the industry. If we are going to be like Australia, then we also need to adapt and change.