New law forces landlords to give rent discounts to wife beaters. NZ’s positive economic outlook. And more in property news this week…
Our aim is to glean the important economic and property insights affecting investors from the torrent of information filling the newsfeeds each week so you don’t have to. We then present them in digestible snack form so you can update yourself over morning tea.
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Now, read on and enjoy your economic and property news this week.
In property news this week…
- New law forces landlords to give rent discounts to wife beaters.
- The war on landlords continues.
- Interest rates forecast.
- Investors vs first-home buyers vs movers.
- CoreLogic on the year ahead.
- NZ’s positive economic outlook for 2021.
- More public housing won’t ‘fix’ the housing crisis.
- Notre-Dame’s bees keep buzzing through crises.
New law forces landlords to give rent discounts to wife beaters
“It’s one thing for the government to legislate for the protection of tenants from rogue landlords, but the provisions that are now being enacted represent the thin end of an alarming wedge,” writes Peter Jackson in the Northland Age.
“One change that will come into effect on August 11 crosses a line that should be sparking outrage, in that the owners of private property will be required, by law, to subsidise those to whom they rent houses.
“From that date, a tenant who is the victim of family violence will be able to leave their tenancy with two days’ notice, providing they can offer evidence of the abuse. They will not be required to pay rent for those two weeks, and the remaining tenant/s will have their rent reduced proportionately until they come back.”
COMMENT: We can confirm that Jackson is largely correct. The new family violence provision contained in the Residential Tenancies Amendment Act 2020 is well intentioned but totally out of line in the way it forces private landlords to pick up the social welfare cost of family violence. This is a cost more appropriately borne by central government.
Let’s consider the common scenario of a couple who are both named on the rental agreement.
The perpetrator of domestic violence is more often the male partner, so under this scenario the female partner may leave the tenancy with two days notice to the landlord by simply providing a family violence withdrawal notice.
After the two-day notice period the victim is not liable for any further rent. The wife beater will continue to pay rent, but at a reduced rate for a two-week period, proportional to the number of named tenants remaining.
In this case, one person has gone and one remains, which means the wife beater gets a 50% rent discount for the next two weeks.
Where the wife beater is the sole income earner, he effectively receives a financial incentive from the landlord, mandated by Government, for abusing his partner. Is that fair?
The war on landlords continues
The Residential Tenancies Amendment Act 2020 introduced reforms in three phases. Phase 1 took effect immediately upon the Act passing into law on 12 August 2020. On that date…
- Transitional and emergency housing funded by the government became exempt from the Residential Tenancies Act.
- Rent increases were limited to once every 12 months instead of once every 6 months. (With the inevitable result being one BIG increase every year instead of smaller increases at 6-monthly intervals.)
Phase 2 takes effect on 11 February 2021. From that date…
- 90-day no-cause terminations banned. Landlords will not be able to end a periodic tenancy without cause. Tenancies can only be terminated for a small number of highly specific reasons listed in the legislation.
- Fixed-term tenancies will convert to periodic tenancies at the end of the fixed term unless both parties agree otherwise, the tenant gives a 28-day notice, or the landlord gives notice for a permissible reason (see first point).
- Making minor changes. Tenants can ask to make changes to the property and landlords must not decline if the change is minor.
- Prohibitions on rental bidding. Rental properties cannot be advertised without a rental price listed, and landlords cannot invite or encourage tenants to bid on the rental (pay more than the advertised rent amount).
- Fibre broadband. Tenants can request to install fibre broadband, and landlords must agree if it can be installed at no cost to them, unless specific exemptions apply.
- Privacy. A suppression order can remove names and identifying details from published Tenancy Tribunal decisions if a party who has applied for a suppression order is wholly or substantially successful, or if this is in the interests of the parties and the public interest.
- Assignment of tenancies. All requests to assign a tenancy must be considered. Landlords cannot decline unreasonably. If a residential tenancy agreement prohibits assignment, it is of no effect.
- Landlord records. Not providing a tenancy agreement in writing will be an unlawful act and landlords will need to retain and provide new types of information.
Phase 3 takes effect on 11 August 2021. From that date…
- Family violence. Tenants who experience family violence will be able to withdraw from a tenancy without financial penalty by giving two days’ notice and evidence of the family violence. If they are the only tenant, the tenancy will end. If they are not the only tenant, the remaining tenants will have their rent reduced proportionately for two weeks, after which it goes back up. Remaining tenants cannot be evicted unless it is for a permissible reason (see “90-day no-cause terminations banned” above.)
- Physical assault. A landlord will be able to issue a 14-day notice to terminate the tenancy if the tenant has assaulted the landlord, the owner, a member of their family, or the landlord’s agent, AND the Police have laid a charge against the tenant in respect of the assault.
COMMENT: It is little wonder that many investors are selling off their rental properties and investing into funds and other passive investments that don’t carry such stress and uncertainty.
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Interest rates forecast
We updated our NZ Interest Rates Forecast page today and have noted only small changes in recent times.
Fixed term mortgage rates continue to edge lower. In the last week ANZ, ASB, BNZ, Kiwibank and TSB have all made slight cuts to their 1-year, 2-year or 3-year fixed rates.
Term deposit rates continue to edge down with ANZ cutting its 12-month rate from 0.85% to 0.80%. All the other major banks we track remain unchanged in a narrow band between 0.75% (ASB) and 0.9% (Kiwibank), where they have been since early December.
We remain of the view that we are at or near the bottom of the cycle and that interest rates will remain at historically low levels until at least 2022, when they might begin to slowly creep upwards.
Investors vs first-home buyers vs movers
Tony Alexander reported yesterday on CoreLogic data released last week. The data reveals that during the December quarter 23% of property sales went to first-home buyers, down from 25% in the September quarter.
First-home buyer activity has been trending up since 2014, but appears to be settling into a new plateau at around current levels, says Alexander.
“Many young people will have bought properties because previous plans to travel offshore have had to be shelved. Their planned purchases for 2022, 2023, and 2024 have already happened.”
Alexander says their absence will now naturally reduce the proportion of sales to first-home buyers over the next 3 or 4 years.
Existing homeowners (“movers”) remain a core market participant, accounting for 26% of property sales.
The proportion of sales going to people with multiple properties and having a mortgage on the property (mainly investors but maybe some holiday home buyers) was 27%.
There are arguments suggesting sales to investors will fall, according to Alexander…
- Increasing power being given to tenants with more likely to come.
- A higher proportion of house sales will be for new-builds and investors have in the past tended more toward existing houses they can do up.
- A generalised move by banks towards a minimum 40% deposit requirement for investors is likely.
- Investors have made good capital gains and some will likely be looking to cash out.
But there are other factors suggesting investors will continue to account for a high percentage of sales…
- Interest rates are set to remain low for a number of years.
- There is an increase in build-to-rent activity offering investors an easier route into investment exposure to residential property.
- Anticipation of the return of international visitors and students over 2022 will encourage people to purchase properties for AirBnB purposes and letting to students.
- And the previously mentioned fact that first-home buyers’ share will naturally decrease now that many have bought much earlier than they originally intended.
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CoreLogic on the year ahead
CoreLogic’s report titled “Best of the Best 2020: 2020 in review and what 2021 might have in store” contains a nice overview of how they see 2021 panning out.
The year ahead
“It’s fascinating how quickly the property market has become political in recent weeks.”
CoreLogic says that although the Finance Minister’s pressure on the Reserve Bank Governor may not drive immediate change to the RBNZ’s official policy targets, “it does demonstrate that it might not be plain sailing for the property market in terms of regulatory measures in 2021.”
“Indeed, there’s already speculation emerging about an extension to the Brightline Test (a capital gains tax that currently applies if an investor sells a property within five years), while debt-to-income ratios for new mortgage lending are also rearing their head too.
“Meanwhile, the reinstatement of the LVR speed limits on 1st March seems to be a done deal, with the banks having already made the move anyway. This won’t affect owner-occupiers too much (they’ll just continue to require 20%), but some investors could be frozen out by now having to find a 30% deposit rather than 20%.”
CoreLogic also notes that pushing investor deposit requirements back up to 40% doesn’t seem to be on the table at present, but if it did the impact would be more significant.
[Investors are an easy target for a left-of-centre government, so we think the odds are in favour of this happening. -Ed]
There were concerns about how the end of the wage subsidy and mortgage deferrals might affect the property market. However, CoreLogic notes that “the wage subsidy has already ended without any real fuss, and although the unemployment rate has risen to 5.3%, the peak could now be less than 6.5% – a far cry from lockdown forecasts that it could reach 10%.
“Similarly, after peaking at more than $22 billion in May, the value of mortgages with a deferral in place has already dropped markedly to less than $4 billion.”
“Overall, provided COVID continues to be managed successfully, it’s hard to see the property market being seriously thrown off its current course in 2021.”
Housing (un-)affordability will remain an issue between the ‘haves’ and ‘have-nots’, says CoreLogic, but they see the key drivers for the market in 2020 remaining in place in 2021, particularly low mortgage rates and a tight supply of listings.
Their central assumption is that property sales volumes in 2021 will be similar to 2020 (in the range of 85,000-90,000), as low mortgage rates support activity but low migration flows provide a dampening effect.
For property values, they see the likelihood of another 5-10% increase this year.
CoreLogic’s report contains detailed suburb-by-suburb data for six cities throughout New Zealand. Follow the link to grab your copy…
NZ’s positive economic outlook for 2021
Despite global uncertainty, NZ should have a positive economic outlook for 2021 writes Stuart Williams, head of equities at Nikko AM NZ, in a Stuff opinion piece.
“As we enter 2021, and the Covid-19 fire continues to burn dangerously around the globe, it’s important to remind ourselves that, even as our asset markets make hay under a shining sun, the cinders of 2020 still smoulder here too.
“Economically New Zealand has done better than anyone could have hoped for – materially better than the most fear-filled expectations to this point. But if I could choose a font in which to predict what 2021 has in store for us economically, it would still be ‘new times uncertain’.”
“With the caveat that I write this at a point in ever-changing times, and with a weather eye on a gradual move in global interest rates, my own outlook for 2021 is a positive one.
“New Zealand’s position of economic strength is built on firm foundations: a fair system of taxation and welfare that has been maintained by successive centrist governments; companies that care about their stakeholders; a society that is cohesive on the big issues; and our ability to provide products needed by the rest of the world from a position of geographic isolation.”
“As we look ahead, there are a number of factors beyond the low interest rates that continue to make dividend-paying companies [and industrial property funds -Ed] look attractive to investors, that point to sustainable share market growth through 2021 and beyond.”
Williams says New Zealand’s renewable energy generation “is in line with the strong global appreciation for clean energy and remains subject to intense investor interest.”
In summary, Williams acknowledges the risks but maintains a glass half full outlook. He notes that despite incredible global uncertainty, the NZX is up 14.6% on this time last year and our listed companies are ethically robust and well led.
“During uncertain times when we draw strength from the resolve of the human spirit, this can only bode well for 2021 and 2022.”
More public housing won’t ‘fix’ the housing crisis
Boosting public housing stock might address the growing numbers on the waitlist but it won’t “fix” the housing crisis, experts warn.
The Government has unveiled where it plans to build the 8,000 new public and transitional homes it promised in the last Budget with the release of its public housing plan on Thursday.
With a record high of nearly 22,500 eligible households now on the waitlist for public housing, alongside escalating house prices and rents, the Government is under pressure to address the housing crisis.
But property commentator Ashley Church said the housing crisis was usually defined in two ways – one being housing affordability and the other a shortage of housing supply.
The Government had now added public housing into the mix and, given the exploding wait list and the failure of Kiwibuild, that seemed reasonable, he said.
“But it won’t help with the affordability of the housing market generally. You need to build more properties for people to buy to do that.”
National’s housing spokeswoman Nicola Willis said, “For many Kiwis, joining the queue at MSD to apply for emergency housing isn’t the answer they’re looking for. We need to drastically increase our housing stock by making it easier for everyone to build houses in this country, not just the Government.”
For Willis, the number one solution to fixing the housing emergency would be the repeal and replacement of the Resource Management Act (RMA).
Property experts have long agreed the best way to address the housing crisis is by increasing housing supply of all types and that making it easier to build is the way to go about doing so.
And finally, in not-property news this week something too good not to share…
Notre-Dame’s bees keep buzzing through crises
When fire ravaged Paris’s Notre-Dame cathedral last year, many presumed that the three colonies of bees living on its sacristy roof had perished. But against all odds, the bees survived the inferno and continued to thrive through the coronavirus lockdown.
“There’s nothing wrong with them at all,” reports beekeeper Sibyle Moulin, who looks after some 30-45,000 insects in the three hives. “The behaviour of the colonies is perfectly normal.”
The beehives are just 30 metres below Notre-Dame’s main roof but were untouched by the flames.
“The mystery remains,” says Moulin. “All that smoke, heat, water…”
She kept visiting the bees through the coronavirus crisis. As humans stressed over COVID-19, Moulin reported that the bees were “completely unbothered”. The Guardian
That’s it for this week, thanks for hanging in there.
Cheers, Brandon 🙂
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