Rise of landlords adds to rental glut

The rise of ‘‘accidental landlords’’ may be contributing to a rental property glut that is likely to tip the country into a renters’ market, Corelogic head of research Nick Goodall said.

Goodall said the pattern could be read from similar numbers of properties being removed from the market, where total listings were up 77% on a year ago, and concurrent rises in rental stock.

‘‘What that brings is a rise in rental supply, less upward pressure on rents, and potentially downward pressure on rental rates too,’’ he said.

A survey by economist Tony Alexander and property management company Crockers suggests landlords were finding it harder to find good tenants. The report noted landlords no longer on average considered it easy to find good tenants, and trends suggested soon there would be more landlords finding it hard to get good tenants than found it easy.

Alexander said the result was the weakest yet found by the survey, which had been running monthly for about a year. The most recent survey received 342 responses from investors.

With house prices down roughly 6% from their peak before inflation, Goodall said the flow of properties back into the rental market was a predictable occurrence, although it had happened faster than he was expecting.

Goodall said more rentals and lower rent would be good news for tenants and the country was likely on the cusp of, or has just become, a renters’ market. Trade Me data supports this. The site reported more properties listed to rent than ever before and national median rents had fallen 1% year-on-year.

Property managers have also reported having to tell their landlords to adjust their rental expectations, and that they might have to drop rents to retain or attract new tenants.

Goodall said landlords could face challenges as they faced inflation and lower rental income.

He said investors should be doing their finances, and working out whether they could afford to hold on to their rentals if rents fell, especially as they will progressively lose the ability to deduct interest payments from rental earnings for tax purposes over the next few years.

‘‘We are not expecting that short-term capital growth to come back any time soon, so that’s definitely going to make it a much tighter financial position,’’ he said.

Goodall said it was hard to establish whether accidental landlords had bought new homes and failed to sell their old ones, or were simply investors who wanted to divest at the peak of the market and failed to.

Those who bought and failed to sell, who could be using bridging finance, would likely be among the first to put the property back on the market and accept a lower price. While agreeing with Goodall that there was likely a trend of people taking properties off the market to turn into rentals, Alexander doubted many would face financial difficulty or be forced to sell.

He said the landlords were likely investors who already had an investment property, and might have decided to sell in order to leave a market that was getting harder to operate in. ‘‘There is no wave of investors selling. In fact, fewer investors are selling.’’

Demand could be expected to rise in line with supply as more homes were taken off the market and added to the rental pool, because the owner-occupiers who would have bought them would now have to continue renting.

But Goodall said there were suggestions renters had changed their living arrangements to reduce expense, either by moving back in with family, renting out spare rooms or joining larger flats to save money.