Rent inflation to be 'elevated for years'

Property

Westpac sees rent inflation remaining elevated "for years" due to tax changes, earthquake destruction and Auckland immigration. Your view?

26th Apr 11, 10:29am by Alex Tarrant

Westpac economists are forecasting rent inflation will remain elevated "for years" due to property tax changes in last year's budget, destruction caused by the Christchurch earthquakes, and increasing immigration into Auckland.

Their comments (see below) come after Statistics New Zealand released CPI figures showing rent inflation of 0.6% in the March quarter was the fastest quarterly rise since the September 2008 quarter.

See their comments on rent inflation below. Your view?

One notable exception to the lack of pricing power was in rents, which rose by 0.6%, the fastest quarterly pace since September 2008. We have long been anticipating stronger rents, as last year’s tax shakeup made property ownership less attractive, especially for landlords.

This has simultaneously put downward pressure on house prices and upward pressure on rents. In addition, earthquake destruction in Christchurch and stronger immigration in Auckland may have squeezed the rental markets in the two largest cities. We expect rent inflation to remain elevated for years.

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33 Comments

by Your Landlord | 26th Apr 11, 10:55am 1303772110

Another realistic report from Wespac on the housing market in New Zealand.

by Nicholas Arrand | 26th Apr 11, 11:06am 1303772766

You can ask whatever rent you like, Your Landlord! But I'd suggest that those who loose their jobs or those that have their disposable income eaten up by other rising costs ( literally!) won't be on your list of suitable applicants. And that list is getting smaller by the day....As you would know. There's a limit to what a tenant can pay; otherwise, why aren't you charging a higher rent for your propertties, now?

by Alex13 | 26th Apr 11, 11:22am 1303773755

"...why aren't you charging a higher rent for your propertties, now? "

He is, this is why "...rent inflation of 0.6% in the March quarter was the fastest quarterly rise since the September 2008 quarter".

Those with jobs will have to tighten the belts a bit more to pay, those without jobs will move into a cheaper rental (and those rent rates are rising too), or get WINZ to "supplement", or both.

But the point, confirmed by this and previous reports, is: recent tax and demographic changes are resulting in a re-balance, with a slight downwards pressure on rental property prices and upwards pressure on rent rates.

by Nicholas Arrand | 26th Apr 11, 11:30am 1303774202

And therein, Alex 13, are the seeds of the fall in rent prices! As more and more owners become less and less willing, or able ( due to evapourating equity), to sell their properties, what do they do with them? That's right! Put them on the rental market, as 'accidental landlords' just to get some sort on income from them- competition for Your Landlord! The lower property prices fall, the less people will want to sell, the more properties there will be for rent.....and all that's ignoring the easing in the population due to emmigration due the the earthquake and rising unemployment etc.

by Alex13 | 26th Apr 11, 11:38am 1303774738

Nice theory NA. It's easy to create these little "closed loop" economic theories, isn't it? The problem is that most often they stubbornly fail to match the reality. BH's drastic predictions are in that group of economic deliberations too...

Theories and predictions aside, the reality has been reported and it shows that rent are going up...

by Nicholas Arrand | 26th Apr 11, 11:50am 1303775437

It's not closed, Alex, that's the thing! We're off in November; following umpteen thousand before us, just this year...and then what do landlords do with even just this property? Compete against 'yours' I'd suggest, just to get income coming through the door....and judgeing by your earlier correct observations; where there are two of us, at the moment, the next tenants will be...six! ( the Aussie couple who left next door late last year were replaced by... three young couples)

by Gummy Bear Hero | 26th Apr 11, 11:52am 1303775566

St. Nick : Even before the bum warmth has evaporated from your chair , the NZ Dept. of Immigration , will have replaced you with a family of refugees from Somalia or from Afghanistan . ........... . And the rental to replace your payments will be made for them , courtesy of the ever generous NZ tax-payer .

by SK | 26th Apr 11, 11:57am 1303775824

This is very uninformed nonsense again.

Take a look at immigration stats.

by Nicholas Arrand | 26th Apr 11, 12:01pm 1303776070

The irony, Roger...that's what I see about me this very day! Somalian new-comers in St. Lukes. More each day....and more debt for those who stay here to service....

by Alex Tarrant | 26th Apr 11, 12:00pm 1303776006

Hi Nicholas,

Where are you heading to, and why? Have you got jobs lined up already?

Cheers

Alex

by Nicholas Arrand | 26th Apr 11, 12:03pm 1303776215

No job , Alex. ( I haven't had one for 20 odd years. The result of my views having proven very correct way back when!) My posts over the last two years now have often noted, we are off to Maloolaba when the lovely wifes' course has finished :)

by Kermit The Frog | 26th Apr 11, 2:50pm 1303786200

Whats your wife going to do with the new Audi Nick ?

by Nicholas Arrand | 26th Apr 11, 3:14pm 1303787651

Stepdaughter is an expensive luxury that came as part of the package, Kermit! That's why we just got a little A1. She's staying put as the sole survivor of our little band here in the Land of Her Birth.

by Dr_Roof_Ron | 26th Apr 11, 4:11pm 1303791079

Rent is so cheap today. my rent was almost 50% of my income 10 years ago. It is my two hours income today.

by Gloom | 26th Apr 11, 5:55pm 1303797302

Kieran Trass said in Feb 2011 that "The current 'rental boom" in Auckland is an anomoly ".

Hs might be right if the rent stop raising sometime this year.

by Wolly | 26th Apr 11, 11:20am 1303773654

An understandable conclusion regarding Auckland which is the destination for those not willing to cross the ditch..but it is a red flag for the govt and just one more shitty consequence of 9 years of failed Helen Clark stupidity....

But then Helen owns rentals in Auckland doesn't she!

by SK | 26th Apr 11, 11:33am 1303774425

"...why aren't you charging a higher rent for your propertties, now? "

All mine have gone up recently.

Seems like everyone is charging higher rents.

by Nicholas Arrand | 26th Apr 11, 11:41am 1303774901

Why weren't you charging more for them before? And why aren't you charging more for them now? Because it's what the market will bear! And when that stops, you won;t have the capacity to charge more, or anything at all if you have priced yourself out of the market. Disposable income only goes so far. Once it's allocated...that's it. How long will it be before tenants in situ start to move to chepaer properties? You will know when that time comes.... Then the panic to get tenants will be on.

by SK | 26th Apr 11, 11:52am 1303775562

This is just silly.

You are assuming the market is static.

by bob | 26th Apr 11, 2:56pm 1303786586

You have to give 60 days notice of a rent increase, so you look at Trademe, increase the rent 5% to be similar to other similar houses in the area and set it at that, then after 60 days you look on Trademe to make sure it's fair/reasonable and turns out that in the meantime the number of similar houses available has halved and the ones being advertised are now 16% more than what you put the rent up to and so the cycle continues.

Building and investing in houses is discouraged, population increases, blame is apportioned to everything except lack of supply. Prices increases. Large proportion of NZ's productivity is wasted on blogging etc. etc.

by RDee | 27th Apr 11, 6:58am 1303844328

Actually, 180 days from the last increase. Funny that there isn't a restriction on lowering the rent.

by bob | 27th Apr 11, 9:26am 1303853194

Seriously? - that's like 6 months?

So if you give them notice now that rent is going up say 15% then in 6 months when it actually goes up all sorts of things could have changed - probably in Auckland have to give notice of another raise coming in another 6 months.

by Your Landlord | 27th Apr 11, 12:11pm 1303863075

Hi Bob, just to clarify the rental increase laws as there might be confusion here:

A property owner has to give 60 days notice of an increase to a tenant.

Once the increased rent starts, 60 days after that notice, the rent cannot then be increased again for 6 months.

Regards.

by bob | 27th Apr 11, 2:00pm 1303869646

Thanks - that makes sense.

So hypothetically if one has just put the rent up and has found that in the intervening 60 days rents have risen sharply one would have to wait 4 months before notifying tenant of next increase, which would then be 60 days later, being 6 months after the last increase?

This 6 month thing hypothetically encourages one to raise the rent more than one would otherwise raise it.

by Gavin Jones | 26th Apr 11, 11:48am 1303775304

I appreciate this site has large numbers that are very strongly against property as an investment. However in my younger days property was widely considered as one of the wiser long term investments and yes many flocked to it and it has been very kind to them. We were able to purchase sections on only 10% deposit and many did this.

What many fail to understand is that many fledgling businesses were created in this country by these same young property owners that funded their businesses from the equity they had in property.

One of my concerns is that without property ownership, business funding will become more expensive and difficult to obtain. This is not good for NZ long term.

Few of my friends have lost money when they have sold homes, however many have had other investments that they have lost 100% with.

Any investment has by its nature an eliminent of risk, property to me has far less risk than many other types of investments, however you must still do your homework and watch your equity levels.

I know where I will continue to invest. Auckland is certainly moving again, so time is no longer on the side of those that choose to wait.

by steven | 27th Apr 11, 9:47am 1303854433

The past is no indicator of the future....

yes I agree in the past property made quite a bit of sense at an individual level.....that's different to what is good for the Nation....

"Time is no longer on the side"....personally I dont agree, I think cash is safe and sitting on it loses only small amounts....compared to a probable depression and deflation its the safest investmant. So housing is a short term gain risking medium term even long term losses......cash is a short term small loss v median and long term gains if the deflationists are right.....but play it as you see it.

regards

by Your Landlord | 27th Apr 11, 12:13pm 1303863226

What is good for the nation steven?

So who says that what you do is good for the nation then?

by Matt in Auck | 26th Apr 11, 12:39pm 1303778375

"Rent inflation remaining elevated for years" - that's a big call from the Westpac fellas.

I would respectfully suggest that there are many factors that are presently uncertain which will impact rents, in all sorts of possible directions.

I think the reality will defy simplistic universal statements like this.

For example, if the price of petrol continues to climb then the rents of centrally located properties ARE likely to climb steadily. But conversely, the rents for properties remote from employment and services may remain static or even drop. the net result may be limited rent inflation across a city or region

Similarly, if the COL continues to climb (petrol, food, energy, services etc) well above wage growth then human behaviour is likely to adjust so that a cap on rental increases occurs (ie. more persons per household)

what about Govt policy? If the govt brings back interest on student loans maybe fewer students will flat? etc etc.

by Simon | 26th Apr 11, 2:41pm 1303785695

0.6% during a quarter where uni's started up, 1000s temporarily relocating from chch, and rental inflation still negative in real terms. This is not an indication of elevated future rents.

by Noprogram | 26th Apr 11, 8:59pm 1303808372

"Rent inflation remaining elevated for years" OMG!

Never ask a tyre salesman whether you need need new tyres.......

Not in anyway designed to induce renters into buying into a dying market or pump/pimp optimism into the NZ PI rentier classes that are clutching onto any spruiker propoganda while hawking their dubious wares like cheap traders on a street corner for every sniveling cent they can hope to extract out of their damp hovels apon an economically beleagured nation? Debt servitude and property prostitution is the number one game in town afterall. Well done, parasitic champions of the NZ economy!

by Your Landlord | 26th Apr 11, 11:26pm 1303817188

Good on you, you sound like a happy renter.

by Noprogram | 27th Apr 11, 8:34am 1303850099

Thanks YL, I knew you'd appreciate it!

Would you be refering to a renter of houses or money? -Don't you worry your pretty little property portfolio.....I sleep well at night. Very well.

Although after watching the sunrise over the sea and a cracking good breakfast, I am sometimes concerned about the atrophies and distortions in our economy. I'm concerned it won't be able to keep you and your generation in the lifestyle that they have become accustomed to. Floated as it was on the tides of credit expansion and speculative fervor to the detriment of true investment in a productive and healthy economy. A future we can believe in...and your vision is?

Keep fighting the good fight YL.

by Your Landlord | 27th Apr 11, 12:30pm 1303864215

Noprogram, thank you for your concern about my generation. On behalf of my generation I hereby encourage and urge you on in your efforts to help the economy to keep me and my generation "in the lifestyle that they have become accustomed to".

I encourage you to work harder in your "true investment in a productive and healthy economy"

I would join you in the good fight Noprogram but sadly counting the rental cheques keeps me far too busy to spare you any time.

Regards.