Residential rental yields have remained steady this year, although falling interest rates will make them look more attractive to investors

Residential rental yields have remained steady this year, although falling interest rates will make them look more attractive to investors

By Greg Ninness

The investment outlook for residential property remained remarkably resilient in the first half of this year, according to interest.co.nz's Rental Yield Indicator.

The Indicator tracks the Real Estate Institute of New Zealand's lower quartile selling prices for three bedroom houses in 56 locations around the country where there is a high level of rental activity, and the median rent for three bedroom houses in the same areas.

Those figures are then used to produce an indicative gross rental yield figure for each of the 56 locations, allowing an apples-with-apples comparison of the gross income earning potential in each area.

The latest figures show that in spite of a fairly tumultuous first half of the year, the outlook for residential property remained relatively stable.

The year started with the residential property market in fairly buoyant form with firm prices, but the market came to a virtual standstill for much of the second quarter, with sales and renting activity curtailed by the COVID-19 lockdown.

Yet in spite of these unusual market conditions and the prevailing economic uncertainties, yields remained remarkably resilient.

For the most part rents and selling prices were both mostly higher over the six months to June compared to the six months to March.

But overall, indicative yields remained remarkably stable, with yields rising in 20 of the 56 locations monitored in the six months to June compared to the six months to March, while they declined in 23 locations and were unchanged in 13.

That suggests both prices and rents were tending to rise at a similar pace, creating a stable outlook for the gross rental income streams from residential property.

However compared to cash investments such as term deposits, the fairly modest rental returns from residential property investment are looking more attractive.

In Auckland, where house prices had traditionally been high compared to the rents they can achieve reducing their rental yields, indicative yields ranged from 3.5% in the inner-west suburb of Avondale, to 4.6% in Papakura and Pukekohe on the city's southern flank.

Indicative yields were slightly higher in the Wellington region (4.2% to 5.0%) and in Christchurch (5.2% to 6.1%).

The highest indicative yield of all 56 locations monitored was in the Taranaki district of Waitara-Inglewood at 7.0%, which was up from 6.3% for the six months to March. The lowest indicative yield was in the Auckland suburb of Avondale at 3.5%.

The table below shows the movements in the indicative rental yields in in all 56 locations monitored over the last two years.

A more comprehensive table going back to September 2014 is available here.

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Indicative gross rental yields for three bedroom houses in 56 selected areas with high rental activity during the previous six months. Based on REINZ lower quartile selling prices and median rents recorded by Tenancy Services' Bonds Centre in each area over the previous six months.
  Indicative gross residential rental yields for the six months ending:
Town/region  Yield % June 2020  Yield % March 2020 Yield % Dec 2019 Yield % Sept 2019 Yield % June 2019 Yield % March 2019 Yield % Dec 2018 Yield % Sept 2018 Yield % June 2018
Whangarei:                  
Kamo/Tikipunga/Kensington 5.2 5.3 5.4 5.5 5.3 5.3 5.5 5.5 5.5
                   
Rodney - Orewa/Whangaparaoa 4.1 4.0 4.1 4.2 4.2 4.2 4.1 3.9 4.0
                   
North Shore:                  
Beach Haven/Birkdale 3.8 3.9 4.1 4.2 4.1 3.8 3.8 3.9 3.9
Torbay 3.8 3.9 3.9 4.0 4.0 3.8 3.9 3.9 3.7
                   
Waitakere:                  
Glen Eden 4.1 4.0 4.2 4.3 4.3 4.0 4.1 4.1 3.9
Massey/Royal Heights 4.1 4.2 4.3 4.3 4.3 4.0 4.0 4.0 4.2
Henderson 4.0 4.3 4.4 4.6 4.4 4.1 4.2 4.1 4.1
                   
Central Auckland:                  
Avondale 3.5 3.7 4.2 4.3 4.2 3.9 3.9 4.1 4.0
                   
Manukau:                  
Highland Park 3.6 3.4 3.4 3.5 3.8 3.4 3.3 3.3 3.6
Papakura/Drury/Karaka 4.6 4.6 4.7 4.7 4.8 5.1 5.0 4.9 4.7
Franklin - Pukekohe/Tuakau 4.6 4.5 4.4 4.5 4.6 4.7 4.6 4.5 4.6
                   
Hamilton:                  
Deanwell/Melville/Fitzroy 4.6 4.7 4.9 5.0 5.0 4.9 4.9 5.1 5.1
Fairfield/Fairview Downs 4.9 4.9 4.8 4.9 4.7 4.4 4.4 4.8 4.7
Te Kowhai/St Andrews/ Queenswood 4.3 4.2 4.3 4.6 4.5 4.6 4.7 4.7 4.7
                   
Cambridge/Leamington 4.3 4.4 4.3 4.5 4.4 4.4 4.5 4.6 4.6
                   
Te Awamutu 4.3 4.9 5.1 5.0 4.9 4.9 4.9 5.1 5.0
                   
Tauranga:                  
Tauranga Central/Greerton 4.7 4.6 4.6 4.5 4.8 5.5 5.1 4.9 4.8
Bethlehem/Otumoetai 4.4 4.2 4.1 4.3 4.2 3.7 4.0 4.2 4.2
Mt Maunganui 4.3 4.3 4.1 4.2 4.4 4.6 4.5 4.6 4.6
Pyes Pa/Welcome Bay 4.5 4.5 4.7 4.5 4.7 4.8 4.7 4.5 4.6
Kaimai/Te Puke 4.8 5.1 5.3 5.2 5.3 5.0 5.1 5.1 4.8
                   
Whakatane 5.3 5.2 5.5 5.7 5.4 5.7 5.9 5.8 6.1
                   
Rotorua:                  
Holdens Bay/Owhata/Ngapuna 6.7 6.8 6.3 6.1 6.5 6.1 6.3 7.0 7.8
Kuirau/Hillcrest/Glenholm 5.8 4.9 4.9 5.4 6.0 4.9 4.9 5.5 5.4
Ngongotaha/Pleasant Heights/Koutu 6.2 6.0 5.9 5.5 6.0 6.1 6.5 6.7 6.0
                   
Hastings - Flaxmere 5.9 6.1 6.3 7.0 7.9 8.2 8.3 8.4 9.2
                   
Napier - Taradale 4.3 4.3 4.7 4.5 4.6 5.0 5.1 4.9 4.7
                   
Taranaki:                  
New Plymouth Central/Moturoa 5.0 4.6 5.4 5.5 4.7 5.3 5.1 4.6 4.8
Waitara/Inglewood 7.0 6.3 6.3 7.7 6.7 7.6 7.4 6.6 6.5
                   
Whanganui 6.8 7.0 7.4 7.6 7.8 8.1 8.2 8.5 9.0
                   
Palmerston North:                  
Kelvin Grove/Roslyn 5.3 5.4 5.2 5.3 5.7 5.6 5.7 5.9 6.2
Palmerston North Central 4.4 4.9 4.7 4.8 5.3 5.3 5.2 5.1 5.1
Takaro/Cloverlea/Milson 5.1 5.1 5.2 5.5 5.6 5.6 5.7 5.8 6.1
                   
Kapiti Coast:                  
Paraparaumu/Raumati 4.6 4.5 4.5 4.7 4.8 4.5 4.8 5.2 5.0
Waikanae/Otaki 4.2 4.3 4.5 4.4 4.7 4.5 4.4 4.5 4.5
                   
Upper Hutt:                  
Heretaunga/Silverstream 4,7 4.7 5.2 5.1 5.1 4.9 5.0 4.9 4.9
Totara Park/Maoribank/Te Marua 5.0 5.3 5.0 5.2 5.3 5.2 5.3 5.6 5.6
                   
Lower Hutt:                  
Epuni/Avalon 4.7 4.4 4.7 4.9 4.8 5.2 5.1 4.5 4.7
Taita/Naenae 4.9 4.9 5.3 5.3 5.0 5.4 5.5 5.4 5.5
Wainuiomata 5.0 5.0 5.1 5.3 5.3 5.5 5.5 5.3 5.6
                   
Wellington:                  
Johnsonville/Newlands 4.7 5.0 4.7 4.7 4.7 4.9 5.1 5.0 4.9
Vogeltown/Berhampore/Newtown 4.4 4.3 5.0 5.0 5.0 4.6 4.4 4.3 5.0
                   
Tasman:                  
Motueka 3.9 4.3 4.0 4.0 4.2 4.3 4.4 4.3 4.2
Richmond/Wakefield/Brightwater 4.3 4.3 4.3 4.3 4.5 4.4 4.3 4.3 4.5
                   
Nelson - Stoke/Nayland/Tahunanui 4,6 4.5 4.7 4.7 4.7 4.6 4.5 4.7 4.8
                   
Blenheim 5.2 5.1 5.6 5.5 5.3 5.3 5.3 5.4 5.7
                   
Christchurch:                  
Hornby/Islington/Hei Hei 5.8 5.9 5.8 5.8 5.8 5.9 5.8 6.0 5.9
Riccarton 5.2 4.4 4.3 4.4 5.9 5.2 5.1 5.6 5.6
Woolston/Opawa 6.1 6.3 6.6 6.4 6.4 6.5 7.1 7.2 7.4
                   
Ashburton 5.5 7.3 7.5 6.3 5.7 5.8 6.3 6.3 5.2
                   
Timaru 5.6 5.6 5.7 5.8 6.0 6.1 6.1 5.8 5.6
                   
Queenstown/Frankton/Arrowtown 4.0 4.0 3.7 4.0 4.2 4.0 4.1 4.3 4.2
                   
Dunedin:                  
Kenmure/Mornington 4.8 4.6 4.7 5.2 5.3 5.1 5.5 5.7 6.2
Mosgiel 4.7 4.8 5.0 5.2 5.3 5.2 5.3 5.5 5.8
South Dunedin/St Kilda 5.5 5.4 5.7 6.2 6.5 6.9 6.4 6.8 7.3
                   
Invercargill 6.6 6.6 6.7 7.1 7.0 7.2 7.7 8.3 8.2

Source: Base data from REINZ / MBIE

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68 Comments

Given the relative low gross yields with rates, insurance and maintenance to be deducted - as well as the additional risks and work compared to term deposits - one can not claim that landlords are gouging tenants. :)

The data doesn't capture the quality of the house, however.

ydab
Data is based on average lower quartile house prices and average rents.
Note “average” quartile house prices. What is your point?

Ok I missed that. So they'd be at the poor quality end of scale?

What makes you assume that?
The standard of housing attracts the same standard of tenant. Many landlords are not interested in the associated problems of poor tenants, so not necessarily at the lower end of the market.

Lower quartile would suggest that, no? I know for a fact Whanganui has a severe shortage of rentals, a few families living in rubbish motels.

young
Agreed.
Also here in the Hawkes' Bay a severe shortage of rentals with many motels being used by WINZ for "homeless" - in previous post I have named a number of specific motels and anecdotal comments suggest that it is 20% of motel accommodation in Napier.
I note from article on this site a couple of days ago that investor activity is currently right down - in part due to some likely fall in house prices but also very, very likely due to poor yields.

The data is based on the average lower quartile selling price and median , not average rent. Clearly, the definition of lowest quartile, is not the lowest and should not be assumed. Given that both first home buyers and prospective landlords, who appear to account for more than 25 percent of home sales, and taking the wide assumption that a quartile equates roughly to 25 percent,( and both landlords and FHB are primarily competing only within the lowest quartile) either the FHB affordabilty metrics or the landlord gross yields have problems in methodology, irrespective of the sad quality of tenant or indeed any home purchaser.

10
up

"The standard of housing attracts the same standard of tenant."

Utter rubbish. I'm a tenant in an Auckland City fringe apartment. Although the view is nice, the general quality of the apartment is terrible (completed ~2004). It is very cold (and damp) inside without a heater/dehumidifier on, and as it is obviously not double-glazed we can hear the noisy traffic that goes by all hours of the day. The rent is completely unreasonably high, and will be more-than covering mortgage repayments (and any other outgoings), but it is 'the going rate' around here.

I am an excellent tenant, and easily am within the top 1-2% of income earners in this country. And don't "mAyBE yOU sHoUlD bUY a HoUSE tHEn" me, as that is absolutely not the point (I will, in my own time). The property and rental market in this country is poison, and neither of the main NZ political parties has any real interest in fixing it.

Crispy
Look around then - easier and less expensive to shift rentals than a home owner.
Yield data suggests that landlords are not gouging you so that is the reality of the cost of providing you with your accommodation.
If yields were great there would be a lot of investor activity buying up - but RBNZ monthly data out and posted on this site a couple of days ago indicated investor activity minimal. In part due to likely some fall in house prices but also the poor yields.
The reality is that tenants can't cry foul that accommodation is expensive when the gross yield is so, so low,

"The reality is that tenants can't cry foul that accommodation is expensive when the gross yield is so, so low"
Nonsense.
Investors have, collectively, overpaid for their properties. That cost has been passed on to tenants because there's not enough liquidity of supply.
All housing in NZ is too expensive, for buyers and renters alike.

Puddle deep reasoning Brisket. Apartment prices aren't driven up by investors (supply is far less constrained than houses) and there appears little profit in them for developers and builders. The only logical conclusion is that it is very expensive to build in NZ due to construction costs and council fee's, which in turn means rents are high. Blame landlords if that makes you feel better, but you're wrong.

(I won't disagree that building is too expensive, it surely is, and it is a large factor in our ridiculous prices - but I would argue less than speculation.)
The fact that yields on residential RE are so low is *evidence* that investors have overpaid. Getting a few percent on a massive, illiquid investment is terrible business. They were *willing* to overpay because of the prospect of capital gains.
And apartment prices are low because no one has bothered to build good apartments, they've been built purely as investment plays (for students etc) and consequently don't gain value because they're crap. Our building industry is pretty incompetent and the public are rightly suspicious of buying apartments - could've been different if not for the wave of shitboxes built in the 90s.

I disagree with you on the yields being low due to investors over-paying. Principle home buyers still dominate house purchases (unless I'm mistaken), so an investor has to pay market. The returns are low to reflect the lower risk than say shares for example and the fact that you can leverage a house purchase - with a 33% deposit a 5% capital appreciation = 15% return on equity. I never liked apartments as it's the land that appreciates, not the house, and body corporate charges as well. I do agree with you on the building though, it's an absolute rip-off in NZ with not nearly enough competition on products.

I know what price was paid for this apartment and I know how much rent I pay. Assuming a bare minimum of 10% deposit paid, it is not difficult to work out the repayments, at least within some reasonable margin.

Crispy....thanks for refreshing unbiased comments. Although, I would not have been so eloquent or ingratiating. There is a lot of denial in this country. Perhaps they should all read the recent home assessment report by the University of Otago published around the world regarding the substandard 3rd world housing in this country. But then housing pundits will most likely find holes in that report as well.

Yields are also artificially supported by social welfare for investors.

Very well said young.

Risk (& work, funnily enough) is the game they signed up for. I'm not going to pull out any violins for them.

cmat
Cheers: not a problem.
So for risk (yield, expenses and work) is the name of the game and it is what tenants signed up for. I'm not going to pull out any violins for them either. :)

No, it's not something people have 'signed up for'. Everyone needs shelter. I'd love to opt out of the housing market if the alternative wasn't homelessness.

brisket
I agree.
Despite three years of Labour and their key promises such as KiiwBuild, housing is still the most - and now a greater - issue we face.
This is clearly illustrated by the increasing number of homeless being housed in motels, and increasing affordability issues for FHB.

Here goes the dream of buying a house.
That gap between rich and poor is going to grow exponentially.
I doubt labour will do anything substantial about it even if they get an outright win.

Here goes the dream of buying a house.

Where would be the most ideal places for shantytowns in NZ? Northland?

Warmer places, so your tent and board shorts are all you need, BOP, Nth Land, Coromandel Peninsula, they'll be the spots.

Houses are affordable for first home buyer couples in Auckland. See interest.co.nz affordability report.

Thanks, I needed a good laugh.

Those reports are an absolute joke.

oreo
I agree with you regarding rich and poor - although low interest rates has resulted in asset (including house price) inflation and FHB are handicapped in saving sufficient for the high deposit.
However, as you correctly point out; the rich are getting richer and conversely the poor getting poorer. The focus on affordability for FHB often focuses on house prices. and the significant issue of wages is often over-looked.
I have previously posted that home ownership rates for 25 to 35 year olds has fallen from 65% to 35% over the past thirty years. That fall has been consistent over the past thirty years whereas house whereas the significant house price rise has been the past eight years.
One needs to look to Rogernomics of the mid eighties when this began.
My first home was in a neighborhood where there were many blue collar worker homeowners; Mangere East was predominantly home owners that were recent Pacific Island arrivals who were neither well-qualified nor brought capital with them, so were largely unskilled workers but able to buy their own home.
The disparity in salaries and wages - and employment contracts - is unacceptable and to me the most significant entrenched issue facing potential FHB.
There was talk of an economic reset at the start of Covid but this is no longer an election issue as it should be.

Great comment Printer 8.
Unfortunately we know that more disparity brings more violence and crime.
I totally agree with you where is the reset? where is the transformational government ? Business as usual

There goes another RP prediction ! Where are you ? Come back and face the truth Residential property is still and always will be a great investment relative to others particularly TD's !

19
up

Yes, well done. Those of us just looking to make a start in life we're wrong again. I'll just go back to working another 60 hour week and giving a big slice to my landlord, who was a lot smarter than me by being born 20 years earlier, I guess.

I don't know why any Kiwi youth bothers trying to make a life of it here anymore.

14
up

Wash your mouth out nm46. That landlord is providing a service for to you and you should be grateful you have a roof over your head!
Gotta love having one of the 4 necessities of life being used to extort the wage earner aye?

Yes the Saints of the property Gentry

You need to acknowledge how super savvy that landlord was.

NM46 - What a defeatist comment ' 'll just go back to working another 60 hour week and giving a big slice to my landlord, who was a lot smarter than me by being born 20 years earlier ' . Such statements suggest the removal of all responsibility in your own life and someone else is to blame - Trump plays this card all the time. Affordability is at a decade high, FHB's are very active, it's hard but it's always been hard.
' I don't know why any Kiwi youth bothers trying to make a life of it here anymore ' - I suggest you go and try your luck somewhere else in the world if you really believe your statement.
I will leave you with this thought - ' Life does not care about you or I ' i.e. if you fail or succeed it's entirely up to you, your motivation and willingness to learn and adapt.
I wish you well, no one ever succeeded with a negative outlook.

17
up

If property is such a great investment, why does the govt and RBNZ have to do everything in their power to keep it propped up? Looks very much like a failed investment without all the creative ways of market manipulation the people in power have been coming up with in the past few years.
The property market isn't strong at all. If it was, it wouldn't need all these little tricks to prevent investors from losing their money.

13
up

That's why it's a good investment. It gets protected at all costs

The question then becomes whether the trend is sustainable - not just for now - but for future generations and all of society. If not, then what might happen?

We know the current trend isn't sustainable but we resist change at every turn. What might happen? hope for the best but expect the worse

The change should have been done a few years back during the National tenure when the economy was ticking along. Interest rate should have gone up not down. But the gravy train was too good. Funny that John Key was campaigning the first time around about how housing was too expensive and that he was going to remedy to it. Good job John!

True, the yields are subsidised and the prices protected. Living off the wealth of past and future generations thanks to central policy. Yet they'll be the first to tut-tut at poor people receiving a benefit: massive hypocrisy.

If property is such a great investment, why does the govt and RBNZ have to do everything in their power to keep it propped up?

Why? You would probably need to block off a whole day to decode the NZ property bubble. Anyway, there are some important themes (forget all the nonsense about supply / demand and 7-10 year propheices).

- Housing is an important driver of the wealth effect, which drives consumer spending (the engine of the economy). Immigration was doing a fine job of contributing to consumption, but its legs have been cut off for the time being.
- The bulk of 'savings' of NZers is tied up in their homes. The emotional backlash if there were a crash would be palpable if it were to happen. I believe that crash could very well happen or is actually happening right now. The data as shown above is not really that useful.
- The banks have doubled down on housing and the ruling elite are worried that a house price crash could massively destabilize the financial industry as it pertains to the 'real economy' (SMEs, etc). Banks are heavily protected in NZ and Australia, despite what people think and how it may appear.

dp

The great binary investment trade-off for morons: Residential Real Estate or TDs.

cmat
As I have previously posted I am currently cashed up watching and waiting.
By your definition I'm a moron - but then you probably envy that.
Cheers :)

You're only a moron if you think the only two places to park your money are either residential real estate or term deposits.

So yeah, perhaps you are on that definition, but I don't know your circumstances so I'll reserve judgement.

As for envy, nah.
I'm 100% in liquid assets, including a sizeable exposure to Gold which has done pretty well this week... and also is a nice little harbinger for the fate of property bros if they care to take notice.
Could go out and buy a house tomorrow, but won't coz you know the market is way frothy and full of... [checks notes]... morons right now.

cmat
You seem happy with your gold, so not a problem go for it (I actually posted that a couple of days ago on Morning Briefing).
However, for me, at my stage of life my investment profile including risk factor is likely to be very different to yours.
However, unlike you, I see neither you nor I as a moron.

Excuse me you can't have more than one hotel on a property in monopoly nor can you have a hotel and an additional house.

It looks like German Monopoly. Did they change the rules?

Higher density Monopoly. The Game of the Future.

Yields aren't going to move. Eventually both rents and prices will dip as the economy moves past the wage subsidy period.

"Yet in spite of these unusual market conditions and the prevailing economic uncertainties, yields remained remarkably resilient."
Is it remarkable? With the subsidies still in effect, only a handful of people have lost their jobs. The big question is what will happen once the happy hour is over.

I have a big suspicion happy hour will now never be over. It can't be, else we will have a large crash. It will be a UBI in everything but name... and the problem that if you work, you don't get it. Ergo an explosion of the poverty trap and a massive shift of wealth to asset owners. So basically a continuation of policies with unintended effects. A shrinking economy with any fruits going to asset owners.

No matter who they bail out, asset owners will win. It's now too embedded in the system to change without a massive shock.

I think that's a fair summation Blobs. The externalities and unintended consequences will be brutal IMO. It won't just be the welfare class but also the middle class living in expensive houses with barely 2 sticks to rub together.

I think you are right blobbles, so do whatever you can to own assets, so you can provide your family a good life

CourtJester
"The big question is what will happen once the happy hour is over."
Answer: Accommodation supplements.
Sadly, those who rent and don't receive an accommodation supplement are disadvantaged by the current influence of those receiving accommodation supplements and that is seemingly not going to get any better.

Are we going to end up a nation beholden to RBNZ when they have purchased most/all available asset within all classes? There is no reason to believe inflation will return any time soon.

The only alternative I can see would be for reserve banks to directly credit funds to people but they seem averse to returning spending power directly to consumers. The issues that creates is asset price inflation and associated inequalities.

We need to have a good think about what tools we put at reserve banks hands so that it can unwind QE and normalise interest rates, which are essential for a functional economy.

Of course they. Double subsidy, int only (if they were not already there) and wage subsidy for tenants. Surely no one is surprised?

As long as we live in a free country where the populous can enjoy full and proper ownership of land unencumbered by the State, real estate will be an excellent investment and means of achieving security of tenure for New Zealanders, including young people.

Yep. And the state provides and supports your income. Nirvana.

In my nirvana the State is reduced to little more than a husk.

We should get onto creating that place. Presumably without the central support that property investment currently receives, but with freedom instead.

By "central support", do you mean RBNZ monetary policy? Accommodation supplement? Restrictive town planning provisions?

You have certainly started a list.

Bitcoin/Ether/Goldmoney, scrap the accommodation supplement and reform the RMA. I wouldn't complain about any of that.

Unless our population stops growing, land will still cost a lot because it is an important and scarce resource. Just because land costs a lot doesn't mean it isn't fairly and appropriately valued. If you want to own something very valuable you have to pay a lot for it. If you want to live as a serf in a nation of tenants paying rent in the form of LVT to the government landlord, land will be cheap but you won't own something of value nor will you have security of tenure.

LVT is little different from rates or zoning in that they reduce "freedom", which seems to be what you are equating with ownership. LVT merely balances tax across different sources of wealth gain in a way that's harder to avoid.

Agree re scrapping welfare and central inflating of asset prices.

Rates are more like a service fee, so can be justified in that sense. Anyone that thinks quadrupling rates (LVT proxy) would be a step towards resolving our housing issues has a tenuous grasp on reality. Zoning undermines freedom in a totally different way to LVT, but I agree zoning controls should be liberalised.

CGT would arguably balance tax against different sources of realised wealth gain. LVT would unfairly treat property differently to other asset classes, and like all instances of government charging the populous rent for their own assets, be immoral.