Level 3! What can landlords and tenants do? Residential rental trends analysed

Residential rent trends

In a recent market survey, more than 40% of property management companies surveyed believed residential rents would remain unchanged. The remaining respondents differed over the size of the decline, but nobody appeared to believe rents would fall by more than 20%.

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Rent levels are generally determined by two main factors: tenants' incomes, and market supply and demand. Economists including Tony Alexander therefore believe rents will inevitably fall, based on the following factors.

• More homes available to rent
• With international flights cancelled and visitor numbers plummeting, many short-stay properties, including Airbnb accommodation, may move into the long-term rental market.
• In the wider market environment, many prospective property sellers will adopt a wait-and-see approach. In a recent report, Tony Alexander estimated that property sales volumes could fall by 40% or more in the near term. Some of these sellers may offer properties for rent that they had intended to put on the market.
• Fewer prospective tenants and lower incomes
• International students, a major tenant group, have fallen sharply in number.
• Young renters who lose their jobs or face reduced incomes may move back in with their parents to save money.
• Many businesses, particularly multinationals, may suspend or delay expansion plans. This means fewer job opportunities and fewer professionals relocating, reducing demand for residential rentals.
• Many companies have begun making redundancies or cutting staff pay, reducing people's disposable incomes and affecting tenants' ability to afford rent.

 

Interestingly, an analysis of different sources of tenants led property commentator Ashley Church of OneRoof to a different conclusion: rents will remain unchanged over the long term because demand for rental properties will continue to exceed supply.

• Unemployment and lower incomes also reduce more people's borrowing capacity, forcing them to abandon plans to buy their own homes and continue renting.
• Many New Zealanders who have worked overseas for a long time are returning, increasing demand for housing.

 

However, even industry figures who believe rents will not change significantly acknowledge that residential rental vacancy rates may rise in the short term, despite government market analysis indicating a continuing housing shortage over the long term. This is particularly true of high-end properties in prime locations with previously high rents, and apartments in city centres and near universities that primarily cater to international students.

 

Understanding the current challenges for landlords and tenants

From this, it is easy to conclude that during this extraordinary period, retaining existing tenants is landlords' best option, even setting aside government restrictions on landlords. In practice, landlords may currently face two situations.

• An existing tenancy is due to end

Whether the tenant or landlord gave notice to end the tenancy, if it takes effect after 26 March, the tenant may remain in the property if they wish. The landlord has no right to evict them, although the tenant must, of course, continue paying rent.

• An existing tenancy is continuing

This is a difficult period for both landlords and tenants. For various reasons, tenants may no longer be able to afford the agreed rent, while the loss of that income may leave landlords struggling with mortgage repayments or other expenses. Given their closely connected interests, landlords and tenants need to stay in particularly close contact.

Landlords need to understand:

• Whether tenants' employment has been affected and whether this will affect their ability to pay rent;
• Whether tenants with unstable incomes or who are self-employed have applied for government assistance;
• For tenants who already have a history of frequently paying late, landlords need to follow up regularly and provide reminders.

Tenants need to:

• Contact the landlord promptly to discuss a rent reduction or deferred payment if they assess that they temporarily cannot afford the current rent.
• If they determine they can no longer afford to remain in the property, tenants should, where possible, tell the landlord their moving date as early as they can, even though only 21 days' notice is required, so the landlord can prepare.

When landlords and tenants disagree over rent payments, amicable negotiation remains the most effective and recommended approach. Once agreement is reached, they can apply for FastTrack Resolution through the Tenancy Tribunal website to obtain a mediator's order. This is a legally binding document that ensures both parties comply with the new agreement.

The worst outcome, of course, is a tenant remaining in the property under the new legislation's ban on evictions for 3 months while refusing to pay rent for various reasons. The legislation also provides that landlords may apply to the Tenancy Tribunal to end a tenancy when rent arrears exceed 60 days.

The Tenancy Tribunal continues operating even during lockdown, reviewing submitted documents and hearing cases by telephone or video conference. However, an expected rise in case numbers, combined with reduced efficiency from staffing and working arrangements, means a substantial backlog and delayed decisions are likely. Anyone needing to apply to the Tribunal soon should therefore lodge their application early and prepare the required documents thoroughly.

 

Lv3: what landlords and tenants can do

Today, the Prime Minister formally announced that New Zealand would move to alert level three from next Tuesday, with a further review two weeks later. This means restrictions will ease in some areas while social distancing remains strictly emphasised. For residential rental properties, what can landlords and tenants do when the following needs arise, and what remains off limits?

• How tenants can move house

Once the alert level drops to Level 3, tenants whose move to a new home was delayed by lockdown, and those forced to find a cheaper property at short notice, will understandably want to move as soon as possible. Although specific rules on moving house may not be issued, some reasonable inferences can be drawn from construction industry rules at Level 3 and Level 2:

• Tenants can hire a moving company to help them move.
• Before starting work, moving companies must provide customers with a COVID-19 plan outlining how they will address and prevent risks.
• Tenants are responsible for carrying out the necessary disinfection of both properties before moving out and entering the new home, and for providing movers with cleaning and disinfection supplies such as hand sanitiser.
• Movers need to wear necessary protective equipment, including masks and gloves, while working.
• Where possible, tenants and movers must maintain a distance of more than 2 metres throughout.
• Tenants and moving companies must keep records of working times, procedures and contacts throughout the move.
• Tenants moving themselves should ensure everyone helping belongs to the same household bubble or, at Level 3, the same limited social bubble.
• How landlords can offer viewings

Whether a property was already vacant or needs new tenants because the previous occupants are moving, the biggest challenge for landlords is offering viewings while social distancing rules remain in place, given that all tenancy paperwork can be handled online. This is a widely discussed industry topic. Current opinion generally favours trying the following two options at Level 3 and Level 2.

• At Level 3, arrange for a photographer to enter the vacant home beforehand and film it in as much detail as possible, then put the video online for prospective tenants to view.
• If the alert level subsequently falls to Level 2, private viewings may become possible, rather than open homes. Prospective tenants would book online or by telephone, then view the property individually, either alone or as a household, at the appointed time.

For either approach, landlords or property managers should be responsible for necessary disinfection before and after others enter the home, providing protective equipment and cleaning and disinfection supplies, and maintaining social distancing at all times.

• How landlords can renovate and carry out repairs

As discussed above, residential rental vacancy rates may rise in the short term. Some landlords may therefore want to use the gap between tenancies to renovate or carry out necessary maintenance. Construction and maintenance workers can work at Level 3 and Level 2. Landlords likewise need to disinfect the home before workers enter or after they leave, and ensure only one party or person is present at a time to maintain social distancing from workers. Further details are available in the COVID-19 Health and Safety Protocols for New Zealand Residential Construction Sites. One point deserves particular attention: when renovating an apartment, consult the building's property management company beforehand and agree on how to maintain social distancing, hygiene and safety in shared areas.

 

 

Franklyn Young

Crockers Property Group

Business Development and Project Manager

He graduated from the University of Auckland with a bachelor's degree in property management and subsequently worked in property management at several major firms. With a history spanning more than 45 years, Crockers is one of New Zealand's largest locally owned property management businesses. Its services cover residential and commercial properties, as well as apartment buildings, residential complexes and other real estate held under various title arrangements.