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The yields on residential investment property have declined considerably as rental growth fails to keep up with rising prices

Property
The yields on residential investment property have declined considerably as rental growth fails to keep up with rising prices

The housing market became less attractive for property investors over the six months to the end of March, and not just because of planned changes to the tax treatment of residential investment property announced by the Government in late March.

According to interest.co.nz’s Rental Yield Indicator, prices at the bottom end of the housing market have been increasing at a faster rate than rents, pushing down rental yields significantly and reducing the earning potential of properties, making them a relatively less attractive investment option.

The Indicator tracks the Real Estate Institute of New Zealand’s lower quartile selling price for three bedroom houses in 56 locations around the country where there is a high level of rental activity.

These are then matched with median rents for three bedroom houses in the same locations to produce an indicative gross rental yield for each area.

The figures for three bedroom houses are used because this is still the predominant type of rental housing in most parts of the country.

The latest figures, based on selling prices and rents over the six months from October 2020 to March 2021, show that indicative yields declined in 51 of the 56 locations monitored when compared with figures from the six months ended December last year, while they increased in just two locations (Silverstream in Upper Hutt and Te Awamutu), and were unchanged in three locations (Te Puke, Timaru and St Kilda in Dunedin).

The number of locations with indicative rental yields of 5% or more had reduced from 23 over the six months to the end of December 2020, to 14 in the six months to the end of March 2021. Meanwhile, the number of locations with yields under 4% increased from six to 13 over the same period.

The main drivers of those trends were substantial rises in lower quartile prices compared to modest growth in rents.

Of the 56 locations monitored, 42 had double digit percentage increases in their lower quartile selling prices in the six months to March this year compared to the six months to December last year. Of those, 16 had price increases of 20% or more.

The lowest price increase over that period was in Timaru at 1.3%, and the highest was in the Wellington suburb of Newtown at 38.4%.

None of the locations monitored posted a price decline.

Compared to the substantial rises in selling prices that occurred in the six months to March, rental growth was much more modest.

Of the 56 locations monitored, only 16 posted rental growth of 4% or more in the six months to March compared to the six months to December last year, while 31 had rental growth of 2% or less.

That included eight locations where the median rent declined and seven where it was unchanged.

The combined impacts of a substantial rise in prices and more sluggish rental growth has driven down gross rental yields, suggesting the income generating capacity of residential rental properties purchased at current prices was significantly diminished over the six months to the end of March.

The table below shows how the indicative yields in all 56 locations monitored have changed since March 2016.

A fuller version of the table, showing the quarterly movements since September 2014, is available here.

The comment stream on this story is now closed.


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 % Mar
2021
Yield % Dec
2020
Series break* Yield % Sep
2020
Yield % Jun
2020
Yield % Mar
2020
Yield % Dec
2019
Yield % Mar
2019
Yield % Mar
018
Yield % Mar
2017
Yield % Mar
2016
Whangarei:                      
Kamo 5.2 5.6 --- 5.4 5.2 5.3 5.4 5.3 5.4 5.4 6.0
                       
Rodney - Orewa 4.1 4.4 --- 4.1 4.1 4.0 4.1 4.2 4.0 4.0 4.1
                       
North Shore:                      
Beach Haven 3.4 3.9 --- 3.8 3.8 3.9 4.1 3.8 3.8 3.7 3.9
Torbay 3.4 3.8 --- 3.7 3.8 3.9 3.9 3.8 3.7 3.7 3.8
                       
Waitakere:                      
Glen Eden 3.7 4.1 --- 4.1 4.1 4.0 4.2 4.0 3.8 4.0 4.0
Massey 3.7 4.1 --- 4.1 4.1 4.2 4.3 4.0 4.2 4.0 4.1
Henderson 3.8 3.9 --- 3.9 4.0 4.3 4.4 4.1 4.2 3.9 4.1
                       
Central Auckland:                      
Avondale 3.4 3.8 --- 3.8 3.5 3.7 4.2 3.9 3.7 3.6 3.7
                       
Manukau:                      
Highland Park 2.8 3.6 --- 3.6 3.6 3.4 3.4 3.4 3.7 3.5 3.3
Papakura 4.4 4.6 --- 4.5 4.6 4.6 4.7 5.1 4.6 4.3 4.8
Franklin - Pukekohe 4.4 4.7 --- 4.6 4.6 4.5 4.4 4.7 4.7 4.6 4.9
                       
Hamilton:                      
Deanwell 4.1 4.7 --- 4.9 4.6 4.7 4.9 4.9 5.1 4.8 5.3
Fairfield 4.2 5.1 --- 4.9 4.9 4.9 4.8 4.4 4.6 4.9 5.4
St Andrews 3.8 4.2 --- 4.2 4.3 4.2 4.3 4.6 4.7 4.4 4.7
                       
Cambridge - Leamington 4.0 4.5 --- 4.4 4.3 4.4 4.3 4.4 4.3 4.6 5.2
                       
Te Awamutu 5.2 4.8 --- 4.7 4.3 4.9 5.1 4.9 4.9 5.0 5.7
                       
Tauranga:                      
Greerton 4.3 4.7 --- 4.4 4.7 4.6 4.6 5.5 4.7 4.6 5.2
Bethlehem 4.0 4.4 --- 4.1 4.4 4.2 4.1 3.7 4.3 4.1 4.6
Mt Maunganui 3.8 4.1 --- 4.1 4.3 4.3 4.1 4.6 4.4 4.4 4.8
Pyes Pa 4.4 4.9 --- 4.6 4.5 4.5 4.7 4.8 4.4 4.8 5.4
Te Puke 4.7 4.7 --- 4.6 4.8 5.1 5.3 5.0 4.9 5.3 5.8
                       
Whakatane 4.3 5.3 --- 5.2 5.3 5.2 5.5 5.7 6.3 6.1 6.4
                       
Rotorua:                      
Owhata 5.8 7.0 --- 6.7 6.7 6.8 6.3 6.1 7.8 8.0 8.7
Glenholm 5.0 5.1 --- 5.1 5.8 4.9 4.9 4.9 5.8 4.9 5.9
Ngongotaha 5.8 6.9 --- 6.6 6.2 6.0 5.9 6.1 6.7 8.6 7.7
                       
Hastings - Flaxmere 5.2 6.1 --- 6.0 5.9 6.1 6.3 8.2 9.6 8.9 10.9
                       
Napier - Taradale 3.7 4.6 --- 4.5 4.3 4.3 4.7 5.0 4.6 5.0 5.4
                       
Taranaki:                      
New Plymouth  4.6 4.9 --- 4.6 5.0 4.6 5.4 5.3 4.6 4.7 5.8
Waitara 5.5 5.7 --- 6.0 7.0 6.3 6.3 7.6 6.4 8.1 8.8
                       
Whanganui 5.7 6.6 --- 6.2 6.8 7.0 7.4 8.1 9.0 9.1 9.6
                       
Palmerston North:                      
Kelvin Grove 4.3 5.5 --- 5.3 5.3 5.4 5.2 5.6 6.3 6.6 7.4
Palmerston North Central 4.3 5.1 --- 4.7 4.4 4.9 4.7 5.3 5.0 5.9 5.6
Takaro 4.5 5.2 --- 5.1 5.1 5.1 5.2 5.6 6.0 6.1 7.2
                       
Kapiti Coast:                      
Paraparaumu 3.7 4.3 --- 4.3 4.6 4.5 4.5 4.5 4.9 4.8 5.9
Waikanae 4.0 4.9 --- 4.3 4.2 4.3 4.5 4.5 5.4 5.2 5.9
                       
Upper Hutt:                      
Silverstream 4.2 4.1 --- 4.3 4,7 4.7 5.2 4.9 4.8 4.7 5.8
Totara Park 4.2 4.8 --- 4.6 5.0 5.3 5.0 5.2 5.6 5.8 6.3
                       
Lower Hutt:                      
Avalon 3.8 4.6 --- 4.6 4.7 4.4 4.7 5.2 5.0 5.1 5.8
Naenae 4.3 5.0 --- 4.9 4.9 4.9 5.3 5.4 5.7 5.8 6.8
Wainuiomata 4.2 5.1 --- 5.0 5.0 5.0 5.1 5.5 5.6 5.9 7.7
                       
Wellington:                      
Johnsonville 4.1 4.4 --- 4.4 4.7 5.0 4.7 4.9 4.9 4.9 5.5
Newtown 4.1 5.7 --- 5.3 4.4 4.3 5.0 4.6 4.9 4.2 5.4
                       
Tasman:                      
Motueka 4.0 4.6 --- 4.0 3.9 4.3 4.0 4.3 4.2 4.0 5.2
Richmond 4.1 4.3 --- 4.2 4.3 4.3 4.3 4.4 4.5 4.7 5.3
                       
Nelson - Stoke 4.3 4.6 --- 4.5 4,6 4.5 4.7 4.6 4.9 5.1 5.5
                       
Blenheim 5.1 5.8 --- 5.5 5.2 5.1 5.6 5.3 5.6 5.8 7.0
                       
Christchurch:                      
Hornby 5.1 5.6 --- 5.7 5.8 5.9 5.8 5.9 5.7 5.6 6.0
Riccarton 3.7 4.7 --- 4.9 5.2 4.4 4.3 5.2 5.2 5.0 5.7
Woolston 5.5 5.7 --- 5.8 6.1 6.3 6.6 6.5 7.8 6.2 6.3
                       
Ashburton 4.7 6.3 --- 5.8 5.5 7.3 7.5 5.8 5.3 8.3 6.2
                       
Timaru 5.4 5.4 --- 5.5 5.6 5.6 5.7 6.1 5.8 6.0 6.5
                       
Queenstown 3.2 3.3 --- 3.6 4.0 4.0 3.7 4.0 4.2 4.3 4.6
                       
Dunedin:                      
Mornington 4.6 5.6 --- 5.3 4.8 4.6 4.7 5.1 5.9 7.5 7.9
Mosgiel 4.3 4.6 --- 4.6 4.7 4.8 5.0 5.2 5.6 5.5 6.4
St Kilda 6.3 6.3 --- 6.1 5.5 5.4 5.7 6.9 7.6 7.9 7.2
                       
Invercargill 5.6 6.6 --- 6.7 6.6 6.6 6.7 7.2 7.9 8.3 8.7

Source: Base data from REINZ / MBIE

*Yield is a property's annual rent expressed as a percentage of its purchase price. The indicative yield figures in this table are gross, and are calculated from the REINZ's lower quartile selling price for three bedroom houses in each area during the previous 6 months, and the median rent for three bedroom houses calculated from new tenancy bonds received by the Ministry of Business Innovation and Employment for the same areas/period. This gives an indication of the gross rental yield that would have been achieved in each area if a three bedroom house was purchased at the lower quarter price and rented at the median rent for that that type of property in that area.

*Series break note: In November 2020 Tenancy Services changed the geographical boundaries of many of the suburb groupings it uses to collate the bond data from which it calculates median rents. This is likely to have affected the median rent figures used in the indicative yield calculations displayed in the above table. For this reason, the indicative yield figures from December 2020 onwards should not be compared with those prior to December 2020, because any comparison may not be on an apples-with-apples basis.

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62 Comments

Less attractive...

Yes...no one ever bought for capital gain :)

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many ( most ? ) are buying to avoid capital loss money in the bank would yield.

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I mean let's be honest, nobody is buying property for the rental yield.

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Apologies if it's detailed somewhere and I've missed it, but: does this include costs? Council rates?

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It states Gross rental yield at the top of the table.. This is before all costs, rates, insurance, maintenance, accounting, compliance etc

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No. As stated in the article, the figures referred to are gross rental yields.

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Thanks. I did see 'gross', but worried that I was missing some assumption, because those figures seem *terrible* if they're not even including 'givens' like rates.

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Rates are deductible though. Along with insurance, repairs and maintenance, accounting costs ...

https://www.ird.govt.nz/property/renting-out-residential-property/resid…

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You've still got to pay them, so they matter, a lot.

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More advise for Landlords (rightly termed as LORDS)

https://www.landlords.co.nz/article/976518627/top-tips-for-riding-out-t…

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World over reserve banks are blamed for housing crisis and an excuse for Mr Orr to hide behind.

Former WaMu CEO sees a housing bubble forming because the Fed is ‘hooked’ on low interest rates: https://on.mktw.net/2QwdxDU

Mr Orr is fulfilling his agenda as is comfortable by following fed not realising that US Ecenomy is diverse and number of time bigger compare to NZ.

He should act and act fast.

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It's funny reading the comments and seeing people say people don't buy for rental yield they buy for capital gain.

You need to think about this for a second because the two are actually the same thing.

The value of any financial asset today can be (and usually is) viewed as the sum of all future cashflows (in this case rent) to that asset, discounted appropriately to the present. When you buy for capital gain you are implicitly saying that you expect the cashflows (rent) from the property to be higher in the future... either that or you expect the market discount rate to fall - as it does when RBNZ lowers interest rates.

Rental yields are similar in that low yields imply expectations of faster rental growth in the future. If this doesn't happen - and rents don't grow over time providing the capital gain you're looking for - then you've just purchased a low yielding asset. Ouch.

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The thinking of the average smooth brained property speculator doesn't extend much past "there will be an even bigger fool than me".

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@buyandhodl That's a very technical explanation and probably correct in that sense.
But lets be clear buyers are looking to the capital gain. Yield is considered of course, but that is not what is producing the goodies in this crazy market.

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Good points but I don't think the main capital gain drivers are rents uplifts, I think is mostly driven by demand outweighing supply. Stocks are no better are they? P/E ratios are all at historical (hysterical?) highs so its hard to see where to invest.

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Yup, risk free rate has been pushed basically to zero by central banks all over the world which has led to some pretty crazy asset valuations. You also have bubbles forming in cryptos and select stocks since the markets are awash with money. In the NZ property context you also have comments by Orr and Ardern last year that could be seen as reducing the risk inherent in property investment by implying that govt/reserve bank will bail you out if things go wrong - like they did - this also pushes down the risk premium required to invest in property.

At the end of the day though the value of a property is how much someone is willing to pay for it. And I would suggest in an efficient market and even one with a degree of inefficiency, that that amount is always going to be related to how much someone is willing to pay to live/holiday in that property at that location. Shit location and shit property = not much rent. Good location and good property = more rent, good location that's expected to get better and good property = more rent, and expectation of rental growth above the mean in the market over time.

On the demand outweighing supply side, that should push rents up which would result in the expected capital gains over time.

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You've focussed only on current rental rental yield but have ignored things like rents increasing over time, lower financing costs, utility value of the land to add a second property or convert into apartments, etc.

Even for shares, DCF valuation only really makes sense for established utility type companies.

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No I haven't, read my comments lol. Rents increasing over time and lower financing costs are mentioned several times.

Agreed wrt ability to generate higher returns by utilising land more efficiently, if its feasible to do so this affects the value. Again though, the end value of the apartment block you build on that land is best represented by the sum of discounted future cashflows that you can expect to stream from that apartment block into the future...

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You can invest in our business. Ill pay 5% p.a. for 5 year loans repaid monthly, P&I. According to our crefit rating agency we have a 0.02% risk of failure and have never had a bad debt in 6 years of trading. Why do we need a bank?

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You can invest in our business. Ill pay 5% p.a. for 5 year loans repaid monthly, P&I. According to our crefit rating agency we have a 0.02% risk of failure and have never had a bad debt in 6 years of trading. Why do we need a bank?

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Sorry glitch in the save button matrix.

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residential property is over milked nowadays.

what's next?

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Might be back to Ostrich farming again?

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Motels are the new Bitcoin

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Imagine owning the Motel business AND the land it sits on !

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Maybe talk to the right CP official and pick up a few slaves in Xinjiang?

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Capital gain has been replaced by ego gain.

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Human psychology is a funny thing.

2007 - frothy market low yields and everyone wants to buy but prices are "too high"
2011 - dead market, yields of 10%+ easy in regions, no one wants to buy and govt couldn't give away properties to FHBs. Even HNZ homes they were selling for 120k with gifted 10% deposits to FHBs couldn't sell.
2021 - frothy market, low yields, everyone complaining again they cant afford to buy.

No one wants to buy (FHB/Investors or OO) when the market is flat or falling.. everyone wants to wait for the bottom or for prices to move... then they wait some more, then they have spent some money on a car payment, holiday etc and need a few more months to save.. then miss the boat.. then scream blue murder.

Yes interest rates and constrained supply (Economics 101) have driven prices through the roof and this isn't good predominantly for the negative social consequences.
Having said that you can guarantee that if prices fell say 20, 30, 40% there would not be a rush of first home buyers taking the opportunity... It would all be back to
* prices might fall further
* no rush, can buy next year
* no longer sexy to own a home and the hassles when they aren't going up each week. Rent for a bit longer and let the landlord suck up the costs
* lets just keep saving for a nicer first home
Classic can kicking.

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Interesting observations and true to some degree but for those who might be able to buy at those new lower prices, it will be an achievable goal to become mortgage free.

I feel for those who are buying today not because they are miss-timing the market (because as you point out that is very hard to avoid) but because the extreme low interest rate may turn and if it does and there is no wage inflation occurring in concert they are going to lose all their hard work.

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Agreed. A mortgage is a 25-30 commitment and there is a lot of gambling going on that interest rates will stay where they are, or go lower..

I guess for people 35yr and younger interest rates have only gone in one direction for their entire working lives. Hard to perceive them climbing the other way.. For their sake I hope interest rates only slowly climb at some point and there is enough wage inflation to keep up.

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Excellent, yes buyer and seller behaviour is everything. At the mo it seems buying power has shrivelled and sellers are adjusting expectations accordingly, inducing a change of sales methods that lend to cooling (away from auction and deadline to by negotiation. Even Asking Prices are back)

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All data and reports suggests that housing announcement and reintroduction of LVR had no effect, still Mr Orr playing with time.

https://www.landlords.co.nz/article/976518614/twists-and-turns-in-housi…

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Hi stuart123456,

Whinging about Adrian Orr being a ****bag to let off some steam from time to time is all well and good. But you've got to mix it up and change the record sometimes.

No matter how much animosity is produced on the internet, nobody in the government or at the reserve bank cares or is going to enact any policy whatsoever that will reduce house prices. They will make noises about doing something to "slow the rate of increase" or babble on about "sustainable house prices". These people are just clowns and NPCs and the ugly truth is that their plan to resolve the housing crisis is to simply to let the inflation of everything else rip.

If house prices every did fall, it would be because these people couldn't prevent it rather than any action they take.

The best thing you can do is get your assets out of NZD and make plans to leave the country. Nothing is ever going to change in New Zealand.

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These are good points. We are so blinded to this.

https://www.zillow.com/homedetails/8219-Crow-Valley-Ln-Las-Vegas-NV-891… A mansion, in Vegas (20 mins to the strip) by a golf course with Gym and gated access. NZD approx $940k.

https://www.trademe.co.nz/a/property/residential/sale/auckland/auckland… An ex-statehouse, in Blockhouse Bay, (20 mins to Skycity). NZD approx $1.1m.

Investment wise it seems looking offshore is sensible.

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Probably gated access for a reason, even 10 minutes from the strip all you hear is gunfire. You really need to know more about where your buying other than a few pretty pictures. The grass always looks greener over the fence until you actually live there.

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Getting that way in some areas here now unfortuntately

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I have not lived there but have been to Vegas 6 or 7 times on business and travelled across the city visiting suppliers, can't say I heard a single shot so some exaggeration there perhaps? Gated access is a developer favourite as it enhances property values, they are seldom very well guarded and sometimes for show only (everyone in the neighbourhood has a remote control). There are parts of NZ that are dangerous also but I think in general terms you are right, the US is a more violent place but your quality of life will be better (until you are shot ;)).

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DP

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Most of them are just the horizontal version of a condominium block. They are a community of home owners who have access to communal facilities (eg pool, sports facilities, security) and who form a HOA to pay for it all. In conjunction with rules about how everyone in the subdivision must conduct themselves and maintain their homes and gardens, in order to preserve the value and amenity of the neighbourhood. You won't get these homes being let out to social housing tenants or knocked down and rebuilt with 10 shoebox townhouses on one section that's for sure. Its a shame they don't exist in NZ.

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@JustAnOpinion .....just wound up 2 rental properties in the States, with gross returns of 12% - 15%. Been in the US market since 2011 and have gone up there many times since. While every time I come back, I look at the prices in Auckland and it makes me puke !! What you can get there for the half the price and twice the build quality etc is just astounding.

In the meantime bought a property on the Auckland fringe in 2017, after selling a B&T unit in central Auckland - while saying to myself (in 2017) I would never pay over $1 mil in AKL ....and I managed to do it, and even then I thought I was paying too much !!!

Anyway, the huge "elephant in the room" in NZ (esp. AKL) is that people are living "way beyond their means" ie borrowing too much, to own a property(s) and fund a lifestyle they just financially can't afford .....whereas in the States the standard of living for a comparable profession in NZ, is just "streets ahead".

Also when Americans talk about their wealth, the family home doesn't really come into it - it's their 401K (USA Kiwisaver) or share portfolios etc, as there is way more money in these, than in most people's real estate holdings. Also real estate there is mostly looked at as a "home" - not an investment vehicle.

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Spot on. In general, the total return in affordable housing States within the USA comes from yield, not a combination of yield and capital growth, hence the higher yield return needed.

This is better for both Landlord and tenant, as since the property value is closer to 3x median income, it is half the price that it is here in NZ, so even getting a higher yield still makes the rent a lot cheaper than in NZ.

Both the landlord/owner and tenant have more discretionary income left over to spend on other things whether it be lifestyle or other investments.

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Thanks Dale .....that's another great point between NZ and the USA, while that is why I was investing in the States - for cash flow, not for capital gain.
If there was capital gain, it was a bonus - while there is also a capital gains tax, which I had no problem with.

This proves, as I have said many times on this site - in NZ (for mortgaged property investors) if there is no capital gain, there is no profit........only to the bank :)

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Yields are pretty meaningless without taking into account cash on cash returns and ROI. After all, it's easy to fix the yield just by accepting your property is worth less.

Here is a question. If there was no capital growth above the basic rate of inflation, and LVR's and deductibles (or lack thereof) are pinned to present restrictions, and rents are not increased, what would house prices have to reduced to, to give a suitable rate of return?

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It would have to be over 30% less?

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Greg, re "That included eight locations where the median rent declined and seven where it was unchanged." Can you report the location where rents declined? That would be useful intel.

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Probably central city apartment areas, student areas, and areas favoured by immigrants.

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Renting out a house is almost like farming humans when you think about it lol

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Farming debt for bank profit and bonuses.

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I think we are some way from the Matrix but an interesting angle... I think in reality its the banks that are farming us all at the rate of $.5m per hour.

https://bankprofitclock.kiwi/

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I've referred to it as "people farming" for a long time, and you can also see it as economic cannibalism

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So housing is in short supply that's why prices keep rising so much right? That's what we are told, this is a supply side issue.
But if something is in short supply, shouldn't the cost of renting it rise roughly in line with the cost of buying it?
Historically pretty much any time house prices have inflated more than basic GDP growth, it's been a function of credit cost not supply and demand.
But this time it's different?

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This is why it's safe to say that something doesn't add up, in the usual summaries of our housing crisis.
My guess is that there are far, far more empty properties than are officially counted. Given the debacle of the last Census, it's possible.
In my (Auckland) suburb, it seems like there are a lot of empty homes, a lot of places undergoing seemingly endless renovations, and a lot of development sites left to fester.

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Agreed in my Auckland suburb there are also many newly built, empty houses. At least 8 within a 10 minute walk. And some have been empty for 6 months at least.
So how does that equate to a shortage?

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The last census showed about 200,000 unoccupied dwellings in NZ, about 40,000 in Auckland. Put in perspective, London (much larger population than NZ) has less than 30,000 vacant dwellings.

The "not enough homes" myth is something they can keep pushing to look busy with slow moving working groups and policy writing.

The reality is, market and lending factors are much more at play; but there is no credible commitment to interfering with price growth. That would be a surefire election loss.

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Your conflating Gross NZ figures with Net overseas figures. My figures put the Auckland figures at less than 7,000.

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The cost of credit is only inflation if it makes it easier to buy things that cannot increase in supply at the rate of demand that the ease of credit induces.

Juridictions, that can supply housing at the rate of demand are at approx. 3x median income irrespective of how easy the credit is.

And it is restrictions in the system that cause supply to fall behind demand. Most of the restrictions up until now have been in land policy, but this has now flowed through to consenting costs, and time delays (councils getting in on the act), labour shortage, material shortages, and logistic hold-ups (Covid disruptions).

I've never seen so many restrictions within the building industry.

Re your comment, 'But if something is in short supply, shouldn't the cost of renting it rises roughly in line with the cost of buying it?' It roughly does, but since the shortage of supply has caused the value ie the capital growth to increase so much, this has negated the need for landlords to look for yield as their main source of return. Also, the ability of the tenant to pay is also linked to what they can afford to pay, and given that they are about maxed out on this, there is very little ability to get 'more blood from the stone,' without more Govt. subsidy.

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But the ability to pay ever increasing values for houses is also linked to the ability to meet the mortgage payments no? And wages have also not risen in line with prices. So it would seem the only way this can be meet is by reducing interest rates no? As that reduces your weekly payments.
Which would then imply it is the cost of credit that is of primary importance not savings, wages, or indeed rental prices.

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Your assumptions are correct but are only applicable in jurisdictions where housing policy restricts supply, otherwise, interest rates falls don't matter.

After all, in jurisdictions with fewer house policy restrictions, house prices do not overinflate when interest rates are lowered, or immigration increases.

In NZ lower interest rates cause more demand, which pushes up house prices.

Houses are the fuel, restrictions in supply are the ignition to start the fuel to burn (prices increase), interest rates are accelerants (causes prices to rise even faster). Without ignition first, accelerates have no effect.

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Correct me if I am wrong.... but a rental yield measure on its own is fairly futile unless you have paid for the asset in cash. If you were to incorporate your debt costs/rates/interest/body corp fees or Resident association fees which need to be paid as you go (so don't argue deductability) then most yields these days based on the enormous debt being carried would in fact be negative. Topping up the shortfall with your own cash waiting for the big capital gain is now very risky

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As it gets less attractive emergency motel housing grows

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Buy the house first then the motel. The golden rule taught in Monopoly.

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I struggle to believe that the gross yield in Mount Maunganui is as high as 3.80%. Based on a current valuation, the yield on my Mount rental is just under 2% and after council tax and insurance, around 1.60%.

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