Greedy landlords

Buying rental property in New Zealand became fashionable in the late 1990s because it was a way to build up a nest egg by borrowing against an existing asset, usually the family home. And, so long as there was enough equity for the deposit on the rental property (usually only 10% in those days), the landlord could borrow 100% of the value of the rental house from the bank.

During the early 2000s buying rental property became an investment art form as ‘experts’ sprang up advising everyone to get into the market. We saw some silly stuff too, where investors would buy a property and budget to make an enormous annual loss on it because the  ‘experts’ told them that this was a good strategy, long-term, as property values only ever increase.

This would probably have been true but the GFC took care of all that. Property values fell, and banks started to take a more cautious approach with property investors. Those in the worst positions had their rental houses sold from under them in mortgagee sales. Often, there was a shortfall, which was added to their home mortgage, meaning that many of them are still paying those loans off today.

There are a few professional landlords around, but most landlords are basically ‘mum and dad’ investors, trying to create a bit of a nest egg for their retirement. Most of them got into property investment because they believed there would be no state-funded superannuation available when they retired. They were providing a public service too. There will always be a pool of people who need rental property. Some will only need it temporarily, and some will rent for their whole lives. Either way, this is a genuine social need, and small-time landlords helped to fill the gap by providing private rentals.

During the period 2010 to about the end of 2013 most landlords struggled. Getting tenants was hard, and getting decent rents even harder. The Government didn’t help. From April 2011 depreciation on buildings was discontinued, and the Look Through Company replaced the LAQC, with new restrictions on the treatment of losses. The last National government, at some point, had ceased to be friendly towards landlords.

Then came the media pressure. Suddenly, partly because of toxic articles about poor, unfortunate tenants who are incapable of cleaning mould off a wall or opening a window, landlords became rich, greedy capitalists determined to rob their tenants while keeping them in squalor.

In many years as a Chartered Accountant in public practice, I cannot recall a single landlord indicating that they wanted to rip off their tenants. Many landlords were prepared to accept lower rents to keep good tenants. Most ‘mum and dad’ investors were very bad at being greedy capitalists, and it was often the tenants that benefitted. Most of them were just kind people, who wanted to be fair and to be treated fairly in return.

But, the onslaught continued. There was talk about ring-fencing losses – something that doesn’t happen in any other type of business. The media constantly claimed that landlords got special tax treatment, which they do not. Banks introduced rules requiring equity of at least 40% in an investment property, putting some investors and speculators into financial difficulty. There was talk about rental Warrants of Fitness, and scorn was poured upon ‘scum’ landlords who provided poor quality houses at much lower rents. Tenants, it seems, should be able to have it all. And, if not, the landlord is vilified again.

But, after years of rental losses, suddenly, the market changed.

In Lower Hutt, in April 2016, I passed the window of a property manager and saw a notice that said, “All of our rentals are fully let until 2017. Landlords, please call us on the following number…”

So, suddenly, it is almost impossible to rent a house in the Hutt Valley? We knew Auckland was struggling with population growth. But, the Hutt?

John Key’s vision had finally come true. Instead of a whole football stadium of New Zealanders leaving the country every year, the pendulum had swung the other way. By the end of 2016 70,000 or so had been added to the population, as a combination of new migrants and New Zealanders coming home. If John Key ever had a legacy, this was it.

And, as always happens when there is a shortage of anything, rents started to rise. And rise. And so did property values. And property sale prices. Auckland led the way, but lots of other areas followed.

And for the first time in over twenty years, the market favoured the landlords.

Tenants didn’t like it, and the media liked it even less. Finally, market rents were high, and the mantra ‘greedy landlords’ became a catch cry for all who were affected by the market changes.

Many landlords sold up. Some were happy to stay in the market until the new Labour government started making noises about capital gains tax and increasing the Bright Line Test to five years. (If a property that is not the family home is bought and sold within five years, tax must be paid on any profit on the sale. The current position is two years.) Landlords were spoiled for choice. Many sold and made huge, tax-free gains on their properties. Finally, payback for all those tough years.

I’d say spare a thought for the landlords, but nobody ever does. This is why they are leaving the rental market in droves. The end result is far fewer rentals available, much higher rents and those landlords who are left in the market are vilified more bitterly than ever.

Now there is talk of rent controls. Where will that take us? You guessed it. There will be even fewer houses to rent.

Greedy landlords, Justine Sachs? Landlords charge the rent the market can stand. Sometimes less. They cannot charge more because no one will pay it. Blame the media, the government and local councils for the high rents. Blame greedy tenants, wanting a palace for below-market rent. But, don’t blame the landlords. For soon, there will be very few of them left.

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Accountant. Boring. Loves tax. Needs to get out more. Loves the environment, but hates the Greens. Has been called a dinosaur. Wears it with pride.

To read my previous articles click on my name in blue.