Little thinks increased costs don’t get passed on

May 8th, 2016 at 7:00 am by David Farrar

Newshub reports:

Andrew Little says it’ll only be “greedy landlords” who hike rents on the back of his proposed Bill to insulate and warm homes.

This reflects the mentality of someone who has never run a business. Like many unionists Andrew seems to think that it doesn’t matter if costs go up, as owners can wear it and won’t increase their charges.

The history of the world is against this. Economics 101 is that if costs increase, charges increase.

But Mr Little rejected suggestions the new requirements would lead to an increase in rents, saying landlords will have plenty of time to absorb the cost.

“That in my view, is a cost landlords will be able to bear over that time, given the increasing value the property will enjoy over that period.

“This does not need to lead to hikes in rents, and only greedy landlords will be seeking to hike rents for this reason.”

Again Little doesn’t understand cashflow.

Sure your property may increase in value, but that doesn’t give landlords any cash. They need income from their properties to pay the mortgage, pay rates, repairs, maintenance etc.

If you force landlords to spend $5,000 more on a property, then that cash needs to come from somewhere.

Free up the land

July 1st, 2012 at 9:01 am by David Farrar

The HoS reports:

Forty per cent of landlords have increased their rents in the past six months, and many by up to 10 per cent, a survey shows.

The survey, run by and Mike Pero Mortgages, found 26.2 per cent of the 614 investors surveyed who had increased their rent had done so by 6-10 per cent.

Another 42.5 per cent of those who had increased rents had done so by up to 5 per cent.

Sixty per cent had increased rents in the past year. …

He said a supply-and-demand equation was pushing up rents. A shortage of housing stock was prompting competition for rentals, which in turn made rents rise.

The only sustainable solution is to free up more land, increasing supply, which will reduce prices.

89 properties on Trade Me

June 6th, 2012 at 11:00 am by David Farrar

Stuff reports:

A 40-year-old solo mother has returned to prostitution to offset an “unaffordable” rent rise.

The domestic purposes beneficiary, who wanted to be known only as Sarah, was not proud of her lifestyle but wanted the public to know “people have had to go to extreme lengths to survive” Christchurch’s rental housing drought.

Sarah has had an $80 rent increase over the past year and said it was “beyond affordability”. …

Sarah, who has been house hunting for the past six months, said the Government needed to intervene.

One rental she viewed had no hot water and the landlord told her she could shower her children at Jellie Park, while other open homes had left her disheartened when people started offering more money than that advertised.

“Landlords are taking advantage of the situation and are increasing the rent just for the sake of it,” she said.

Sarah receives $660 on the domestic purposes benefit each week, and in September her rent will increase to $440.

The rise will leave her with $220 a week to pay for power, basic bills and food.

A rent freeze is a very bad idea. Christchurch needs more residential properties, and a rent freeze would deter investment in new properties. But turning specifically to this case highlighted, a search on Trade Me found 89 properties for rent in Christchurch for $350 a week or less – and all 3 bedrooms or more.

The distribution of Christchurch 3 bedroom+ rental properties in Christchurch is:

  • Up to $250/w – 7
  • Up to $300/w – 26
  • Up to $350/w – 89
  • Up to $400/w – 209

If one extends this to 2 bedroom+ properties (noting both kids are at primary school), you get:

  • Up to $250/w – 33
  • Up to $300/w – 113
  • Up to $350/w – 234
  • Up to $400/w – 389

So let’s be very clear on this. Her current rent is $360 a week – and there are 89 properties listed (just at this point in time) which have three or more bedrooms and are cheaper than $360 a week. And if you include two bedroom properties, then there are 234 properties listed.

Wouldn’t this be a pertinent fact in reporting the story.

Labour calls for Muldoon rent freeze in Christchurch

April 14th, 2012 at 8:58 am by David Farrar

The Press reports:

Dalziel said the housing shortage had hit breaking point and was rapidly snowballing into an “extreme crisis”.

“The Government has to intervene. It has the most extensive powers that any government has had since wartime,” she said.

“Gerry Brownlee is like Pontius Pilate by just washing his hands of all this.”

She said there needed to be a cap on rent increases to stop landlords taking advantage of quake-hit residents. 

Oh yes a rent freeze. That worked so well last time. Let’s look at the problem:

Recently disclosed Trade Me figures show demand for rental properties in Christchurch has increased 42 per cent, supply has dived 40 per cent and rent has climbed 15 per cent on last year.

Okay so supply has dived 40%, and Labour’s solution is a rent freeze. Now can anyone who has studied economics beyond primary school tell Lianne what the problem with her proposed rent freeze is?

The Government would not intervene in the issue, he [Brownlee] said.

“A rent freeze doesn’t increase supply and will never encourage new stock to come in. We won’t be moving to regulate rents but we most certainly are actively providing new housing.”

He “recognised there was a problem a couple of weeks ago”, but criticism that the Government had ignored the city’s housing crisis was “unfair”.

“Political opponents have raised issues, not solutions. The Government is taking action and we have outlined our plan of attack many times.”

Land on the outskirts of the city had been freed for potential subdivisions, more rapid consenting processes were being discussed, temporary accommodation services and assistance packages were available, housing villages were expanding and he had asked Housing New Zealand and the Christchurch City Council to accelerate repairs on quake-damaged homes, he said.

I await Labour also announcing a price freeze as their new inflation policy.

Auckland rents

March 15th, 2012 at 12:32 pm by David Farrar

Isaac Davidson at NZ Herald reports:

Auckland tenants are furious some landlords are taking advantage of the housing shortage by raising the weekly rent, sometimes as much as 40 per cent.

But property managers say the practice is rare and the high market rent is driven mostly by tenants who will pay anything for a place to live.

They should blame the politicians who are restricting the supply of land. If demand is growing and the supply is near static, of course prices will keep rising.

The unasked question

March 7th, 2010 at 12:02 pm by David Farrar

The Weekend Herald ran this story:

Pat Baker, a $10 million landlady and grandmother, is bristling about being blamed for wrecking the economy.

The Whangaparaoa retiree owns 53 Hamilton houses, bringing in about $700,000 a year in rent.

Yet she feels persecuted for providing so richly for her retirement after Government moves this month to axe housing’s tax shelter status.

“My husband and I worked hard,” she says

“We never had highly-paid jobs but we did have good opportunities to improve our situation. We saved and invested in something tangible which everyone needs.

“Now I am a 73-year-old widow. I manage very well. I am not a poor old-age pensioner because I took steps when I was younger to invest and accumulate wealth.

“But now property investors are maligned in the media. That’s not fair.

First of all one has to say congratulations to Pat Baker. I think it is commendable she has worked so hard to save for her retirement. I wish more people would do so, rather than reply on the state. I have no criticism of Pat Baker’s drive to do well and be well off, indeed rich.

But this is a debate over whether our tax policy is fair, and I am amazed the Herald did not ask the logical question. Of the $10 million of housing that generates $700,000 a year in rent, how much income tax did you pay on that income last year?

It is quite possible that no income tax was paid, as interest on some of the 53 properties was greater than the $700,000 of rental income.

It really is a shame the Herald did not ask the question, because the article is somewhat pointless without it.

Hat Tip: Dim-Post

13 hectares of more bureaucrats

October 1st, 2008 at 12:00 pm by David Farrar

Gerry Brownlee has put out a PR about the space taken up by the pulic service in Wellington. This has had a massive impact on office rentals for the private sector. People like Bob Jones have made scores or hundreds of millions of dollars under Labour in Wellington, because of the massive increase. Small and medium businesses have struggled due to the cost of office space.

In the past five years Labour has overseen an increase in the amount of extra floor space leased for bureaucrats in central Wellington equivalent to almost four Te Papas, says National’s State Services spokesman, Gerry Brownlee.

“How can people have faith and trust in Labour’s stewardship of the public service when it has overseen an increase in the amount of extra floor space leased for bureaucrats in the past five years that equates to an additional 13.2 hectares?”

That is a lot of space!

“Meanwhile, Bayleys Real Estate estimates that the government sector now occupies almost 40% of the total commercial space in the Wellington CBD, and says the ‘surge’ of floor uptake involves ‘quite staggering numbers’.”

Gerry included a table of agencies and office space from 1999 to 2008. During that time the amount of office space has increased from 252,000 square metres to 446,000 – a 77% increase.

Some of the largest increases:

  1. Human Rights Commission up 178%
  2. Commerce Commission up 176%
  3. Education Ministry up 155%
  4. Social Development Ministry up 122%
  5. Transport up 117%
  6. Environment Ministry up 110%

In absolute terms the IRD has grown by 25,000 square metres, Education Ministry by 13,000 square metres, Labour Department by almost 7,000 square metres, ACC by 6,000 square metres, NZQA by 5,000 square metres, Justice Ministry by 5,000 square metres.

Congratulations to Treasury who reduced their office space by 2,000 square metres or 18%.

Renting vs Buying

July 23rd, 2008 at 4:52 pm by David Farrar

Steve Pierson at The Standard takes issue with the statements from the Property Investors’ Federation that it is better to rent than buy. He notes:

First, it’s comparing the average rent to the cost of buying a median house. Rental properties tend to be lower quality, cheaper – so are likely on average to be worth well below the national median. Comparing apples with apples would look at the rent on properties of the same value.

This is a fair point. However would be useful to have some data on the average GV of rental properties compared to properties for sale to see how significant this is.

Secondly and most importantly, if you’re buying the house at the end of 25 years, you own a house. If you rent, at the end of 25 years you have nothing. That’s a pretty serious difference. If you buy rather than rent you might pay some more (less than the difference in the graphic though) but you end up with an asset in the end.

Now this is absolutely key. It is why I purchased back in 2001 – even though mortgage payments were way more than my old rental payments.

However does this asset compensate for the extra costs? Let us look at the graphic referred to:

Now I have not got the time to calculate inflation and interest adjustments so am going to do a simple linear calculation.  Over 25 years you will pay a total of $396,500 if you rent and $968,500 if you buy. So that extra $572,050 you pay renting is well in excess of the $345,000 value of the house.

Now again interest, inflation and changing house values will affect this equation. But the point is that the gap between buying and renting is now large enough to make buying significantly less attractive.

I am so glad I purchased in 2001. If I had waited a few more years, I would really struggle with being able to afford to buy.

Wellington office rents

June 11th, 2008 at 9:03 am by David Farrar

Bernard Hickey has a blog post on how office rentals in Wellington have increased by 14% in the last year. This is around four times the rate of inflation and well above the rate of increase in Auckland. Why?

[Wellington] office vacancy rates are around historic lows. Encouragingly, vacancies are low across the board with the prime and secondary vacancy rate at 1.4% and 3.5%, although some low quality buildings are struggling to find new tenants after being vacated by large government occupiers.

Bernard explains this means they are going from $197 a square metre buildings into $330 a square metre ones.

This is not a one off either, rents have gone up a staggering 66% in the last five years. Why? Because of the massive growth in the public service.

There are few people who qualify better for the label rich prick, than Wellington commercial property owners. And one of them told me a few months ago that since Labour came to power he had made $400 million just in Wellington.  Yes $400 million. He said it was almost enough to make him vote Labour!

The sad thing is these massive profits have not just come from the taxpayer, but all business owners in Wellington are getting clobbered as rentals keep increasing.

I suspect there is also a flow on effect to the costs of residential tenancies in the inner city as property owners can convert from business to residential and vice versa.