Struggling business owner urges Government to introduce rent hike caps after 'ludicrous' 25 percent increase

A struggling small-town New Zealand business owner is urging the Government to introduce rent hike caps after her landlord pushed rent up by 25 percent.

Sandra* had been paying the same rent on her two-bedroom property in the central North Island for four years until February 2021. Then her landlord, who doesn't live in New Zealand, paid for a rental appraisal of the property and her $300 a week rent suddenly surged to $375.

It's an extra cost Sandra can't afford.

"This is my home," she explained. "It's ludicrous to me under the circumstances.

"I want to go out and just do the garden outside and I'm like 'oh, I can't go and buy plants'. I don't go to do the social stuff, I have to think 'can I [afford a] coffee?'

"It's made a big difference. It's $150 [more] a fortnight - I didn't have it in the first place... that's huge for one person."

The rent increase has come at a poor time for sole trader Sandra, who already has to pay rent for the premises leased by her business, which is floundering in the face of the economic havoc wrought by the COVID-19 pandemic.

"My business is nowhere near back to where it was," she said. "People haven't got the money to spend, you know; they're nervous and pulling back on what they're doing - it's not the same at all."

While New Zealand's rapidly escalating house prices have got the headlines, the rental market has also been heating up over the last year.
While New Zealand's rapidly escalating house prices have got the headlines, the rental market has also been heating up over the last year. Photo credit: Getty

She worries the combined financial stresses of her business and increased rent means she may get to a point she may have to vacate her home. Even if she does, though, she worries the lack of rental supply would make finding somewhere else an impossibility.

"There's nothing out there. One of my clients who couldn't sell their home says they have desperate people banging on the door to rent it."

Housing changes follow surge in rental prices

While New Zealand's rapidly escalating house prices have got the headlines, the rental market has also been heating up over the last year. Central and lower parts of the North Island, where Sandra lives, have experienced some of the country's largest surges in this period.

Trade Me's February data shows every region across New Zealand has seen an increase in weekly rent compared to the same time last year, with a massive 15.8 percent jump recorded in Manawatu/Whanganui. Hawke's Bay was hot on its heels at 15.2 percent, with Taranaki prices lifting 12.5 percent.

The average rental price nationwide increased by 1.9 percent to $530 per week, with rental price growth slow in New Zealand's cities.

The new rental data arrived on the same day the Government announced a raft of changes to housing rules last month in an effort to favour first-home buyers, who have been priced out of the property market.

The changes, which also saw the bright-line test extended to 10 years and interest deductibility axed, was met with anger from property investors who threatened to increase rents to cover the losses they'd make.

But Sandra's rent hike came before the changes were announced - and she worries they will just give landlords like hers the opportunity to lift them again.

While the current legislation prohibits landlords from increasing rent during the first 12 months of the tenancy, and from instituting more than one rent hike per year, landlords can increase rent by however much they like.

Tenants unable to afford the increased rent can apply to the Tenancy Tribunal, which can make an order for the rent to be reduced - but only if the rent is found to be significantly higher than that of similar properties in the area.

'We can never get out of the renting cycle'

Sandra believes the Government needs to recognise New Zealand's housing crisis goes beyond just those wanting to get on the property ladder.

"It's not just about people who are trying to buy [houses], and can't," she said.

"There are also those of us who are struggling to rent and of course are paying the mortgages, big-time, of other people - and can never get out of that cycle."

She wants the Government to step in and help renters in the same way it has with first-home buyers, by introducing a rental cap that would put a stop to sudden large hikes in price.

Finance Minister Grant Robertson told Newshub Nation last month rent hike caps aren't on the agenda, because he didn't think landlords would follow through on their threats to bump up rents.

"We're certainly hearing a lot of rhetoric about that at the moment," he said.

Finance Minister Grant Robertson hasn't ruled out caps on rental increases.
Finance Minister Grant Robertson hasn't ruled out caps on rental increases. Photo credit: Newshub Nation

"But I know, actually, that a lot of the landlords that people talk about, the people who've got one property that's perhaps for their retirement, they actually don't do big rent increases. They look after the tenants…

"What I would say is that under the Tenancy Tribunal rules, if rent rises are above the market rate, then that can be challenged. And if people do start behaving that way, then that may well be."

If landlords prove him wrong and rents do markedly increase, however, Robertson says the Government hasn't ruled rent increase caps out and would "keep an eye on what happens".

If the Government did introduce a cap, it'd be highly contested by other parties. National leader Judith Collins said they've proven to be an "absolute disaster" in the past and led to "massive shortages of rental properties".

ACT, too, would oppose the move, with deputy leader Brooke van Velden criticising Robertson's refusal to rule it out as fuelling "a rocket of uncertainty".

Legal expert David Grinlinton, a professor of Law at The University of Auckland, warned caps could cause landlords to sell up, further reducing the availability of rental properties in New Zealand.

"The veracity of these claims remains to be seen, but there is a risk that introducing rent caps may well have unintended consequences," Grinlinton told Newshub. 

"On the other hand, it could be argued that landlords have had a 'windfall' in recent times due to the increasing levels of rent they can demand, and they should not be too concerned if their ability to increase rent is limited to some measure."

*Sandra is not her real name.