When I was writing the post about “Rent Increases – Who are the Winners and Losers?”  I came across an article “How much rent can you afford?” written by Amanda Morrall and published in the Herald, honestly it made me speechless. In that article she was saying that rents in New Zealand were 43% over valued.

To take an practical approach, in areas we rent few three bedroom houses with an average house price of 320k tenants paid in average  360 Dollars per week last year. Taking $360pw rent minus 4000.00 Dollars for maintenance, rates and insurance that produced a net yield of 4.7% by a fixed interest rate of 6.2%. If you take 6.2% minus 4.7% equal 1.5% loss on interests, I really ask me where the nonsense figure of 43% over valued rents comes from?

Being fair the writer tried to rectify that factually incorrect statement in a second article but struggled to say anything to clarify. The list of references to all sorts of unrelated articles made me wondering. Error is human I have no problems with that but I really ask me where that type of journalism leads to.

We realize that New Zealand is in the election year, so we don’t speak about the price increase by inflation, increase of insurance premiums because of recent disasters, and of course not the tax changes, the increase of City Council Rates, new Encroachment Fee structure, etc. What do you think who will pay for these additional costs? Of course people who live in houses pay for it, there will be no difference whether the expenses are called “rent” or something else like “homeowner’s maintenance, rates, etc”.

But something concerns me – the housing standards in New Zealand. There are initiatives, but would you invest in house improvements for rentals with zero return?  Let me be more precisely. The rent is regulated by “Market Rents”. If a landlord provides housing above market standards he can’t charge for that if a tenant disagrees. That restriction was accepted by landlords in the past because house improvements were depreciated by 2% (SL) and 3% (DV). Since April 2011 landlords can spend money for all sorts of house improvements like insulation, double glazed windows, decks etc but don’t get anything back from that improvement. So why wondering, when landlords hold back these desirable improvements? That leads to a long damp and freezing winter, I suppose.

Coming back to reality, the housing market is driven by demand and supply and shady journalism won’t increase the supply of housing that New Zealand needs so urgently.

We had recently two vacancies and experienced in the past 10 to 20 applicants. But this time we had to deal with twice as much, good for landlords but very bad for people with urgent needs.

In summary - it is clear to me that in 2011 home owners and property investors will not only be forced to budget by the new taxation rules but also because of potential rate rises later this year and increasing petrol tax after the election. As we know from the recession - societies with lots of small businesses suffer from “domino effects”, so  - guess who will suffer mostly.

Hope I am being very wrong!

Klauster