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Best Rent Increase Process
If you are a landlord, you will almost definitely be affected by increased market rents. This article will cover legal obligations to your tenants, as well as give you the tools to increase rent with less hassle.
Market Rent Increases: The Basics
- Market rent is an indication of how much landlords can make on a rental property and how much tenants can expect to pay
- In 2021, New Zealand saw a market rent increase of eight percent year-on-year, according to the latest Trade Me Property (Trade Me) Rental Price Index
- Rent price increases can create tension between landlords and tenants if people don’t understand why it is happening
- An increase in market rent (the amount tenants can reasonably expect to pay) does not necessarily equate to an increase in landlord profits
- Landlords must give at least 60 days' notice on rent increase, and it can only be raised every 12 months.
Rent Increases in New Zealand on the Horizon?
Market rent is a measure of how much landlords can realistically earn from a rental property. This keeps the rental market stable as rent prices are based on the average income for similar properties.
New Zealand has seen a steady increase in rent prices over the past 20 years or so. Although this is to be expected with inflation, a dramatic price change puts pressure on both landlords and everyday renters in New Zealand.
Although this is to be expected with inflation, a dramatic price change puts pressure on both landlords and everyday renters in New Zealand.
Factors like variable supply and demand, maintenance, increased rates, and new ring-fencing laws mean costs are going up for landlords. However, wages for many New Zealanders do not match the increase in rent prices.
Unfortunately, this can put a strain on tenant-landlord relationships. As well as this, it can create an atmosphere where landlords are seen as money-driven when in reality expenses mean they are not making an increased profit at all.
Regardless of the financial and political atmosphere around market rates, it is important that you understand your legal obligations when raising the rent.
Landlord Obligations When Increasing Rental Prices
How much notice do you need to give your tenants? How often can a landlord increase the rent?
If you need to raise rental prices to cover costs and match market rent prices, there are several important obligations you must meet:
- You need to adhere to the tenancy agreement. If it is fixed-term then it may not be within the parameters of the lease unless there is a specific clause for it
- Tenants must be given a 60 day “rent increase notice period” before the rent goes up. You also need to tell them exactly which date it will increase!
- Rental prices cannot go up within the first 12 months (365 days) of starting a tenancy.
- Property owners can only increase rental prices every 12 months (365 days).
The Best Process For Increasing Rent
No tenant wants to pay more rent. However, we have a few tips on the best process for increasing your prices.
Firstly, check the rental prices for similar houses in the area.
If tenants feel like the rent is too high in comparison, then they can take it to tribunal. Comparing ensures that you are following market trends.
As well as protecting yourself and matching market prices, checking this gives you evidence-based reasoning to show your tenants why prices are going up.
You can compare rent prices in your area on the tenancy New Zealand market rent calculator.
Important! Do not rely solely on market rent calculators. They include all rents including social housing so this can sometimes distort market rent in the area. Always consult a professional if you are unsure.
Next, it is a good idea to keep your rental property up to standard.
This is a good way to build a positive relationship with your tenants. By improving your tenants’ living space, they will be more likely to accept a rent increase because they can see the changes.
Lastly, increase rent in small increments.
Andrew King from the Property Investors Federation states that it can sometimes be more harmful to leave prices as they are.
If landlords don’t keep up with market rates, they might need to increase the price dramatically. King suggests that rent should be introduced in smaller increments instead.
This way tenants can change their budget slowly to accommodate the increase.
No matter how you decide to increase rent prices, open communication with your tenants is the key! Make sure you tell them exactly when and why rent prices are going up.