A question we often get asked, by both tenants and landlords, is will rents rise in the coming year? The simple answer is yes, they will. Here are some of the reasons why:
As you would have read over summer, Tauranga, just like Auckland, has a serious rental shortage, especially quality rental homes. The shortage is a simple case of supply and demand. Our region continues to attract record numbers of new ‘migrants’ to our suburbs, but due to lending restrictions, increasing mortgage rates, and a significant increase in house prices, it is difficult for many of these people to buy a home in Tauranga. Therefore, many families moving here are looking for short or long term rentals. Their search is made even more difficult because many existing tenants are choosing to stay in their rentals long term, knowing that quality rental properties are hard to come by. So the usual demand for quality properties is exacerbated by increased migration and fewer home buyers, and this situation will unlikely change in the foreseeable future.
Other factors leading to rents rising include lending restrictions on investors and the new Government changes around rental property compliance. The Labour Government will also be cracking down on so-called ‘negative gearing’, where costs such as interest payments on a residential investment property can be used to offset tax owed on income from other sources.
Additionally, over the last few years there have also been extra costs for landlords such as rates and insurance increases, and costs associated with drug testing of properties. These factors, combined with more landlords exiting or choosing not to enter the market, means demand is high and supply is low, which leads to increasing rental prices.
Of course rising rents isn’t something new, the Trade Me Rent Price Index (a monthly analysis of the rental property market across NZ) shows that between December 2016 and December 2017 average rent rose 7.3% in the Bay of Plenty. However tenants shouldn’t be alarmed, as per our tenancy contracts, rent cannot be increased for 180 days from the start of the tenancy and a landlord is required to give 60 days notice of any increase in rent. Usually rent increases for our tenants are small and gradual.
If you are a Landlord in this turbulent property market, we are happy to discuss your options for a long-term strategy. Having the right plan and processes in place will to enable you to get through the next few years’ challenges and come out the other end in a stronger position. Remember, property investment is a long game and short-term losses or gains should form part of your overall long-term strategy.
For any other rental investment advice please phone us for a chat, we are happy to work through any questions you have and we offer free rental appraisals for landlords.