Rents will rise!

“Rents will rise!” Intone the property investors in the way that one expects from religious fanatics discussing Armageddon. I’m wondering if Mr. Key might need an expert hostage negotiator to talk them back down from the ledge which, for the last few years has been artificially bolstered by easy borrowing and the ability to claim depreciation on assets which have steadily risen in value. The hostage piggies in the middle are the renters and property investors know that because about 38% of the population rents, they’re always going to be the soft flank in any government’s side. Which is why previous governments haven’t had the cojones to go for a capital gains tax or adjust some of the tax benefits for owning rental properties. That a National government should do so – astounds me. If they go ahead with it I’ll have to eat not only my hat but three pairs of thermal undies and a pair of old work boots. Note to self: Stop making ridiculous bets while under the influence of alcohol.

Vice President of the Property Investors Federation Andrew King said recently that house prices were sure to drop. He said it like it was a bad thing. However those young (and not so young – forced out by the combination of high student debt, high rents and living costs and low wages) families desperate to get into their first home know one thing; a place to call your own is the first real starting point in owning your own life.

While the rental property investors claim it costs $6k more a year to own than rent, anyone renting knows that they may have to leave their home with only 6 weeks notice. Anyone renting a house that gets put up for sale will fail to feel the love or the economic savings as the phrase ‘open home’ becomes more like ‘open zoo’ and they are the main exhibits. The implications for families renting at the lower end of the property market where houses are routinely put up for sale can be horrendous. Tenancies ending in 2002 were of an average duration of 15 months, of those 33% ended in 6 months and 13% in less than 3 months. I know of one family in Auckland who had to move house 4 times last year because investors were bailing from their lower end rental portfolios. There is the expense but also the disruption to schooling to consider. If we really want to look at issues such as academic failure we may want to look further than just achievement standards and worry more about things like truancy which is often a direct result of being a member of a highly transient family. Housing New Zealand is increasingly looking to private property investors to provide NZ’s State Housing offering a 5 year ‘guaranteed rent’ leasing agreement with private property investors. The costs of maintenance for those properties is then, in many cases picked up by the tax payer thereby taking the remainder of the risk out of the ‘business’ of people farming. Let’s face it – owning rental properties doesn’t create jobs or any long term economic viability – surely there are more creative things to be done with all that investment energy than just buying houses. For some entertaining reading on some future prospects for housing in New Zealand I suggest looking at Housing New Zealand’s website and click on ‘Future Scenarios for Social and Affordable Housing’ from a year ago. My favourite scenario is where gangs initially dominate and control the housing market but ‘eventually become a positive force and get elected to Parliament’. I think someone just made that up to annoy Micheal Laws. However there are some intriguing land ownership implications in the last scenario where ‘all New Zealanders unite under a Kotahitanga flag’. Particularly interesting given the recent discussions around Waitangi Day. Long term, if I were a residential property investor, instead of threatening rent hikes I’d be less worried about a capital gains tax and more concerned about New Zealand going the way of some South American countries where renters just decided they’d had enough – stopped paying the rent and simply stayed. In Bolivia at least, they then elected the leader of the ‘squatters rights’ movement as the new President. Last I heard he’s still there.

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