Record tenant shortages shift investor rent strategies
A record number of New Zealand landlords are finding it difficult to secure good tenants, with rising council rates and tighter rental conditions adding to their concerns, according to the latest Crockers Investor Insight survey with Tony Alexander.
The sharp tenant shortage comes as rents across parts of New Zealand, including Wellington, show signs of cooling.
According to Trade Me, the median weekly rent in the capital dropped 3.9% in May to $620 – the lowest level since late 2022. Supply in Wellington rose 41% year-on-year, while demand fell 13%, reflecting a shift in market dynamics.
Finding good tenants now harder than ever
A key insight from the June survey – completed by 246 residential property investors – was the sharp rise in difficulty securing tenants.
“A record net 40% of landlords say that it is difficult to get a good tenant. 14 months ago, a net 25% were saying it was easy. Market conditions have changed substantially,” Alexander (pictured) said.
The ongoing softness in net migration and a surge in new housing supply appear to be driving this imbalance.
Buying and selling intentions remain steady
Investor activity remains cautious, with no clear upward or downward trend in buying or selling sentiment.
“In our survey this month 20% of landlords have said that they are thinking about buying another property within the next 12 months,” Alexander said.
“The slight fall in buying intentions this month has been matched with a slight decrease in selling intentions… The result when we put these two measures together is a net 11% of existing landlords saying they plan selling a property.”
The data indicates that investors have been a net drag on prices since early 2023.
Long-term holding remains preferred strategy
Despite the challenging environment, most investors remain committed for the long haul.
“40% of landlords say they have no plan to sell. 16% will hold for over 10 years… The latest result is 56%,” Alexander said.
New builds see slight rise in investor interest
Interest in developing property is edging higher, although existing homes remain the preferred purchase.
“This measure, now 68%, still sits within the recent range of monthly outcomes… That proportion now sits at 18% which is the highest reading for a year and a half,” Alexander said.
Rent increases becoming less common
Reflecting the difficulty in finding tenants, fewer landlords plan to raise rents.
“The net proportion of landlords planning to raise their rents in the next 12 months has fallen to a record low of 44%.”
“The average rent rise desired by landlords for the coming year is 4.2%… Early in 2024 the average rise desired to be achieved was 5.6%.”
Bank lending conditions easing
In contrast to 2022, more investors now say banks are loosening credit conditions.
“A net 15% of landlords express the view that their bank is becoming more willing to advance funds,” Alexander said. “Quite different from that of early-2022 when a net 60% of investors said the credit reins were tightening.”
Top concerns: Council rates and insurance
When asked about investment concerns, landlords overwhelmingly cited rates and insurance.
“By far the top two concerns of landlords are local authority rates and insurance costs,” Alexander said.
Landlords were less worried about mortgage repayments, debt-to-income restrictions (DTIs), or disruptive tenants. However, concern about tenant regulation is trending up again.
Falling house prices and maintenance costs weigh on minds
“Concerns about house prices falling are running at above average levels… Maintenance costs, however, continue to be a source of worry,” Alexander said.
According to Trade Me, property prices fell for the second consecutive month in May, with the national average asking price down 1.2% to $845,250 and only four of 15 regions recording growth.
Tenant shortage reaches new record
The gap between housing supply and population growth is hitting landlords hard.
“We have now reached five months on the trot of a fresh record being set for the net proportion of landlords saying they are finding it hard to get a good tenant… That proportion is 40%,” Alexander said.
