IRD - residential rental losses and rental profits

[artemis]

We now have 3 years of data from Official Information Act requests- tax years 2017, 2018 and 2019. The 2017 data is from one of Mr Butler's media releases and is partial.

Tax year >>	2017	2018	2019
# Landlords (approx)		300000	290000
Landlords with losses	116000	112000	108000
Landlords with profits		184000	182000
Amount of losses (average)	7138	8441	8935
Amount of profits (average)		13741	14061

Some points of interest. The number of landlords reduced, and the number reporting a net rental loss also reduced. Few costs of new regulations have kicked in, and neither has ringfencing of rental losses.

IRD's response also mentions that the data is approximate as tax returns may have insufficient descriptions or have mixed portfolios.

Good responses from IRD by the way. Fast and clear. The two later responses are available in full at fyi.org.nz.

(Table formatting is not great sorry, Perry, feel free to fix!)

[Perry]

The table looks good, to me. I wonder if the number of rentals reduced along with the number of LLs? Or fewer LLs owning more / the same number of residential rentals?

[Sanya]

The table looks good, to me. I wonder if the number of rentals reduced along with the number of LLs? Or fewer LLs owning more / the same number of residential rentals?

Yes, a reduction in the number of landlords – something anecdotally property managers have been reporting for some time – doesn’t necessarily translate to a reduction in rental properties.

Data from Stats NZ suggests there has been a nominal growth in the number of properties rented during this period

30 June 2017 there was 587,900 rented properties
30 June 2018 there was 597,700 rented properties
30 June 2019 there was 607,200 rented properties
30 June 2020 there was 617,800 rented properties

The numbers, just like IRD’s approximation of the number of landlords need to be taken with a grain of salt.

2018 census data segmented ownership of rented properties as follows:

[McDuck]

Example of a Zero Sum Game.
- and not.

The size of the pie grew, but unfortunately, the amount of rentals grew faster.
So in a very real sense, this is a zero sum game.
Once about three quarters of New Zealanders owned their house, now only about two thirds do.

So, from this graph, we can say that : housing is a zero sum game.
The landlord's gain is the private home buyers loss.

* interestingly, if we project the lines backwards in time, then in about 1970 say, there should be 0% rentals and 100% private ownership.
(or greater self determination, as I like to consider it).

[McDuck]

Humorously, if we follow the graph into the future,

By the year 3000, everyone will be renting and paying their rent to one single, very powerful, landlord.

[artemis]

There are various numbers kicking around, and it is the nature of the massive housing sector that none will be perfect. More important is the trends from organisations collecting data consistently over time. Otherwise anecdata and cherry picking rule, and there's a lot of both about these days.

[McDuck]

Otherwise anecdata and cherry picking rule, and there's a lot of both about these days.

True.

There is still some useful metadata in there though.

One very interesting point on the graph is:
when the number of rentals = owner occupied.

Then the only place a landlord can gain ground, is from another landlord.

So landlords become cannibalistic at that moment.

[Perry]

Yes, a reduction in the number of landlords – something anecdotally property managers have been reporting for some time – doesn’t necessarily translate to a reduction in rental properties.

Wouldn't the aforesaid PMs have an idea if the rentals remained as such or were sold to home buyers?

(Even anecdataly - I do like that word, Artemis!)

[Sanya]

Wouldn't the aforesaid PMs have an idea if the rentals remained as such or were sold to home buyers?

(Even anecdataly - I do like that word, Artemis!)

Yes. When a rental is being sold the property manager who usually enjoys a good relationship with the landlord will typically ask – is the new purchaser an owner occupier or if the new purchaser is a landlord will the current tenants stay on and can I continue to manage the property? It’s in their self interest to ask.

In the majority of cases – at least with the PM’s I speak with – the landlord, often a retiree who can’t be bothered any more or a mom n pop couple who are finding it difficult to sustain their investment sell to a home buyer.

From an economics viewpoint a migration from rental to owner occupied may make sense because with sky high house prices investors find it difficult to get the returns they desire or need.

REINZ data shows gross rental yields are in the low 4% range across large areas of NZ and that means new investment with attendant large loan servicing will be cash-flow negative. I’m picking that average loses for investors will significantly increase from the $8935 recorded in 2019 due largely to regulatory compliance expenditure related to healthy homes.

But such information as I stressed earlier is purely anecdotal and beyond data from Stats NZ (2018, Census) which reports the number one reason why tenants leave is to move into their own home, and some PM agencies reporting declining rent rolls – we don’t know enough.

[Perry]

. . . we don’t know enough.

And neither does the gummint!

[Sanya]

And neither does the gummint!

Doesn't stop them enacting new laws it seems.....

[Perry]

You're so right. It does not. There's an old axiom that goes something like: the idiots are now in charge of the asylum.

The contemporary equivalent that applies to the current crop of woodenheaded, socio-commie clowns in gummint might be:

The ignorant are now in charge of writing legislation.

Where this puts the judiciary with its new penchant for the parliamentary contemplation test becomes quite worrying.