The election has been decided and our industry is in for a large amount of change. The supply of properties by Government is to be accelerated, although it yet to be shown how council regulatory and labour restraints will be overcome, so it is difficult to say when this will actually occur. Demand for housing is being reduced by lowering the number of migrants coming into New Zealand and reducing the number of rental property providers.
The NZ Property Investors' Federation still believes that this is a wrong approach as we need more rental properties for tenants, not just affordable houses for first home buyers.
Although the new Government hasn't confirmed policies as I write this, Labour campaigned on increasing tenant rights, increasing rental property insulation and heating, extending the Bright Line Test, plus removing the ability to claim losses on rental properties. Although it won't happen in this term, it seems inevitable that the new Government will seek to introduce a capital gains tax as well.
In an era of higher costs and levelling or potentially falling house prices, rental returns will inevitably become more important. If returns from property fall then logically there will be fewer people willing or able to provide rental property to tenants.
It has been argued that if there are fewer investors then this would be good, as the properties are still there, they will just be owned by new first home buyers. Unfortunately it isn't that simple. The average number of people per owner occupied property is 2.1 while for rental properties it is 3.9. This means that on average, whenever a rental property is sold to an owner occupier, there is an average 1.8 people left behind who still need a rental property to live in.
Of all the changes, removing negative gearing is likely to have the largest impact on the industry. It will make it harder for people to buy a rental property and could see some investors forced to sell their rental. It is the policy most likely to reduce the supply of new rental properties to the market.
However not all investors will be affected by this. Many investors are not negatively geared, so while it may make it harder to buy more rental property, it could actually improve their return for their existing properties with higher rental prices.
Higher rental prices are not the only way to improve returns though. We should all consider innovative ways to improve returns such as adding bedrooms or sleepouts to negate the effect of ring-fencing tax losses.
If we are going to continue providing homes for tenants, then every rental property provider needs to plan for the upcoming changes. To limit the impact on our tenants, small rental prices increases starting now will be required, rather than waiting until the cost increases actually occur.
At the resources page on www.nzpif.org.nz website, there is a rental price calculator with over 10 years of rental data. Everyone should be checking to see if their rents need adjusting.
If you are going to be severely impacted by the changes on the way, consider what you can do to reduce their impact before looking to sell. If you are not a member of your local Property Investors' Association, join now and gain from the ideas of other members.
The NZPIF has had a very good working relationship with Labour, the Greens and NZ First and we hope that will continue with them in Government. We will continue to put forward our thoughts on the effect of Government policy on rental property providers and tenants.