The number of new Auckland residential bonds lodged with the state service for rental properties plummeted 30 per cent in February this year compared to last February, official statistics show.
Bonds lodged is the best new tenancy indication but what would have usually been the busiest month of the year became a four-year slump.
The reasons for the change are not yet clear and nor is it clear if that pattern will continue.
Landlords take bond when a new tenancy is struck, lodging it with the state’s Tenancy Services in case of unpaid rent, property damage or any claims.
Bond lodgements are the best indication of the number of new properties being rented and the service gathers information monthly for each territorial authority and posts it online, although unlike house sales data from the likes of the Real Estate Institute, it receives little publicity.
Tenancy Services data showed that in February 2018, 5613 bonds were lodged for Auckland properties followed by 5586 in February 2019 and 5856 in 2020.
But in February this year, only 4083 bonds were lodged for newly rented Auckland properties, down 30 per cent on last February.
Experts in the sector put forward four theories:
• Did tenants stay put and fewer move to new places thus skewing the data so severely down?
• Did landlords sell places, as they have loudly threatened, and tenants get less choice, barring them from leasing the number of properties they usually would in the high season of February?
• Did shut borders and Covid’s toll, particularly on the tertiary international student market, drive the numbers so low?
• Is it be a statistical anomaly, adjusted when the next month’s data is published, due to bond lodgements for February being late which is often the case with the Tenancy Services data set?
Michael Gordon, Westpac acting chief economist, blames Covid.
“It looks like bonds lodged for Auckland, in particular, have been down for the last year. To me that suggests the most likely driver is the drop in arrivals, not just students, since the borders were closed,” he said.
The statistical anomaly could also play a part, he thinks.
“For February specifically, it may also reflect late reporting. I know that the last few months get revised with each release, but I don’t have a sense of how big those revisions can be,” he noted.
Helen O’Sullivan, chief executive of Crockers – which manages 4000 Auckland rentals, takes a different approach.
“New Zealand normally gets 86,000 international students. I think it’s the missing international students,” O’Sullivan said.
Only around 3800 students were here from overseas at the start of the year and that drop, she thinks, accounted for the drop.
“Our lets just tanked every time there’s a lockdown,” she said, referring to Auckland’s February level 3 alert. “People are still moving house but we were doing almost no views.”
David Whitburn, active investor and ex-Auckland association president, blamed lockdowns for the 30 per cent drop.
“I believe this is because Auckland moved to alert level 3 not once but twice in that month, particularly the alert level 3 for Saturday, February 14, where we dropped back to level 1 on February 22.Those nine days in total combined with the downward trend in the 12-month moving average explains most of it,” Whitburn said.
But Whitburn has wider concerns about rental property supply.
“It is a big drop-off in February for Auckland. It has been exacerbated by Covid-19 as more tenants stay put. However, there are other features at play.Some landlords I know were fed up,” he said, speculating that rentals had been sold when landlords lost the tax breaks and were asked to upgrade homes to new standards from July 1.
Robert Whitaker of Renters United thinks it could be far lower turnover or tenants staying put.
“I’d say it’s more likely to be reduced churn in the market for factors including the law changes, Covid and [lack of] international students,” he said referring to the Residential Tenancies Amendment Act which came into force on February 11.
“One way to check that would be to see if there was a similar decline in bonds paid out. If so it’s likely to be a reduction in churn rather than the stock. I don’t think I have enough information to provide informed comment,” Whitaker said.
The number of active Auckland bonds did indeed fall from 140,076 in December to 139,290 in January and 138,756 in February.
That indicates fewer properties on the Auckland market and/or fewer tenants paying bonds that are being lodged with the state agency which could be due to less choice, lower tenant numbers or lower turnover.
One thing is sure: changes in bond lodgement did not affect rents which continued to rise.
Tenancy Services’ data showed Auckland rents climbing from the median $525/week in January 2018 to $565/week in December last year, $570/week in January this year and $580/week in February this year.
Landlord chiefs have threatened large-scale Auckland rental property selloffs this year but official data is only supplied till February so we are yet to know what happened with new Auckland bond lodgements in March, April, and this month.
A clear pattern is yet to be established.
Peter Lewis, vice-president and northern area representative for the Property Investors Federation, said this year’s Government’s changes would certainly result in many landlords selling.
“Anecdotally, I see a number of residential landlords quietly selling up,” Lewis said.
But Lewis questioned the validity of official data, saying there was “no complete database of how many residential rentals even exist”.
Not all landlords deposited bonds with Tenancy Services, he said.
“If I rent a property to you and do not require you to pay a bond then obviously I do not have to deposit that bond with Tenancy Services, therefore that rental actually flies under the radar. The only people who know it even exists are you, me and possibly Inland Revenue,” Lewis said.
Andrew King, federation president, has also forecast rising rents and wholesale selloffs, tightening supply and lessening choice for our burgeoning population of renters, now standing at around 1.4 million people.
Tenancy Services’ data shows around 4000 bonds are usually lodged in Auckland each month when it’s not the particularly busy January/February period.
January and February are exceptional but these are also the months when students rent places at the start of the tertiary year and many people relocate to Auckland for professional or family reasons.
Last April, bond lodgement fell dramatically to around 1641 bonds paid. But that was due to Covid when the city was in the national five-week lockdown declared towards the end of March.
Rental bond data has been kept from January 1993 up till February and was last updated in March. The March figures are yet to be released.
Tenancy law underwent a major overhaul this year.
On February 11, the Government ended no-cause terminations, meaning landlords can only cite an extremely new narrow range of reasons for evictions.
On March 23, the Government announced an end to what Finance Minister Grant Robertson called “tax loopholes” -deductions for mortgage repayment costs. The brightline test was also extended from five to 10 years, meaning investors must pay their full applicable tax rate on capital gains within a decade.
New rental home standards come into effect in just two months.
On July 1, the new Healthy Homes standards come into force: Tenancy Services says all private rentals must comply within 90 days of any new or renewed tenancy after that date.
That law change demands insulation, heating and ventilation of a certain standard and all private rentals with existing tenancies in place must comply by July 1, 2024.
Sharon Cullwick, Property Investors Federation executive officer, said the Government appeared to hate landlords, bringing in the raft of changes which she sees not so much pro-tenant as anti-investor.
She is concerned about the new healthy homes standards and how that will affect the market, putting yet further pressure on landlords.
The availability of materials and equipment is also a worry, she said.
Heat pumps were already being sold on a limited basis, she said.
Landlords who sought large orders were not getting those filled and some suppliers asked for perhaps 50 new heat pumps were only selling 10 to any one party at a time, she said.
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