A tenants’ market has arrived: how can your property stand out during the pandemic?

As the first rays of sunshine ushered in 2020, New Zealand should also have been entering its peak rental season.

The beginning of the year is a busy period for international students returning to study and new migrants arriving. Rental homes in major New Zealand cities, particularly those near city centres and universities, usually face demand exceeding supply.

However, the outbreak of COVID-19 cast a shadow over the start of 2020.

An unprecedented tenants’ market

After Thailand confirmed the first case outside China on 13 January 2020, many countries, including New Zealand, promptly restricted or prohibited entry by Chinese citizens. Many students who had returned to China for the New Year could not get back to New Zealand for classes, affecting rentals aimed primarily at international students, such as city-centre apartments.

Students who had already signed tenancy agreements could not move in but still had to pay rent. Meanwhile, prospective tenants who had reserved accommodation without signing agreements could not move in as planned, causing landlords financial losses.

While landlords and tenants were still hoping international students would return, the New Zealand Government issued further epidemic preparedness announcements and activated its alert system.

This meant New Zealand’s economy and people’s lives entered an unprecedented phase.

Previously, the rental market had consistently faced a shortage of supply. Each listed property attracted multiple applicants, and rents rose steadily. Sometimes tenants even had to offer more or reserve a property in advance to secure the home they wanted. The sudden pandemic completely reversed this situation in early 2020.

After New Zealand closed its borders, the economy suffered heavily, company profits fell sharply, and reports of restructuring, redundancies and business closures became commonplace. Disposable incomes were directly affected: lower earnings reduced local tenants’ ability to afford rent;

Meanwhile, many rental properties were mortgaged. Reduced rent, or no rental income at all, disrupted cash flow and placed landlords under enormous pressure.

At the same time, border closures prevented most non-New Zealand citizens from entering the country.

Alongside international students, large numbers of tourists and holders of short-term work visas, working holiday visas and permanent residence normally enter New Zealand each year, particularly early in the year. These groups have also been major sources of rental demand. Their substantial reduction shifted the market in tenants’ favour.

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Oversupply puts the market to a severe test

At the time of writing, in mid-June 2020, New Zealand’s largest rental listing platform, Trade Me, had 5176 properties available across Auckland, including 1490 in the central business district (CBD).

At this time in previous years, central Auckland had only a few hundred available rentals. Now there are nearly 1500 vacant properties, with little prospect of an increase in tenants in the short term. This clearly presents a serious challenge for landlords.

Over the next 6 months, approximately 700–800 new apartments and townhouses will be completed and handed over. Of these, 40% were bought as investments, meaning 300–400 new homes will enter the rental market by the end of the year.

If the borders remain closed during this period, the rental market will face even greater challenges.

CBD area:

Pandemic-related restrictions have created an oversupply of properties compared with the same period in previous years. The reasons are as follows:

On the demand side, work and student visa holders being unable to enter the country has reduced the tenant pool by more than 60%. Meanwhile, businesses, especially retailers and hospitality operators, have also been hit by the pandemic. Many local students cannot find suitable casual work, leaving them without sufficient income to rent and further shrinking the tenant pool.

On the supply side, the downturn in short-stay accommodation has prompted many owners to offer their investment apartments as long-term rentals. This includes residential Airbnb apartments and some serviced apartment owners who have cancelled management agreements with hotel operators. The additional supply has worsened market conditions, with many rental properties now offering 1–2 weeks rent-free to attract tenants.

East and South Auckland:

Tenant demand has remained relatively stable. Over the past two months, these areas have largely avoided vacancies or rent affordability problems, with mid-range and lower-rent properties letting steadily.

Two- and three-bedroom properties are the most popular in South Auckland, with high letting rates in the month after lockdown ended. In East Auckland, properties with four or more bedrooms are more popular and have high letting rates.

West Auckland and the North Shore:

Three- and four-bedroom properties dominate these two areas, with mid-priced homes particularly popular.

Established West Auckland suburbs have the highest letting rates, generally attracting applications after two viewings. Three- and four-bedroom homes in established North Shore suburbs are also popular, generally receiving applications after one viewing.

Properties elsewhere in West Auckland and the North Shore, particularly in newer suburbs, take slightly longer to let. This is because rents are higher and most properties have four or more bedrooms.

Central Auckland:

This area has always been sought after, particularly homes in popular school zones. Whether detached houses or townhouses with two, three or more bedrooms, properties priced in line with the market readily find tenants, even immediately after lockdown ended. 

Property condition and marketing are key to bucking the trend

Despite difficult rental market conditions, some properties have bucked the trend, attracting multiple applications, letting quickly and achieving good rents.

For example, a well-maintained, reasonably priced four-bedroom standalone house in Mairangi Bay received 35 applications in its first week on the market. After 3 strong applicants were shortlisted, the landlord quickly selected a preferred tenant.

An apartment on Beach Road in central Auckland had been vacant for four or five weeks before being transferred to our company. After we advertised it again, it was successfully let on the fourth day of its listing.

These examples show that excellent condition, reasonable pricing and effective marketing are the keys to success.

For tenants, housing is a consumer purchase: within their budget, they want the best value or the best home available. At a given rent, they weigh up the property’s condition, location and nearby transport facilities.

For landlords wanting to let their product — the rental property — more successfully and quickly, condition is the only one of these factors they can change.

Landlords could therefore use vacancies as an opportunity to renovate, particularly to improve the property to meet the healthy homes standards. Key points to consider include:

• For older homes with timber windows, consider replacing window handles and seals to improve draught-proofing;
• Install a heat pump in the living room and ventilation systems in the kitchen and bathrooms to meet healthy homes requirements;
• Consider repainting or replacing carpets to give the home a fresh look and make an immediate impression on tenants;
• If you are not planning a kitchen or bathroom renovation, consider replacing frequently used items in older homes, such as the stove, taps and toilet seat. These targeted improvements can reduce the likelihood of unexpected breakages during normal use;
• Where space allows, add off-street parking, storage or living space, for example by installing a metal shed or building a deck or canopy. These additions can give the property more character and extra features to highlight at viewings.

Once renovations are complete and the property is ready to list, presentation and advertising channels become particularly important.

First, prepare the rental property inside and out. The interior must be clean, tidy and free of clutter, and the garden’s plants and trees should be trimmed.

Second, photographs should be clear and attractive, showing every part of the property. If possible, a video is recommended to provide comprehensive information and help tenants choose when searching and filtering listings online.

Third, use multiple advertising channels. Although Trade Me is the most widely used and popular rental platform, consider advertising on other online and community platforms as well.

Setting the advertised rent also requires care. Online rental listings are grouped by price, and tenants primarily filter by the advertised amount, generally without negotiating. They may simply skip a property if its rent falls outside their budget. Pricing in line with market demand is therefore essential.

Overall, although the pandemic has damaged the economy, housing remains a necessity. While borders are closed, some people may no longer afford their current rental after losing work or experiencing business difficulties. Others with stable or unaffected incomes, unable to move away or spend on overseas travel, may choose to improve their quality of life by moving to a different rental;

If borders reopen, some local residents may move overseas, but more migrants, workers, international students and returning New Zealanders may arrive. The residential rental market can be expected to avoid a major blow, but investors need to tighten their belts and proceed cautiously in the short term.

About the author:

Franklyn Young

Graduated from the University of Auckland with a Bachelor of Property, then worked for several large property companies managing residential properties, commercial properties and bodies corporate.

Currently works as a Business Development and Project Manager at Crockers Property Group.