We are seeing this at the moment some investors are now selling up. This will probably cause a reduction in rentals for a while, which means that the investors who did not sell may be able to raise their rents and so make up for any reduction due to tax changes.

Steve,

As the chart from the Department of Building and Housing above shows, rents have been basically stable over the last two years of the recession, despite the best intentions of landlords who wanted to increase their yields.

Rents are governed by employment levels and wages, rather than supply levels. We are seeing increasing numbers of people simply leaving to live with relatives or in garages or going 'down market' to afford rentals.

Here's our interactive chart on rents too to show this. http://www.interest.co.nz/charts/gallery12-170.asp

cheers
Bernard

Beware: this is the story across the ditch:

http://www.news.com.au/money/property/melbourne-hits-1-billion-property-...

Investors are preferring property over shares after the GFC, real estate experts say.

MELBOURNE'S property market has smashed through the $1 billion mark for the first time as markets continued to show signs of strong recovery across Australia over the weekend.

The $1 billion barrier was broken during a record weekend for auction prices in Melbourne combined with soaring prices achieved for private sales during the week.

Across Australia, auction clearance rates in Sydney reached 75.3 per cent at the weekend, up 2.1 percentage points from the previous week, while Adelaide clearances were up 18.6 percentage points to 76.5 per cent.

Australian Property Monitors reports that total weekend auction revenue for Sydney, Melbourne, Brisbane and Adelaide was up $146 million on the same time last year.

The top-priced sale was a three-bedroom home in Melbourne's Toorak, which sold for $4.7m.

Experts predict there is no end in sight with property prices headed even higher, even on the back of interest rate rises.

Experts are tipping an official interest rate rise tomorrow when the Reserve Bank holds its monthly board meeting in Sydney tomorrow.

The central bank surprised most experts last month when it maintained the official cash rate at 3.75 per cent following an aggressive bout of monetary tightening at the end of 2009.

President of the Real Estate Institute of Australia, David Airey, said the increases in sale prices and total properties listed reflected the "surging confidence" in the housing sector.

Mr Airey said that after the financial crisis, Australians were more interested in investing in property than on the stockmarket.

"This latest data shows buyer confidence in the sector, and particularly the auction system, has significantly increased clearance rates under the hammer," Mr Airey said.

"In every capital we've got strong sales and that says that the buyers - despite the likelihood of higher interest rates - are still wanting to invest in property.

"Australians have taken the lessons learned through the economic downturn and have decided this time round to put their money in property . . . it's encouraging and it's good news for buyers and sellers alike."

Enzo Raimondo, chief executive of the Real Estate Institute of Victoria, said price and not the number of properties on the market was driving the $1 billion-a-week mark in Melbourne.

"We have never reached a billion-dollar figure in a week, especially coming off a very quite period," he said.

"The significance is that if it starts off like this it could be an indication the residential property market in Melbourne probably will be the same as in 2007 when we had some double-digit price growth."

There were close to 900 auctions with an 86 per cent clearance rate at the weekend, and 713 private sales in the past week.

"It's a moderate number of properties and it's not the highest auction weekend for numbers. It's purely price that has driven this billion-dollar figure," Mr Raimondo said.

Tim Fletcher, of Fletchers Real Estate, said it was possible that the median price of a home in Melbourne would hit $650,000 in a few months and $1 million within six years.

"We have too many buyers chasing too few properties, and unless something drastic is done about urban consolidation and freeing up more land on the fringes it's only going to get worse," he said.

Catherine Cashmore of JPP Buyers Advocates said the $1 billion boom was causing despair among buyers trying to get into the market.

"I have never come across such high anxiety in buyers. It's playing on buyers' minds because they are only seeing the property boom and they despair that they'll never be able to afford a home," she said.

"endured several years of a local recession and now the government announces that they are going to close the tax-loopholes on property investment.

And property still costs the earth. Sigh."

Well, wait until the bottom end of the yield curve starts to move up.
People were saved by the crash in interest rates at the beginning of last year.
With interest rates up there'll be no where to hide especially with no other income offset for rentals.
That inventory will grow considerably forcing prices down as net migration falls.

So, apparently, an increase in listings for sale will push house prices down, because that market works on supply & demand and not what people can afford, but conversely a decrease in listings for rent won't push rent prices up because that market works on what people can afford and not supply & demand....

Interesting.....

@gingerbreadman: Indeed....yet the suggestion is the OZ Govn with its handouts encouraged a large % (10% maybe) of first time buyers to buy in....this year....that ends....so right now is the "bright" money buying or selling?

Steve Keen still thinks there is a 40% drop coming...so that one Billion becomes $600,000.........

For myself I wish it was as easy to clear debt as these ppl get it.

:/

regards

@Murray: a decrease in property price makes a bigger margin though...assuming rents dont drop...it will be interesting to see if as prices drop if rents dont also....

regards

"an increase in listings for sale will push house prices down, because that market works on supply & demand and not what people can afford"

On what they can afford to borrow would be more accurate and that depends on a multiple of factors that vary while income remains static. Whereas rent is rent a fixed cost and the amount that can be paid depends only on income.

Murray Says:
"but conversely a decrease in listings for rent won't push rent prices up because that market works on what people can afford and not supply & demand"¦."

yep a tenant moves out cause the rents going up...they shop around find the asking rent is higher, say no, and negotiate a lower rent, often lower than what they paid previous...
Speculative landlords are caught between the ocean and deep blue sea...they need the income..any income to pay a mortgage often higher than the market valuation of the asset.
They are running at very low yields or even below in many cases, and cant flick off the investment, based on tax breaks and rorts, because everyone else is doing the same.

And over the last month or so in Sth Auckland renal sales have jumped, with prices way down....professional landlords buying up and/or 1st home buyers cashing in?
Out of 40+ sales in this suburb only 8 are over 300K

Murray - remember too that renters can move more easily than owners, being more mobile. If a landlord proposes a rental increase the tenants may move out, then there is the risk that the flat will be vacant for weeks.

this is what happended tp me last dEcember. The landlord proposed increasing the rent by $40, in the end they increased it by $10 pw subject to a one year fixed term agreement. I made it clear I would move if they hiked it, we are good tenants and they also clearly saw that a $40 pw week increase would be wiped out pretty quickly by several weeks of vacancy

So in conclusion, I do think somewhat different rules of supply and demand apply

@steps said

"And over the last month or so in Sth Auckland renal sales have jumped, with prices way down"¦"

Things are really tough if people selling human organs to pay the mortgage...

Mike in Welly

Did you mean 'renal' sales or rental sales. I'm hoping things aren't so desperate that people are having to sell their kidneys to afford the rent...

cheers
Bernard

Wouldn't be appropriate to say rents managed to stay high despite great downwards pressure? Over last 3 years we've seen collapse of finance companies destroying life savings, house prices dropped 10 %, term deposits slumped, highest unemployment in 10 years...and yet rents resisted.

The exodus to aus..the fiddly tax changes..the ongoing recession..rising mortgage rates..decline in immigration numbers..higher overall taxes,charges,fees and council rates......all these things will have a much greater impact on property prices than people think. Yes there are those who hang on to bubble price dreams and demand stupid prices for their property and they will remain unsold. Those who recognise the approaching credit cost storm of increases will make the effort to meet the market now. I think prices will begin another slide down as they did last year..only this time Bollard will be in no position to pork the market with cheap money.
This is no time to be buying unless the price is 20% below the 08 gv number and then some. Mortgagee listings will keep rising. Banks will be forced to tighten credit supply. That will crunch the small employer and hammer the fiscal numbers. English knows what is coming. The 87 crash did not fully slam the economy until the early 90s. The delay is normal.
We are entering a new normal where demand falls short of property supply. No amount of govt pork slicing or Bollarding will prop up the ponzi scheme.

owch....we are stuffed!!!

@ Scotty: "After all most investors are only in the game for long term investment and not short term speculative gains!!"
I might even concede that one but for the fact that I venture to suggest that many, many recent 'investors' are actually only looking for the capital gain. Why else would you run a negative cash flow business year in, year out?
@ Keiran: Prices can go up ad infinitum, as long as there is a willing lender. As you say, rents can only go up so far with income. Borrowing and earning can be two different limiters.

Wally:
"English knows what is coming. The 87 crash did not fully slam the economy until the early 90s. The delay is normal "

Yep the the same after the '29 crash..and the 1879 hell that went right into the 1890s...

High prices in Australia will push people back to New Zealand. There will be a trans-tasman equilibrium in the labour market based on not just wages, but lifestyle affordability. If New Zealand really wants to compete with Australia, freeing up the supply of land and moving to encourage high quality but affordable housing is the way to do. People will be attracted back.

How to do this? Give tax breaks for high quality housing on new land releases. Encourage developers to build what people want - spacious homes with high ceilings, properly insulated and heated. The standard of NZ housing as is stands is appalling.

too early to say anything i feel. lets not get ahead of ourselves on these figures. Wishful thinking does no one any good. let the the market play out after the budget and THEN we may have a better understanding.

@Revs, perhaps 'The Controllers' have controlled. The Boomers' and Banksters' Ponzi economy is perhaps a more precarious thing than people realise.

We don't want people getting in a panic do we, do they - at least not till 'The Controllers' have sold up.

Jacko you could be right. I remember when I use to look forward to the 6pm business section on both channels 3-4 good stories, now days just share market. Even then just daily change with blue chips and no perspective of overall performance.

Bernard

There's no denial that there has been a strong increase in listings in the last couple of months. I told you about this time last year of the sharpest decrease in listings for sale in Christchurch that I had seen in over 21 years (at that time). However the current increase in listings is not getting us back to anything like the levels we saw post Asian crisis (1997-2001).

Given what was happening with listings back then I gave you a prediction last year that prices would steadily increase back to 2007 levels before increase an increase in supply caused them to flatten or at best increase slowly:

http://www.interest.co.nz/ratesblog/index.php/2009/06/11/house-sales-ste...

I'm not claiming that my crystal ball is an clearer than anyone else's (except maybe yours BH), your head must be incorrectly adjusted if you're still expecting a 15% drop from November 2007 median price (wouldn't that be a 17% drop from the December 2009 peak anyway?). But if actual demand (ie population/migration growth) continues, more sellers than buyers must mean one thing -> more renters.

In fact in Auckland City, trademe has just 400 3 or more bedroom properties for rent and only 69 of these are under $400pw. That is very little slack in a market of 150,000 houses, about 1 in 400, which doesn't bode well for those who believe that investors exiting the market (for whatever reason) won't affect rents. If landlords, as BH suggests, are heading for the door, expect some real pressure on rents over the next year or two.

The reality is that reduced building activity and increased net migration equate to either pressure on rental supply or pressure on housing supply. Either way won't be bad for investors as they will either get increased rents or increased capital gains. In fact genuine long term investors would prefer the current scenario with demand on the rental side.

"The reality is that reduced building activity and increased net migration equate to either pressure on rental supply or pressure on housing supply"

fine theory, but the theory is exaggerated. Yes building activity is low, but it was also running ahead of population growth for a couple of years. Net migration is also overplayed - increases mostly due to fewer younger people leaving, who are simply living at home or cramming in with flatmates. Higher natural population growth in centres like Auckland is centred more in lower socio-economic profiles, often state housing tenants. This places very little real pressure on private sector rentals

Yes Chris, things look fine for longer term investors, but I would suggest that many who have entered the market on speculative terms in the last 3 or so years will be leaving en masse as yields remain poor, and tax advantages are eroded. The result - downward pressure on prices

Even eternal housing optimist Tony Alexander is acknowledging this

"RUSHING"

Abstract November 2010 (2 cases)
1) Problems in oil supply in Nigeria, the devastating hurricane in the golf of Mexico and the probability of a serious conflict between Israel and Iran lead to a sharp increase of the oil price. Crude oil today is sitting on US$ 155.-
Because daily life is now so much more expensive, many Kiwi parents can't afford to use their cars to shop, bring their kids to school or even drive to work. The public transport system is poorly organised, especially in rural areas. Hundred's of families are forced to stay at home and the loss of working hours is of real concern and could cost the nation/ businesses millions.
--

2) Long power cuts up to 1 week in many regions, especially around Auckland occurred because there aren't enough knowledgeable technical staff and in some cases a serious shortage of technical supply from overseas. So far the fall out causes damage in the millions for businesses and is a real threat for our national security and wellbeing also.
--

Please read and understand this in context with many other of my articles
Walter

alen, while real wages are being eroded, rents aren't falling because the Government props them up with accommodation supplements. As the number of folks on benefits increases - these "add-ons" to the benefit systems will be withdrawn.

@ Matt in Auck 2:30 pm

I agree, renters are much more mobile than owners. As I said above though, I think both markets operate on supply & demand, and both markets are ultimately capped by affordability. What people can afford though, increases with more demand and/or less supply.

If you took away half the rental stock, and still had the same number of people trying to rent them, they would go to the top 50% of bidders with the bottom 50% having to find alternative accommodation (stay with friends, flat, board, pitch a tent!) and rents would rise. It would only be the income/affordability of the top 50% that would be relevant.

The same would be true in reverse, if we doubled the available rental stock, people would snap up the cheapest 50%, the other 50% would be vacant, and rents would drop.

Both examples are true of the owners market also. Take away half the housing stock, the remaining 50% would go to the highest bidders and prices would rise.
Double the housing stock, only the cheapest 50% would sell, and prices would fall.

Grossly oversimplified, but supply & demand is always the foundation.
As noted by others though, interest rates have a large bearing on how much people can borrow to buy a house, and both markets are also influenced by a multitude of other factors.

But yes, I am skeptical that house prices could fall due to investors selling without a corresponding increase in rents. As Einstein said, for every action there is an equal and opposite reaction. I'm also skeptical that the large numbers of landlords so reliant on depreciation claims that they would be forced to quit, actually exist.
As I've said before, typical depreciation claims would be around $3,000 to $4,000 per property, which depending on your tax rate will reduce your tax bill by $500 to $1,500 per annum or $10 to $30 per week. If $20 per week makes or breaks your investment, then you're obviously overcommitted, and I don't believe there would be large numbers in that situation.

cheers

10% fall 2010, 8% 2011, stagnation thereafter.