I’m no economist. So, caveat emptor; buyer beware. The following is based on observation and common sense rather than economic theory.
There’s been a lot of talk in the press lately about renters and landlords, about how to make the relationship fairer on the tenant and to ease some of the uncertainty. Unfortunately, landlords seem to be becoming demonised in the process.
In my first couple of years at university, I worked part-time for a landlord. He was a teacher with ‘a few properties’. The work was well-paid and flexible; painting, scraping windowsills and sanding back weatherboards.
I came to realise that this teacher in his old Hilux owned well in excess of 15 properties. They were not flash rentals. They were in the cheap part of town and offered at fair rent to tenants who often couldn’t secure any other property. They were clean, tidy, and refreshed with carpet and paint when tenancies ended.
That experience has influenced my view of the landlord-tenant relationship. Yes, there are property owners who seek to maximise gains by charging exorbitant rent for sub-standard accommodation. A rental property WOF is a no-brainer. If you want people to pay, there needs to be a minimum standard. There are also disrespectful tenants who cause damage or refuse to pay their rent. These are the outliers. In the middle, remain the rest of us.
Germany is often held up as a great example of rental ethics. The average tenancy is 11 years. On moving out, tenants must professionally clean and paint the property ready for the next occupier. There’s limited rent control and landlords are happy with stable returns rather than the instability that can come with frequent rises. One core difference that is seldom mentioned when Germany is held up as the peon of rental ideals is where ownership sits. Most properties that are not owner-occupier are owned by specialist landlords – think pension funds and insurance companies.
The biggest of these is Deutsche Annington, a company worth an estimated $20 billion that owns over 200,000 units. Add that to the conservatism of the country’s banks – to buy requires a minimum deposit of 20 per cent with 40 per cent being far more common. Yes, Germany does have a much more stable rental infrastructure, but it also has an entirely different structure and economic ecosystem that we are unable to replicate with our population.
So, if the problem isn’t greedy landlords, then where should the irate direct their attention? I’ll digress momentarily. England has a nifty mortgage called a ‘tracker rate’. Essentially it takes the Bank of England rate (like our OCR) and adds a per cent or less. Banks make a little profit but not an exorbitant amount. The rate in England has hovered around 0.5-0.75 per cent for the last 10 years. That means as the economy slowed, people were paying off their mortgage while only paying interest at a rate of between 1.5-2 per cent.
Our OCR is 1.75 per cent. The cheapest mortgage out there is sitting around 4.4 per cent for 12 months. The difference between those two rates is known as the ‘interest margin’. Our ‘big four’ Aust-ralian-owned banks make 25 per cent more profit off their Kiwi customers than their homegrown ones. Our interest margins are far higher than theirs. Those banks have reported record profits year on year.
If landlords paid less interest then their mortgage, and profit, could be covered by lower rent. Owner-occupiers could pay off their loans faster and retain more equity, creating greater stability. I’d like to see the government support Kiwi-owned banks to offer low interest margin tracker-rate mortgages.
The law of unintended consequences can strike hard. We need to be careful that mum and dad investors and landlords don’t feel too restricted by over-regulation. Sensible guidelines, yes, but ones that don’t deter landlords from keeping their properties available to families. After all, make it too difficult and they will simply remove their property from the rental market in pursuit of short-term Airbnb gains that are all too accessible.
Poppie Johnson is a Wakatipu High School English teacher