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10 February 2022

Setting The Rent

The Price is Right - There are a number of contributing factors that come into play when setting the rent of your property.


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Changes in legislation and the long-reaching effects of Covid have both had a considerable impact on the real-time market rates, meaning landlords can no longer rely on how much their current tenant is paying as an accurate yardstick for how much they can expect to receive in the future.

Rollover Leases

Over the past few months, there have been some pretty significant changes in the RTA (Residential Tenancies Act) legislation. One of the most notable is that tenants can now choose to continue with a fixed-term tenancy when their lease comes up for renewal or roll it over into a periodic tenancy. 

 

This change may sound pretty innocuous from the viewpoint of setting the rent on a property, but a landlord losing the power to choose what time of the year to negotiate a renewal can have a significant bearing on the price they get for their property.

 

Typically, we would advise our landlords to rent their properties at the height of summer, when rents are traditionally at their peak. 

 

There are various reasons why this is, but mostly, people prefer to move during the warmer months. Who wants to pack up and shift home when it’s freezing cold and wet and miserable? Also, and possibly for the same reason, many people tend to make those big 'life' decisions in the summer, when it's cheerful and bright, and the sun is shining. 

 

On a more logical level, in terms of seasonal trends, summer typically marks the start of most university courses. This involves a vast migration of not only new students looking for their first digs but those in their final year, who are now looking for houses or flats as they embark on their new careers.

 

However, with this change in legislation, existing tenants will be able to dictate when their tenancy ends, which means we are possibly going to see more and more properties come onto the market during the winter months. And what we know about winter is that there are likely to be fewer people looking for properties. Fewer people result in less competition, meaning prices tend to soften – and that's something some landlords will now have to face.

The Covid Factor

For coming up to two years, the Pandemic has, in one way or another, affected almost every aspect of our lives… so why not the rent we pay or charge, depending on which side of the equation we sit. And depending on the location and type of property, the effect has been significant.

 

While our borders remain closed to international tourists and intentional students, the apartment rental market is being substantially affected, particularly in the inner city. We estimate that upwards of 500 apartments are on the market within Auckland's CBD alone at the time of writing.

 

The harsh reality of this situation is that if you want to rent your property quickly, you will need to come in below market rent to attract the few people looking. This leaves CBD landlords with a tough decision. Do you a) take a lower rent and let your property quickly, just to get money coming through the door, or b) do you keep the rent high in the hope that someone takes it. It’s a tricky calculation. 

Great Expectations

Another factor to consider is the situation of a long-term tenancy for five-plus years, where, over that time, the rent has increased incrementally to a point where it now may be over the market rate. 

 

A sitting tenant will never say, 'great, an increase in rent to adjust for inflation or whatever. I'm OK with that'. They're going to think, what's best for me? Is it less hassle to pay an extra $10 or $20 a week and stay in a place I like living or move into somewhere I might not like? Nine times out of ten, they'll stay. 

 

However, when that tenant decides to move on, what you may find is that the rent you've been charging surpasses current market rent, and you may have to adjust downwards to attract a new tenant. Understandably, this is something some landlords find hard to accept. 

 

Be aware that rent can only be negotiated once every twelve months and only raised by an amount corresponding to 'fair market rent'. And even if rental rates in the city start to skyrocket due to the borders opening up, increases for existing tenants will have to be gradual. You will not be able to raise the weekly rent by hundreds of dollars – that’s just not ‘fair’.

 

Expert Advice

It’s our business to know the current market rents for all typologies of property in every suburb in Auckland. As a landlord, you can trust the team at Damerell Property Management to get the best results in any given week or month. And remember, it’s not simply about achieving the premium rent for a property, but finding a really great tenant who will look after your investment.

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