An alleged attempt to collude on rent rises may be a sign of property investors feeling the pressure from a law change and market conditions

A group of property investors allegedly tried to organise a mass rent rise in September to offset tenancy law changes, but their actions might be a sign rents aren’t rising the way they might have hoped.

Rents have remained static for the first time in two years, with industries that employ large numbers of renters among those hardest hit by the economic effects of Covid-19.

The Commerce Commission cautioned property investor representatives last month after a group of them allegedly tried to collude online in an attempt to uniformly raise rents on a single date: September 26. 

A spokesman for the commission said online communications between the investors included “a reference to the whole market grouping together”.

“The Commerce Commission recently wrote to a number of property investment industry representatives regarding conduct on online forum(s) which could have risked breaching the Commerce Act.”

“These letters are not public and we are not naming the parties or the online forum(s) involved.

“We note that property investors can be in competition with each other for the supply of rental properties and be carrying on a business in trade.”

Students targeted?

Real-iQ property manager David Faulkner – who trains property managers – said the specific date involved meant it could have been an attempt to raise rents on students tied into one-year fixed-term agreements. 

A change to the Residential Tenancies Act set to come into force in February of next year means landlords will soon be unable to unilaterally end fixed term tenancies once they expire.

Those rental agreements will automatically convert to periodic (month by month) ones unless both the tenant and landlord come to an agreement to renew for a year.

Next year it will mean student renters who would typically sign onto one-year terms before November can simply continue paying rent month by month and give 28-days notice that they’re going to leave – without the obligation to sign on for another full year. 

In the past most would have had no choice. They would have kept their tenancies active during the final months of the year.

Property managers would have approached them in August to ask if they’d sign on for another 12 months.

They wouldn’t have had the option to sign on for a shorter term unless they wanted to leave their property before the university term ended.

“Now [next year] the tenant can say I don’t know what I’m doing and it’s none of your business anyway because I can just stay here as long as I want,” Faulkner said.

“That throws a spanner in the works for landlords because the tenant can then say – coming up to October – I’m going home, I’m giving notice.”

“So what they [landlords] are doing is saying ‘what do we do? Do we just increase our rents to cater for the vacancy period?’.”

Faulkner said the two or three month vacancy period landlords could face next year was the number one question people asked him about now.

“Some landlords are thinking ‘I’m going to move out of the student market, I’ll start converting them to professionals’. It may lead to a reduction in student property.”

Beyond students

However, property investors are facing price pressures in other segments of the rental market too.

The Trade Me index of advertised rent prices from July showed no year-on-year increase in median rent across the country. The first time this has happened since August 2017.

Infometrics figures show one reason why that might be the case. 

Renters dominate industries that were badly hit by the Covid-19 pandemic: 70.4 percent of accommodation and food service workers rent as do 57.3 percent of those in retail.

Sense Partners economist Shamubeel Eaqub said landlords won’t see the same level of population growth or movement of people into their area as they might have expected before Covid-19.

Regions like Queenstown have seen rents fall significantly because of the drop-off from tourism. Gisborne has seen rents fall 15.5 percent.

“In a lot of parts of New Zealand rents are actually falling right now.”

“There are two things that are going on: one is, there are some places that are very hot that are no longer getting the big growth in employment and population growth.

“And of course people are under financial pressure so they might be ‘crowding up’ or moving to other places.”

Faulkner said there were “markets within markets” when it came to the rental sector.

Demand for rentals in good school zones would remain, he said. 

And it would be strong relative to supply in the less populated regions because there was a limited supply of rentals in those places, with the exception of places like Queenstown and Wanaka.

He expected the large number of vacant apartments in central Auckland would have a downward impact on rental prices there.

“I am concerned for central Auckland…the hospitality and the retail workers rent. The students rent – and they’re not there now.”

The higher-end market for corporate rentals had also dried up.

“It’s very hard now to rent out properties which are four figures – $1000 a week,” Faulkner said.

“You’re not seeing that corporate movement anymore.”

Infometrics senior economist Brad Olsen said new legislation meant the costs for landlords were also increasing just as other investment options were being cut-off.

“I think what you’re probably seeing is a bit more of that patch protection coming in from property owners who are wanting to maintain their incomes. 

“Particularly given that at the moment your other investment options are a bit more limited.

“You don’t get money if you have your money in a term deposit, but again your costs as a landlord are increasing.”

Leave a comment