Landlords make a comeback

JAN CORBETT looks at the reasons for the desperate scramble to rent houses in the inner suburbs of Auckland.

Right now, this Saturday morning, as you sit down with your tea and toast for a leisurely browse through this section B of the newspaper, there is a frenzy going on that started back in either section C or D. If you have time to read this, you're probably not involved in it.

It will have started before dawn, moments after the Weekend Herald was thrust into the letterbox or dropped outside the dairy.

The increasingly desperate will have flicked immediately to the classifieds, to scour the columns of flats and houses to let. They will scribble furiously alongside any advertisement that sounds promising, before reaching for the telephone, hesitating only for a moment over how early you can reasonably get landlords out of bed.

Landlords say the phone starts ringing about 7.30 am. One whom the Weekend Herald spoke to ran an advertisement last Saturday for a three-bedroom, two-bathroom property in Mt Eden, with carport, for $400 a week, including water charges.

He has let it before but never got anywhere near the interest he had this time. His partner let a house in Meadowbank the same day, getting more in rent than she had asked for.

Rebecca, a 29-year-old professional, knows what it is like on the tenant's side. Already flatting with four other adults - two couples and a single - they have to move flat because the landlord wants the house back. They are prepared to pay up to $600 a week for a house in central Auckland. They arrive at open homes to find 20 to 30 people waiting to view the property. "There'll be people on the lawn, already offering to pay $100 more." They are getting to know one another - at least by sight.

PhD student Charis Shepherd found out the hard way after six weeks of looking for a house for four flatmates: you had to offer more money or lose out.

When she started looking in January, the market was quieter. "As the summer wore on it got worse and worse. There would be 50 to 60 people who would turn up to view."

They are looking in Ponsonby and Grey Lynn and "really wanted Mt Eden". But apart from one and two-bedroom places there were very few houses advertised for rent in these suburbs where student flatters were once dominant.

They were forced further out, and have just signed a lease in Mt Albert - for a house where the landlord fielded close to 100 calls.

"Because we'd been in the game quite a while we knew what to do. We handed him references and said we'd negotiate.We're paying him $55 a week over what he advertised." That brings the rent for four bedrooms to $440 a week.

"It's never been quite this crazy," says Shepherd. "A lot of my friends still don't have anywhere to live."

Not so long ago landlords were at the mercy of tenants who could brazenly ask for rent reductions or go elsewhere. Suddenly property owners are powerful again. Landlords, in all their terrifying glory, are on the comeback trail.

So why are they suddenly so emboldened?

Like anything to do with property and investment trends, there is no one simple answer.

As David Lindsey, a strategic analyst with the ARC, found out last year when he studied housing supply and demand in Auckland, there is no longer any such thing as a mass housing market or even sub-markets. Instead there's a whole lot going on.

For starters, there are more of us, driving up the demand for housing nationwide.

Figures released by Statistics New Zealand on Wednesday show we gained 9700 more people last year. The number who left permanently fell for the first time in eight years. The number of New Zealanders returning permanently was up 13 per cent on the previous year (total 2700) while the number of new immigrants is up by 36 per cent.

Population increase plus low mortgage rates has meant more demand for houses. Sales are up, even if prices are not. The latest Real Estate Institute sales figures for January, traditionally a quiet month, showed nationwide sales close to 2000 up on the previous January. The increase in Auckland was close to 800.

Population-driven demand drives the ownership and rental markets in tandem.

But it's not the only driver. Andrew King, editor of Residential Property Investor, a magazine for landlords, thinks the demand from tenants is up because it's more affordable. Rents may be booming in the central suburbs at the moment but that is a recent phenomenon.

Think about Charis Shepherd's rent of $440 a week for a four-bedroom house. That is roughly what rents were in the late 1980s and early 1990s. Clearly rents have not risen much in the decade, while incomes have. That means young adults who were living at home longer to save money are now more likely to go flatting sooner.

King has noticed falling unemployment rates mean people at the lower end can spend more on their accommodation. Those who were earning extra income by renting out the spare bedroom are asking the boarder to leave - increasing the number of renters and decreasing the number of rented rooms. The other thing that Charis Shepherd noticed was the paucity of houses available to rent.

Gentrification is partly responsible. But King also blames the sustained campaign by the managed funds industry, warning investors off rental properties in favour of, you guessed it, managed funds. Even Reserve Bank governor Don Brash is famously opposed to property investment. And because rents were static, even fell during the 1990s, landlords did bail out.

While the number of dwellings in the Auckland region and Auckland city has increased faster than the population, we are demanding more space to live in, as the ARC's David Lindsey found.

Not only does the rise of home computer technology and home offices create demand for more bedrooms to use as offices, but older people are defying predictions that they would move out of their large family homes in favour of a retirement unit. The grandparents like their big houses.

At the other end of the age scale, young adults are postponing marriage and children and the responsibilities of home ownership. Groups of unrelated adults living together, like Rebecca and her flatmates, have become one of the fastest-growing demographic sectors, according to Lindsey. And these are people who will to pay to maintain their lifestyles and their freedom.

Surprisingly we can no longer claim to be a nation of home-owners. According to Massey University's Real Estate Analysis Unit, in 1986 we led the world at home ownership. Now, at just under 70 per cent, we barely make it into the top 10. At 90 per cent, Singapore heads the ranks of home-owners.

How much avoiding home ownership is a choice, and how much is because a growing number cannot afford a deposit, is unmeasured. But the real estate analysis believes the latter accounts for most renters.

In lower socio-economic suburbs such as Otahuhu, it is increasingly difficult to find three-bedroom houses to rent, but easier in the one to two-bedroom market.

Tracey Preston, of real estate agents Barfoot and Thompson, has been renting out properties in Ponsonby for six years. She says the number of investment properties she manages has increased in that time. So has the demand, but the nature of that demand has changed.

Student flatters are being forced out by professionals who will pay more to be near the cafe lifestyle and away from Auckland's commuter hassles. She is letting places in Ponsonby to business couples from Remuera.

Once the student-driven boom at the beginning of the academic year would tail off, now the demand is buoyant all year.

Ponsonby landlords tend to be young professional couples living overseas. But they are coming back, renovating their properties to reach a higher market, and leaving again. They want to keep pace with the market for their eventual return. Ponsonby houses previously let for $300 to $350 a week have been polished up into the $500 to $550 a week market.

With landlords able to demand a bond equivalent to four weeks' rent in advance, you might need a minimum of $2000 just to get your foot in the door. At the Tenants Protection Association, they call that exploitation.

But for professionals who chose to rent rather than own, it's a price they are willing to pay.

Take this case, where he does not want to be identified for reasons that are about to become apparent. He is a real estate agent who does not want to become more deeply entrenched in the property market because he thinks it is still too flat.

(That's another Auckland phenomenon - people who sold their houses as the market fell, in favour of renting in the hope of catching the wave on its way back up.)

He owns two properties on the North Shore which he rents out. Because he does not want to join the motorway crawl each morning, he rents on the city side of the bridge.

He, too, has noticed how the rental market in the inner city has gone crazy in the past 10 to 12 weeks as he joins the hordes on the front lawn.

He will pay up to $600 a week, but out of 30 he has looked at, has seen only one he considers suitable.

Right now he thinks tenants are panicking that they will miss out on a house and are offering to pay too much, and landlords are being short-sighted, taking the biggest payers, who might be transient, over longer-term quality tenants at a lower rent.

Wearing his real-estate agent hat, he says January was the best month he has had for house sales in 16 years in the business, and half of the buyers were looking for investment properties, which probably reflects the lacklustre performance of sharemarket investments.

Ann McDonald, also a Ponsonby-based real estate agent, has noticed in recent months how "investment properties have become sexy again".

This month she sold a five-bedroom plus granny flat property in Grey Lynn, taking offers from people who had yet to see it. Some of the inquiries came from New Zealanders living overseas. At least 50 people arrived for the open home.

The other trend she has noticed is out-of-towners whose children are in Auckland for tertiary education, buying houses for them and their friends to live in, rather than wasting money on rent. Plus they get the income from the friends' rent and if they are lucky, some capital gain.

Trevor Elwin runs Barfoot and Thompson's city rental branch. When the Weekend Herald spoke to him on Thursday afternoon he counted 17 people in the office looking to rent inner-city apartments - all Asian students.

It was only 2.50 pm, their classes were not yet over. He said by 7 pm they would have to herd them out the door to close. .

Elwin says the influx of Asian students has sent rents for inner city apartments skywards with some paying as much as $475 a week for two bedrooms, financed by wealthy families back home.

He says the rental market generally has been rising since last April. Last September his agency raised rents on the properties its manages - the first time they had done a blanket rent rise in 17 years. He saw it as a market adjustment, given rents had dropped between 1998 and 2000.

But he has a warning for landlords who see this recent boom and try racking up the rents out of all proportion. The Asian student market is small, defined and temporary. It could bust.

Try getting those rents out of New Zealand salary earners on the inner-city fringes and they will move out, they simply can't afford them, he says. Elwin does not want to see an out-of-control market provoke political interference, and thinks agents and landlords have a responsibility to keep it sane.

He remembers with a shudder the inflationary 1970s and the government-imposed rent freeze.

Plus he has noticed when you raise the rent unreasonably tenants tend to get resentful, and trash the place.