New Zealand renters are kept in a constant state of fear of losing their homes. But none of it actually adds up, says Nick Stride.  

Renters are a powerful interest group. Around a third of New Zealand households rent their homes – so it’s hardly surprising they’re a perennial ball in the political football match.

But as the 2023 election gets closer, there’s one myth every renter should be wise to. It’s been run by the Property Investors Federation (PIF) and its cohorts for years, it’s been shot down innumerable times but, like John McClane in Die Hard, it just keeps getting up again.

Here’s the most recent iteration, from Ryan Weir, of landlords’ agent Propertyscouts: “If rent controls are introduced that will function as the lead beam that crushes the camel’s back, and landlords will exit the market en masse, the stock of rental properties will fall drastically, and rents will rise.” 

This is the longtime mantra of the PIF. Although it represents less than 3% of the country’s landlords, its president, Andrew King, has a bigger media profile than the average government minister. And in recent years, he’s had plenty to be noisy about. The landlording business has definitely got tougher.

To ensure dry, warm homes, landlords must now meet minimum insulation and heating requirements.

“No cause” terminations are no longer allowed. Now, landlords wanting to end a no-fixed-period tenancy must have one of a specified list of reasons.

To discourage “speculative” investment, the “brightline” period in which investors must hold a property before they can sell it income-tax-free has been lengthened to ten years.

Also, aiming to check rocketing house prices, the government has removed the tax deductibility of interest payments on mortgages on residential investment properties.

And landlords can no longer use rental losses to offset tax on other income, such as salary and wages.

Not all of these changes affect every landlord, but together they have eroded the attractions of investing in residential property, tipping the scales toward other investment options.

Myth #1 – Disappearing houses

Some landlords have already walked. Maybe more will, now that some air’s leaking out of the house price bubble. Maybe landlords will even exit en masse. 

But they won’t torch or dynamite their properties as they leave – they’ll sell them.

The houses will still be there and, unless the new owner is so rich they can afford to leave them empty, someone will be living there – either the new owner, or a tenant.

If the house stays tenanted, there’s no reduction in the stock of housing available for rent.

If the buyer moves in, that’s one more owner-occupied home, and one fewer rental. But the buyer who moves in must have been living somewhere beforehand. Maybe in a rental – or maybe they’ve sold their home, which then becomes vacant … and so on.

Somewhere down the chain, one renter has become a homeowner, and the house they were renting becomes available for another renter.

A single landlord selling an investment property doesn’t reduce New Zealand’s housing stock any more than a selling homeowner does. But what happens if they sell en masse?

Myth #2 – Levitating rents

The market for investment properties is driven by the same balance of supply and demand as the sharemarket.

If investors go gloomy on a listed company’s prospects, they’ll dump the shares. But someone will (almost) always pick them up – at a lower price, to reflect the diminished prospects.

And that’s what would happen to the price of houses if, all other things being equal, landlords owning a substantial percentage of the homes one-third of New Zealanders live in put their properties on the market over a restricted timeframe.

Not all the buyers would be landlords – at each lower price point, more renters would find they could now afford to buy – but the rental homes they left would all be looking for a new tenant. 

As prices fell, net rental returns would rise as a percentage of the purchase price, making the landlording business more attractive relative to other investment asset classes and attracting other landlords into the market.

No need to raise rents.

What happens now?

Is anyone’s guess. Many economists think house prices still have some way to fall.

Net migration loss (more people leaving Aotearoa than arriving) continues. Rising interest rates are lifting weekly mortgage payments. And a pipeline of newly built housing stock is coming onto the market.

So there are good reasons for today’s landlords to redo the maths and figure out whether their investment capital might not get a better return elsewhere.

The PIF and other lobby groups no doubt do a fine job of advocating for landlords, in some respects. They don’t need to keep trotting out disappearing housing stock and rent-lifting poltergeists.

Now they’re arguing against the Greens putting rent controls on the discussion agenda. The PIF says the overseas experience is that rent controls lead to a shortage of housing for tenants.

Maybe. But it’s hard to take the PIF’s word for anything as long as they keep parroting arguments that make no sense.

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