Market will limit rent rises, landlords warned

Property investors who are planning to increase rents to cover the extra cost of looming tax changes could be disappointed, an economist warns.

The Government has introduced a range of changes, including an extension of the bright-line test, and phasing out investors’ ability to offset their interest costs against rent income, reducing their tax bills.

A survey conducted by the New Zealand Property Investors Federation showed that across 1719 respondents, property owners expected their costs to increase by an average of $3140 a year for each rental property.

Just over three-quarters of respondents said they would increase or probably increase rents. A further 8.9 per cent might increase rents and the median rental increase was expected to be between $21 and $30 per week.

About a fifth said they would sell some or all of their properties.

But economist Shamubeel Eaqub said investors could find it harder to raise rent than they expected. Rents were not usually set according to investors’ costs, but instead driven by the limit of what tenants could afford.

‘‘Rents are set at what the market will bear,’’ he said. ‘‘People will charge the maximum they can get in the market.’’

Highly indebted owners could be the ‘‘collateral damage’’.

Those who had been investing for a long time, or who had little debt, would be less concerned, Eaqub said.

‘‘It will create a bit of competition among landlords. For the older, less leveraged, it’s a great time to be picking up good tenants or buying rental properties.’’