Landlords planning to quit because of costs, negative targeting, investor group says

Thursday, 23 March 2023

Investors who needed mortgages to buy a property fell to a 20-year low in September, says CoreLogic head of research Nick Goodall.

More property investors are considering selling up as they 'struggle to keep their heads above water', according to a New Zealand Property Investors Federation (NZPIF) survey.

The NZPIF, which lobbies and advocates for property investors, reported the percentage of respondents who will or who are likely to sell their properties increased from 21% in 2021 to 35% today.

NZPIF president Sue Harrison said comments within the survey indicated many were coming close to selling all their properties and exiting the industry all together.

“This is due to increasing costs which are not being covered by rents received, and also to the way landlords have been negatively targeted in recent times.”

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Harrison also repeated a claim the organisation has made previously, that more investors selling would mean fewer rentals.

Census data from 2018 showed the occupancy of rentals and owner-occupied properties were almost identical – with an average of 2.7 and 2.8 people in an owner-occupied home and rental respectively.

This would suggest if investors sold, demand for housing would go down almost in perfect unison with supply, or in other words fewer renters would be competing for fewer rentals.

But Harrison argued that the 2018 Census was flawed, and she was waiting to see the results of this year’s Census.

She did not believe rental and owner-occupied home occupation rates were the same.

Harrison also pointed to Trade Me data, which showed for the first time in almost a year, total rental stock available declined.

Trade Me reported the number of available rentals dipped 9% in February, when compared with the same month last year.

Harrison said some survey respondents were taking second jobs, and using savings to cover increases in costs.

Terry Baucher says it is confronting for investors to realise their benefit came at the expense of hopeful homeowners.

“The majority of Mum and Dad landlords have debt with their rental properties,” she said.

“With higher interest rates and now this new tax [the end of mortgage interest deductibility], many are telling us they will struggle to keep their heads above water and will sell up,” she said.

Harrison said a lot of investors she knew had taken on large debts and risk to get their rental properties, and were not living the high life.

She said expenses like insurance and rates were also going up for landlords.

Recent data suggests landlords are trying to increase rents to record-highs, but the actual amounts being paid by tenants is stagnant, suggesting a disconnect between what landlords want and what tenants are willing or able to pay.

Independent research from tax consultant Terry Baucher, completed in late-2022, showed rental profits were small compared to the sums landlords have poured into buying rentals, suggesting many investors relied on capital gains to make their investments worthwhile.

Baucher said the figures reinforced an assumption many had – that investors relied on large tax-free capital gains to make their investment worthwhile.

Harrison said very few investors could find a rental that was cashflow positive, and people were looking for capital gains, but many were also trying to pay off their investments, so the properties could provide rental income when the investor retired.

The most recent NZPIF survey was conducted in February.

In 2021 the percentage who said they would not sell or probably not sell was 58.1%, and this reduced to 44.3% in 2023.

Harrison believed most undecided investors were waiting to see what would happen in October’s election, and whether National would get back in and scrap changes to mortgage interest deductibility introduced by Labour.

The change removed landlords’ ability to deduct interest from rental earnings for tax purposes, effectively stopping them from being able to write off income from rental properties by taking on huge mortgages, and deducting the interest.

Deloitte has predicted more rentals will become loss-making as landlords gradually lose the ability to deduct interest over the next three years.

Harrison described the phase-out of mortgage interest deductibility as “the biggest level I’ve seen in my time”.

She said investors were also no longer entering the market.