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Westpac economists say landlords might be better off selling their property to the tenants rather than trying to push through large rent hikes

Westpac economists say landlords might be better off selling their property to the tenants rather than trying to push through large rent hikes

Landlords might be better off giving their tenants the opportunity to buy the landlord's property rather than trying to push through rent hikes in the wake of the recent Government housing policy changes, Westpac economists say.

In an Economic Bulletin Westpac acting chief economist Michael Gordon and senior economist Satish Ranchhod say they don't think there will be a big increase in rents in the wake of the policy changes.

But they have sharply downgraded their house price forecasts. And they expect the impact of a flatter housing market to have an impact on the economy, to the effect that they've changed their call on interest rates and now don't expect the Reserve Bank to raise the Official Cash Rate till 2025. That's a year later than they earlier expected.

Gordon and Ranchhod say the removal of interest deductibility on investment properties will mean a higher tax bill for landlords.

"This has led to speculation (or accusations) that they will try to claw this back through big increases in rents.

"The reality is that, even in hindsight, it’s hard to say how much policy changes contribute to rent increases. Rents rise over time anyway, and more so in areas where underlying housing shortages are worsening (compare the rapid rise in Wellington rents with the muted increases in Auckland over the last few years).


"We come down on the side of no big increase in rents. The reasoning behind this is similar to our reasoning on house prices: leveraged investors are no longer the marginal price setters in the market. They don’t have to be ‘made whole’ in this new equilibrium – if they exit the property market, there are enough homebuyers and unleveraged investors to take their place."

The economists say in the short run this will mean some reshuffling, as investors sell to other investors or to homebuyers, and as tenants move or buy.

"And this is where some arguments employ a kind of sleight of hand, where this reshuffling somehow leaves us one house short.

"Don’t be fooled: tax changes have no effect on the number of occupants or the number of dwellings. It’s easier to see this if we shortcut the reshuffling process and imagine that tenants buy the house that they’re currently living in.

"In fact, landlords might get a better deal by offering to sell to their tenants, than by trying to push through large rent hikes.

"At current mortgage rates the average homebuyer’s willingness to pay is, if not as high as sellers might have hoped for, then probably not far below recent sale prices.

"The biggest affordability hurdle for first-time buyers has been saving up a large enough deposit, and that’s easier to do when prices aren’t constantly running away on you."

In their initial reaction to the Government's housing changes, the Westpac economists suggested there could be a sharp fall in house prices in the short term while the market readjusts.

No sharp drop

They have now changed their minds on this.

"...We’re less concerned now about a sharp drop in prices in the near term. Sales will certainly slow, since leveraged investors are unlikely to be adding to their portfolios from here. But the phased removal of tax deductibility, plus the already-existing bright-line test, would argue against a rush to sell.

"A better description would be that the tax changes have removed the upside for prices that we were previously expecting."

Gordon and Ranchhod say the plunge in mortgage rates to record lows last year had a powerful effect on the value of housing as an investment, "and we concluded that this had even further to play out".

"But homebuyers are in the driver’s seat now, and their willingness to pay doesn’t stretch as far. We’re now forecasting house prices to flatten out over the rest of this year, an abrupt change from the rapid price gains we’ve seen over the past nine months.

"The first part of our conclusion still stands, however. Mortgage rates have reached their lows for this cycle, and longer-term interest rates are already heading higher around the world as economic sentiment improves.

"As fixed-term mortgage rates start to rise – and this will precede any actual hikes in the OCR – house prices are likely to fall. By the end of 2024 we expect a cumulative 10% decline in prices from their current levels.

OCR rises delayed

"To be clear, a drop in house prices over the longer term has been a feature of our forecasts for some time; indeed it featured prominently in our most recent quarterly Economic Overview. The tax changes have just brought the timing forward."

The economists say their new forecast "is a substantial downgrade" relative to their previous forecast, and has knock-on effects for our views on household spending, activity and inflation pressures.

"The upshot is a slower pace of recovery from the Covid-19 shock, which in turn will delay the Reserve Bank’s progress towards its inflation and employment goals.

"We now expect no OCR hikes until early 2025 (previously early 2024).

"This would act to slow the rise in longer-term interest rates, softening the impact of the tax changes on our house price, output and inflation forecasts.

"We did consider the case for further easing – the RBNZ has emphasised that it is both willing and able to do more, including taking the OCR below zero, if conditions warrant.

"Our view is that OCR cuts would require evidence of a sudden lurch lower in consumer spending or homebuilding. If it’s more the case of a slower recovery, we suspect that patience and a steady hand would be more appropriate."

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Talk about interest only loan and it effect in housing market as will adversely curtaill the speculative demand and as will harm banks balance sheets, better to be silent.


At the risk of being a broken record, if people reading this haven’t signed this petition, please do. Let’s hope to get to 1000 signatures if possible.


Westpac economists predictions change like the wind...the biggest flip floppers out.


I skim read anything written by bank economists and generally give them very little weight.

Yes may not happen. If Landlords sell what do they do ? 1% term deposit or 30% overpriced shares ? I dont think so.

Shares might be 30% overpriced (which is a bit questionable anyway as a generalization, as there are good opportunities in the share markets on selected stocks, which still look reasonably priced given their fundamentals), but residential housing in NZ is at the very least 30% overpriced, possibly significantly more.

Lucky you can buy small amounts of shares and dollar cost average across time, industries and currencies/markets. Housing, well it’s 20% of all of my money then 80% funny money from the bank

The property investors' wealthy, influential lobby groups are very good at scaremongering and spreading propaganda re rent increases etc.

Just a comment
Also a lot of headless chooks running about screaming about loss of tax deductibility - investors crying doom, and while non-investors with envious glee.
The reality is that loss of interest deductibility is the equivalent of mortgage interest rates - at a 33% marginal tax rate - increasing by a third. Equivalent to a current 3% interest rate going up to 4% - and the tax deductibility is to be phased in over four years.
Yeah it will hurt some sailing very close to the wind, but for many their yield effectively only just simply got a little less.
However, don't tell me with certainty that rents won't be going up over the next four years :)

It's amazing the greed of their folk that they shriek so shrilly at the prospect of a slightly smaller more.

Keep your eyes wide open. There are great opportunities in the sharemarket. Auckland airport is up 6% in the past month. No tenants to deal with either.

Agree, speculate with assets which don't affect people's lives, don't need to suck anybody's blood to make a good profit.

Worth thinking about allocating 1% to BTC too. If it fails, not too big a deal. But if everything else fails and it succeeds as a store of value, it might just save your whole portfolio.

1% Term Deposit is probably a lot better than haemorrhaging money through the loss of tax deductibility. Mind you, I'm sure a few will try hold on for 2.5 years in hopes that National are voted back in.

Yes but 1% return (taxed) is not as good as 20% returns tax free on the leveraged value of a house. That is a 100% return on a 20% deposit.

As long as it's guaranteed.

Nothings guaranteed, if house prices take a significant dive, banks will not be in a good position either.

If your intention is to make money on CG, its taxable.

Agreed if capital gains is your intention, then you should be able to deduct interest, and claim interest in tax back seems fair. Of course since you are stating that under the law you need to pay tax on the capital gains.

You are correct, I have already put the rent up to minimize my losses and it will go up next year again. The market would need to drop more then 50% for me to consider selling the property, very unlikely. I will rather pay a little bit more on taxes and keep it for my kids or retirement.

So shares are overpriced. And deposit yield are poop. Why is that? It's because central banks are crapping themselves on the levels of debt. Debt that's mainly in housing (in NZ).

This really shows why the tax base needs a tectonic shift away from paye towards a land tax. Promote productivity and disincent idle debt farming on land. Has to be one of the laziest forms of investment and most damaging to society.

"Landlords might be better off giving their tenants the opportunity to buy the landlord's property....homebuyers are in the driver’s seat now"

Good thinking!

Now. About the price...... (the average homebuyer’s willingness to pay is...not as high as sellers might have hoped for....leveraged investors are no longer the marginal price setters in the market. They don’t have to be ‘made whole’)

Interesting on the FB property investor pages, they are still going through the delusion phases where they can believe there could be a downside to property investment (i.e potential for losses). National appear to be their last point of hope. ‘I’ll just hang until National get in at the next election and reverse the interest deduction ruling’. Meanwhile National fall to just over 20% in the polls. Act might overtake them before the next election at this rate.

If Labour's current initiative works, then I highly doubt National will get back in. If it doesn't work, and Labour goes through with rent controls or removal of interest only loans, and this has an effect, then I'm sure Labour will be in for a third term.

While I'm a fan of the direction Labour is heading, I'll still be voting Act.


This whole housing situation is terrible. Government now spending 1 billion every 3 months, at the going rate it will be 4 billion a year not on building new houses, not on acquiring new housing stock but on emergency housing (motels) and accomodation supplement.

This is a grotesque misuse of tax money. No wonder there is not much to go around for mental health, teachers and the rest.
- landlords claim housing is a business, their mortgage rates should then be around 5% double the owner occupiers rate
- deposit must be cash only not equity and must be 40% cash
- no Interest only terms
- DTI for all
- throw the 10 yr bright line test. If it’s not owner occupiers, they have to pay income tax.

Seriously 4 billion a year of tax payer money to motel owners and landlords. Words cannot express my feelings at the moment.

Why hasn't Government just bought the bloody motels and increased their social housing land and / or stock?

Although I don’t think a motel is a home, very good question Jfoe. If we are paying for it, why not just buy it? Let’s hope Jenee raises this with the PM on Monday post cabinet meeting press conference.

Thanks, didn’t realise the purchases had been that extensive. Look forward to the land becoming the base of new shiny social housing.


Landlords are the biggest beneficiaries in the country.

On New Zealand's most generous welfare scheme by far, and utterly dependent!

And the coveted magic pill award for banking economists most suffering from schizophrenia and other maladies is retained by Westpac.

Wow, they'll say anything to avoid further regulation


Westpac clearly didn't read the Stuff comment section hive mind then.

"i'Ll jUsT pUt My rEnT uP bY $500 a WeEk".

Stuck between "it won't even make a difference" and "this is an outrage!"

Some will sell but most will not. Greed will get the better of them as always. Bank deposits do not pay enough and you need brains and knowledge to be in equities where the real money has been made and is still being made.

Grow your brain if you don't think it's smart enough. Do your research, read books, lots of them, talk to people smarter than you and be patient. Warren Buffet made most of his money after he turned 50.


You don't have to be particularly smart to be in equities. I have a monthly set and forget investment in the smart shares nz top 50 fund which is up >3x in the last 9 years. Trick is to just buy and hold, trying to time the market is where money is lost.

The best advice of the thread. An indexed fund held over 30 years, with regular contributions is a guaranteed pathway to financial success. 40 years is even better. Unfortunately most people aren't disciplined enough to start early. And worse, the amount of kiwis on 200k per year spending 220k on the next shiny thing, and neglecting savings is par for course.

Get a wider spread on ETFs. Go global, go Euro. Go top 50 or 500, mix with mid Cap. Go bond......Its easy

We bought a rental in August last year. Was so hard to even get ahold of agents in Auckland then and no one calls you back. Noticed in the last couple of weeks I have had 3 x calls from agents and 10 unsolicited texts telling me about new houses that have come on the market or that they are selling “off market”. Early indicator that investors are now on the sidelines and with the increase in supply in Auckland I can see prices for lower Quartile houses here going down 5-15%. Anyone else notice this?

When Agents are calling buyers they are short of buyers. Fact.

My partner has/is also getting lots of calls and texts re old properties she enquired about that are still not selling - here in Tauranga


I have been looking at property for a few months with much frustration. All of a sudden I am getting lots of calls, texts and emails from agents about listings that I enquired about several weeks back. All of them trying to get me to come back and have a look, or trying to get me to go along to their auctions . Such a turn around in behaviour. Prior to this it was hard to get anyone to even answer my query or return my calls. Change is happening.

Seeing as we’re all recalling such experiences in this comments chain; I went to visit a house today and the REA explained it had passed in at auction at $X and is now being sold by negotiation. He went on to say he’d been intending to present offers to the seller on Thursday after 3 weeks being on the market but there had been none. We only saw two other groups at today’s open home and after hearing the REA mention what it had passed in at, they both seemed to lose interest and left within a few mins.

We’re considering making an offer +/- 10k that it passed in at auction for. It’s been vacant 2 months now, has a decent plot of land behind it and while the building is a little smaller than most we’ve looked at, it’d be sufficient for us and is well within our budget.

Just sharing today’s house hunting experience. Doesn’t necessarily tell us anything about the market direction.

Wtf. Offer less. MUCH less.

I imagine there's not a single landlord in NZ who would listen to these numpties.

That’s why they are landlords. Bob Jones once said he would rather be thrown into a pot of boiling water than be a residential landlord.

And Bob would have made that comment back in the days when the nominal net yield was probably still +7%. From experience, about >20 years ago.
I wonder if he's changed his mind in this era of break-even/loss to become a new landlord?!

Pretty sure these comments were recent. Last 12-24 months but can’t find reference.

“I’d rather be flogged, 30 lashes every hour than having to own a residential property.”

He also said something along the lines of "Instead of sending criminals to jail, we should make them a landlord of a small block of shops, it's way worse punishment"

He really only invests in high end office towers. And larger industrial premises. Not many people can do that.

Flogged with 30 lashes I think were BJs words.

Yes it's a mugs game alright and we have rentals. All well below market rent, some $100/ wk below. As tenants move on the rent will have to go up now.

However, as another poster pointed out... if you sell now even for high prices what happens next? Bank deposits no good. Shares not backed by or pay much and also overvalued and not easy to leverage.

Gordian knot comes to mind.

Progressive home ownership model finally going to be implemented via govt from this year to assist state housing and other renters to buy their own homes.

It will be interesting to see what happens all round; what happens to the market, are numerous investors going to bail out, what is going to happen to rents.
While Westpac say it may be better for investors to bail out than to put up rents that doesn't mean that investors will necessary to do so. An obvious factor is that interest rates remain still so low - that is for both borrowing and investing so options are limited for those who want to cash up. Even with decreasing tax deductibility of interest, a rental returning only 3% net (and likely 4 or 5% on equity) then that is not going to be matched by safe investments such as term deposits currently returning under 1%.
Those who have purchased within the last few years are going to be discouraged to sell by the five year bright line test (a common aversion to paying tax which is less significant than what it really is), so will be encouraged to keep the property and also knowing that if they do want to repurchase an investment property at a later date then they are going to hit by a ten year bright line test.
What of those investors who have held properties for a longer time and to which the bright line test is not a factor? I don't necessarily see them racing to sell. Even if they purchased five or so years ago, they have seen considerable capital gains (and especially so with their equity) so are probably more content to see out short term market fluctuations - that was my experience at the time of the GFC and in discussions with other investors at the time. More importantly, in terms of yields and cash flow: firstly, they will now be carrying relatively small mortgages and have seen considerable increase in yield on their initial investment. The loss of deductibility of interest over the next four years is not going to effect them greatly, so will not be necessarily significantly encourage them to rush out and want to sell.
The number of these long term investors is probably relatively high. While there has been a lot of focus in the discussion on this site about recent purchases by investors, the percentage of mortgages to investors has been running at around only 13 to 17% for the last 18 to 24 months (RBNZ data) whereas for the period 2015 to 2016 it was higher at 17% to 20% of mortgages. I think one needs to take care in making an assumption that a significant number of investors are recent highly leveraged purchasers on interest only loans.
Interesting Tony Alexander's recent survey results (yeah, yeah a real Wally) shows post the 23rd announcements that there is a perception by real estate agents that there is less investor interest in the market and for the first time an increase in investor interest looking to sell. It will be interesting to see how this turns out in reality.
For those renting, I wouldn't be expecting any significant fall in rents while both the housing shortage and accommodation supplements continue to exist. Talking to one investor who has a tenant leaving (a FHB) after a year: his review on TM of current asking rents for similar properties here in the HB surprised both him and me as they are about 15 to 20% to what he set a year ago. I'm glad I am not a renter and I do feel sorry for hard working ones that are and wanting to get ahead.
Personally, I think that we are not really going to know for certainty the impact of the government's announcements on either rents, or the property market or investor decisions until spring after the winter influence. I also think RBNZ will also be a little uncertain also, so I am not expecting to see imminent announcements on implementation of interest only loans and DTI - other than them signaling these.

And getting back to Death, Inheritance and Gift Tax to discourage asset hoarding, we get the following from one of those countries that has such a regime. They aren't as uncommon as many think, and that the National Party tried to raise the idea as a 'non-starter' at the last election, it's possibly on the cards here at some stage. When debts have to be paid (whether they are Public or Private) 'things' have to be sold or taxed to pay them. What would landlords do if they thought that was coming?

(The art collection) could prove to be a key asset in paying for one of the world’s largest inheritance-tax bills. The Samsung dynasty has until the end of the month to unveil how the family plans to finance the levy of at least 11 trillion won (10 Billion USD) due after Lee’s death in October.

Great comment Printer8

Westpac economist says no rent increase but just an email from landlord association :

We are in distorted world.

...How can 70% of landlords not be charging market rent?
Do they know what the concept of market rent is?

While the Government has been labelling property investors as speculators, the survey found respondents had an average of 63% equity in their properties and the longer they owned them the higher that became.
How does that preclude anyone from being a 'speculator'? A speculator is someone who foregoes cashflow for windfall gain upon sale. It has nothing to do with equity position.

It's also weird how the go-to whinge is that landlords would simply sell or raise rents - if landlords could simply raise rents to cover the increased costs, why then would they sell?
And, if they do sell, the sales price will capitalise the higher costs resulting in higher yields - the market rent won't adjust.

All a big whinge-fest from the amateur investors who have swallowed the "ya can't go wrong with property" pill.

Well how can you increase your price above market rent? If someone is willing to pay then clearly it is market rent. But there are laws stating your increase cannot be above the market. The only case is if the increase is for an individual in order to evict them and then decrease the rent once they leave.

It also quite possible to charge under market rent, individuals don't always have to charge the maximum rent they can, they may value long term tenants, they may care about the tenants. I suspect I am charging under market rent because when try to rent the house out, I don't even need to advertise, no one tries to ask for less rent, and I see what other houses rent for. I charge what I consider a fare rent, which what I consider reasonable which is well below what market rent is, that is ridiculous.

I had a lot of tenants paying under market value rents. No more.
A bit sad for those that chose a sub standard , rather cold flat in exchange for low rent. No more Jacinda says NO! Hah, I don’t really mind, there’s no cheap alternatives for them any more.


In Wellington we have sub standard and rather cold flats in exchange for high rent.


Same in Auckland, I can assure you.

I’ve never met a tenant that thinks they’re paying to little rent. Or maybe they just never let on to me that they thought that.

And I've never met a landlord who doesn't think they're offering quite the deal for their tennant.

There’s a mountain of substandard flats in Auckland which aren’t finding tennants. It seems to be only the half decent ones that are renting


"Landlords might be better off giving their tenants the opportunity to buy the landlord's property."

Sounds utopian to me, how many tenants suddenly have the deposit and cashflow to buy their landlords house? Very few indeed

But if youre a bank economist worried about your book it may be productive to talk to the government via landlords and tenants...just saying.

Were do FHB comes from Yvil...the moon?

Clearly from the same planet as you

No they don’t have deposits but they have control over their future cash flows....

Maybe this article is about the banks dropping the seed of an idea in their customers heads that they would be better to take some profit now and reduce their risk that they have to sell to someone who’s broke, but not as broke as them.

Engineered soft landing... give it four years!.... lol

As stated earlier maybe its seeding the idea the government should expand its rent to buy assistance.....and who better to place the pressure on the government to do it, certainly not those 'self serving banks,' but hard done by tenants, now thats a story the media could run with.

Govt is kicking off progressive home ownership model this year to assist renters to buy.

.. I'd thought that the ratio of 60 % private home ownership / 40 % rentals had been fairly consistent in NZ for many many decades .... regardless house prices being sensible , where they were , or stratospheric , where they currently are ... as you say , how the heck are tenants gonna stump up the deposit currently ... unless Robbo is gonna unleash some more of his magic pixy dust policies upon us ...

Duh ! Of course rents will increase !

Didn’t one of the banks just advise half of the customers had less than a grand in the bank?....that poor grand has to pay for a lot other things too!

Sell to the tenants now. Or. Sell to the tenants in two years time for 25% less.
Who knows if thats the future. But that's why it's exciting to be in business.

Tenants are smarter than you seem to suggest.

A lot of landlords will use the excuse of regulation changes to increase rents even if those that might not be affected at all.

It is certain they will TRY, whether they will succeed is a completely different matter since there is as much as they can increase unless household incomes do so too, which are what in reality sets rent prices.

Rent increases? Nah. Most rents are already maxed to what they can get,
It is a market, not a cost plus operation.

Yep, the main cost for debt laden landlords is interest, this has come down massively in the last 10 years but rent didn't go down.

"But we only have 1 rental property, we are not the problem" x 100,000.

78 % of landlords own just one rental .... in order to punish the few multiple property landlords , Robbo is kicking the snot out of alot of regular mom&pop investors ....

Yes, often a rental that has been acquired kind of accidentally or as a modest way of supplementing retirement income or to help out the kids later.
I guess like locusts they are fairly harmless individually but when they cover the land it becomes a problem.

Yes or when home ownership rates for those under 35 gets to a point where its half of what is what 30 years ago, and those people being disadvantaged start getting so incredibly pissed off that they might start a social revolution, you probably realize, if you have any care for the longer term well-being of the country and a whole (and not just your own personal financial gain), its not worth the hassle.

I think you watched too much Les Misérables.

Yes clearly - everyone else has been watching the block or location, location, location.

Like Orwell's 1984 the system is designed to make rebellion impossible.

Superannuation is not enough to live on, so let's disadvantage the next generation by not only taxing them for this "pittance" of a superannuation but collectively buy up all the entry level properties and charge exorbitant rents so they can top up the "mom&pop's" lifestyle.

Superannuation is liveable IF you own your home outright and that has been the basis of our social contract these past decades...with the generations now being shut out of the property market every (economic) assumption is in question....we did it to ourselves blinded by the promise of easy was a con.
And anyone who thinks that its either sustainable or acceptable to those coming through is in for a rude awakening

I think it would be rare for a tenant to buy the landlord's property. How would you set a price? The tenant would probably resent being asked if they wanted to buy or move out. Too much pressure really, it would be quite unfair.
The property should go to market

We should try a supply and demand experiment. If we get all the landlords in the country to list their rentals the next 12-24 months before the full brunt of the interest deductions takes hold, we might find out where the equilibrium price point is located based on that new supply of properties to the market.

Its a logical business option for the landlord to offer it to the existing tenant. Its not only a quick sale but you avoid the real estate agents fee. It happened to us but the property was like $520K back in 2004 so it was out of our price range and we bought a place for $360K instead.

It seems logical but it rarely works out. Renters usually rent a place they can't afford to buy as your comment illustrates. Generally a waste of time for the landlord to offer the place to the tenants first.

Overall, DO NOT SELL, unless you have to as a last resort, this Government is using SCARE tactics, OVERALL try and beat them at their game, it could be very different in a few years time when covid 19 is defeated or leaves.

Many landlords will hopefully see it for what it really is, DO NOT be scared into selling, also there is an election in 3 years time, who knows, who will win the election

Kind of reminds me of the Gamestop shares story but with the government holding the short position. If the landlords stand as a group and do not falter then nothing much will change. A few years time is a long long time in politics and I'm not expecting JA to be there next election.

Crusher Collins instead of Saint Jac? It'll take much more for the halo to slip.

Well what is likely to change in the future is that landholders will start being shouldered with the true costs of running their cities. Currently only about 1/3 of Auckland council revenues come from property rates. And about 1/4 of the rates are blown on maintaining the council debt. This is only going to get worse as more and more of the infrastructure comes up for requiring replacement. This city is broke, and the property holders will eventually be held to account for the neglect of the infrastructure. That's how the bubble pops. I just don't know when.

I wonder if this will encourage greater investment in the commercial real estate market, the industrial market particularly has long been considered a safer option There's a lot of different ways to invest out there, it seems kiwis have been hyper-focused on the residential market.