Rents on the Rise

What's reasonable? Tenant faces $50/wk jump as rents soar

It is not just house prices that are on the rise. Rents are increasing too and experts say that’s leading to confusion over what is fair and what is not.

According to Stats NZ’s latest rental price data, in October the stock measure – which measures rental price changes across the entire rental population, including renters in tenancies – was up by 0.2 per cent on September and by 3.2 per cent on October 2019.

Likewise, Stats NZ’s flow measure – which covers rental price changes for dwellings which have a new bond lodged for them over the month – also reveals an increase in October. It has rents up by 0.7 per cent on September and by 2.3 per cent on October 2019.

Trade Me Property’s most recent rental data tells a similar story. It has rents nationwide increasing by 3 per cent year-on-year in September, which is the biggest increase since April. That rise left the national median weekly rent at $510.

There has been talk for months from property industry representatives about the likelihood of rents increasing due to tenancy law changes, along with the looming need to comply with the Healthy Homes standards.

Covid-19 put a dent in those expectations because when New Zealand went into alert level 4 lockdown in March, the Government introduced a temporary freeze on rent increases to support people through the uncertainty.

The freeze on rent increases came to an end in September and the data suggests that rents in many parts of New Zealand are now on the rise, with Queenstown and Auckland CBD apartments being notable exceptions.

Landlords are legally entitled to raise the rent they charge once a year, so what constitutes fairness when it comes to a rent increase?

Hamilton tenant Mereana Marsters was taken aback to receive a rent increase notification of $50 a week from her property manager recently.

The increase means the rent on Marsters’ two-bedroom unit will go from $250 a week up to $300.

But, according to Tenancy Services’ current market rental data, the median rent for properties in Frankton, which is the suburb Marsters lives in, is $360 although the lower quartile price is $270.

For two-bedroom apartments (a category which includes units) Frankton’s median rent is $420, with $380 being the lower quartile price.

The notification Marsters received said a review found the property was below current market rent and that the rent was being increased in response to that.

Marsters, who said her rental is warm, dry and safe and that her landlord is good, understood that but said the size of the increase still surprised her.

Adding to her confusion is the fact that before Covid she received notification of a $10 increase in rent. That was frozen and now post-Covid she has been notified of the $50 rise.

Real-iQ director David Faulkner, who trains property managers, said this type of situation was far from uncommon and that confusion around rent increases was a trend that would only grow.

One reason was that growing numbers of landlords who had managed their properties themselves were turning them over to property managers due to the demands of increased compliance.

Faulkner said many of those landlords had not kept apace with growth in market rents.This was particularly the case when the landlords knew and had developed a bond with their tenants.

“So when a property manager takes over and runs a rent appraisal, it often turns out the property is being let below market rent which will prompt advice to raise the rent. In turn, this can be a surprise to tenants.

“But landlords are entitled to raise their rents as long as they follow the correct procedures and do not raise it to substantially more than the market rent for that type of property.”

In Marsters' case, it appeared the property had been under-rented previously, he said. “It is still below market rate which means that similar rental properties in the area are likely to be more expensive.”

Not everyone agrees that market considerations should determine rents.

Renters United spokesman Robert Whitaker said the rental market was being driven by a shortage of rental properties rather than rising costs for landlords.

“Landlords can’t just shrug their shoulders and blame the market. They need to take responsibility for continuing to raise rents at a time when many tenants are under financial pressure.”

While Whitaker said major Government action on the supply side was the way to resolve the issue in the long-term, Renters United is also calling for the Government to take urgent and immediate action to control rents.

“We want to see the introduction of rent caps which ensure landlords cannot raise rents by more than inflation. It won’t fix the problem but it will slow down the rate of increase.”

During the election campaign both the Green Party and The Opportunities Party committed to the introduction of rent caps.

But NZ Property Investors Federation president Andrew King said it was already illegal for a landlord to put the rent up way above the market value of other comparable rentals in the area.

“If a tenant is notified of a rent increase which is significantly above market levels, they can apply to the Tenancy Tribunal to have the increase disallowed.”

In such cases, the tribunal could make an order for the rent to be reduced, but the tenant would need to have evidence that their rent was a lot higher than rent for similar houses in the same area.

King said new tenancy law changes meant landlords could now only increase the rent once a year (as opposed to every six months), so some rent increases would be bigger than they would have been if they were split into two rises.

But the ongoing shortage of rental stock was contributing to rising rents and it was widely accepted that boosting supply was the best means to stabilising the market.

Faulkner pointed to the Christchurch rental market as a prime example of that.

“Also, look at the Auckland CBD market: Covid-19 and the dearth of international students has resulted in lots of one- to two-bedroom apartments coming on to the market, and rents have dropped.”