Auckland rentals lag house price rises

Property

Figures from economic research and analysis firm Infometrics show Auckland annual house rent growth is at a three-year low of 3%

24th Jul 13, 10:14am by David Hargreaves

<a href="http://www.shutterstock.com/">Image sourced from Shutterstock.com</a>

The annual rate of house rent inflation in Auckland sagged to a three-year low of just 3% in the June quarter, according to figures produced by economic research and analysis firm Infometrics.

These figures contrast markedly with the most recent Real Estate Institute monthly results, which showed Auckland annual house price inflation running at nearly 20%.

So, in other words, it is costing you nearly 20% more to buy a house in Auckland than it was a year ago, but the rent you can get on the property has gone up just 3% in the same time.

Infometrics said the gross rental yields (not individually given in their information release) for Auckland had dropped in the past year and were now equal to the record low levels of mid-2007.

Nationally, the gross rental yields were given as 4.64%, down very slightly from the 4.65% calculated for the March quarter.

Nationally also, rental inflation edged up to 6% in the June quarter from 5.5% in the March quarter - largely driven by booming Christchurch rentals, which were up some 12% on a year ago.

The growth in rental income in the Auckland area was dragged down by accommodation in the old Auckland city area, where rental growth was up just 1.8% for the year to June.

Infometrics said in contrast to this, rental growth in Waitakere and Manukau within the past three months was at its fastest since early last year.

These figures come as predictions are made that the cost of buying houses in Auckland will continue to surge.

The overheated state of the housing market, particularly in Auckland, has the Reserve Bank looking at putting "speed limits" on high loan to value (LVR) lending. See here for our articles on LVRs.

The most commonly cited reason for the rapidly rising house prices in Auckland is a shortage of supply. There is an estimated shortage of about 30,000 houses in the region, following a major slump in the number of new houses being built since the mid-2000s.

The Government and the Auckland Council have in principle agreed an Auckland Housing Accord, which will fast-track new developments and through which a targeted 39,000 new houses would be build over the next three years.

But while this has been going on there have been some questioning exactly why the Auckland prices are going up and whether it is simply a matter of supply.

Recently Westpac economists suggested that expectation of future capital gains - and not a shortage of supply - was the main real reason why house prices were going up so much. Economist and fund manager Gareth Morgan made similar suggestions in the New Zealand Herald recently, and said that the demand for housing had less and less to do with the demand for accommodation and more and more to do with the demand for a property as an investment proposition.

Another article in Interest.co.nz recently suggested that better information was needed on just what exactly was causing the Auckland market to overheat.

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34 Comments

by Your Landlord | 24th Jul 13, 10:59am 1374620382

It's getting cheaper and cheaper to rent, relative to buying.

Shows just how efficient Land Lords are in providing housing to people who want it.

Property investors should be acknowledged for their efforts to keep down the cost of housing to people.

PIs we salute you.

by Maybar | 24th Jul 13, 11:32am 1374622379

Yes I would like to thank our landlord in particular who decided not to sell his former home and decided to rent it out to us instead. By doing this he, and all the others who are doing it, reduced the number of dwellings available to purchase for owner occupiers, thereby driving up house prices, and screwing first home buyers out of the market. Currently 41% of dwellings in Auckland are rented. If renters weren't treated as second class citizens and were able to make their houses into a home like renters in other nations it wouldn't be so bad. But we aren't allowed to put up so much as a picture hook. And Your Landlord, go get a real job.

by Your Landlord | 24th Jul 13, 11:52am 1374623574

Maybar, if you didn't want to rent the house you wouldn't have rented the house.

There is nothing to stop people like you building a house if they can't find the one they want to buy.

The reason 41% of dwellings are rented is because the owners and tenants agree it is the best means of organising their living arrangements. No one has forced them.

My job is real Maybar. I look after the properties I own. I manage everything. I get paid money for doing so. Feels like a real job to me.

Rental income is hard earned money. No 9-to-5 hours for me mate. And very happy I am too. Wouldn't do anything else. Try it... it will make you feel good about yourself, contributing to our society in this way.

Cheers.

by Maybar | 24th Jul 13, 12:21pm 1374625270

No mate, currently we are renting because we have no other choice while we are saving for a deposit, simple as that. We could live with my parents, but then we would be living in overcrowded conditions with 4 adults and two children. Thanks for the "people like you" comment, shows how holier than thou you are.

by Your Landlord | 24th Jul 13, 2:24pm 1374632691

Maybar, you say "we are renting because we have no other choice while we are saving for a deposit."

Maybar, we all have to save a deposit. You are not hard done by because you are doing so. It's part of chosing to own a property.

Good on you for doing so and when you get your house you will enjoy it I am sure.

by Maybar | 24th Jul 13, 4:26pm 1374640008

In the last 12 months the goal posts have been moved significantly for first home buyers. 12 months ago and until recently and not for much longer, you could get a mortgage with a 5% deposit which is what we have been aiming for. Over that period, a 20% gain in house prices has meant that a home that could be purchased for $500,000 last year, now costs $600,000. So for the house that we were theoretically going to buy for $500,000 last year with a deposit of $25,000 at 5%, now costs $600,000 and with the 20% deposit the reserve bank is talking about will require a deposit of $120,000. All the while our rent hasn't changed for the last two years. There is growing evidence that there may in fact not be an under supply of housing, but a bubble being caused by speculators and home buyers expectations of future capital gain. Is it possible for you property investors to comprehend the impact you are having on the property market for owner occupiers, especially first home buyers? It takes years to save a deposit, and yes YL I have a right to feel hard done by when it comes to saving a deposit as our theoretical deposit has moved from $25,000 to $120,000 for the same house. Just so all can be well in landlord land!

by Your Landlord | 24th Jul 13, 8:20pm 1374654030

Maybar I share your frustration about the silly proposed moves by the Reserve Bank.

But if your cash flows are OK you won't need to worry about that. Get into the bank and start talking to 'em.

You have a big advantage that you mentioned, to whit "All the while out rent hasn't changed for the last two years." Make the most of that. It ain't gonna last, of that I am dead set sure.

But it does show how bloody nice Land Lords are... heck two years of nil price increases. Do you get that from your power company, your telephone company, your petrol company?

The country's benevolent Land Lords don't push up the average price of property by their own actions. They are always looking to purchase as low as possible, to help make the yield stats work OK. Always remember, PIs would go broke quick smart if they pay too much.

Oh yes, all's well in Land Lord land. Because they work hard and do what one could term 'god's work' ... providing shelter for people. God is so impressed with what Land Lords do he rewards 'em with profits.

How can 'ya lose when god's on 'ya side?

by rastus1 | 24th Jul 13, 12:58pm 1374627508

Landlord...you overlook the fact that both your tenant and you could have exactly the same deposit, however your tenant cannot afford to be the buyer as he cannot get a tax deduction for the interest, rates, repairs and maintenance etc.

This is the anomally that puts PI at an advantage over private wannabe owners. Great for landlords, but understand a lot of us are watching our kids struggling with student loans, the desire to start a family and so forth...and can see the unfairness of the current situation.

GSt is not claimable on private dwellings...so why are tax breaks?

by Maybar | 24th Jul 13, 5:09pm 1374642550

Yes agreed. Also, first home buyers have to save hard earned salary and wages for their deposit. Property investors only have to shuffle around their equity. Current situation is definitely biased.

by Your Landlord | 24th Jul 13, 8:23pm 1374654236

The Land Lord can afford to buy because he can add the rental income to his own income.

If you try it you will find the same applies to you.

It's nothing to do with tax.

by Julz | 24th Jul 13, 4:27pm 1374640026

Your Landlord, please don't flatter yourself with thoughts of "contributing to society"

The houses you own would be there and would be housing people perfectly well if you did not own them. The money you have borrowed is contributing to our national debt and is an additional burden to our economy.

The capital gains you will no doubt enjoy come thanks to infrastructure investment which we have all paid for. They also come thanks to immigration which is driven by our safe, fair and friendly society where again we have all contributed to.

As a result you are receiving money on the back of all our efforts. All the while you are putting more burden on our younger generation who can no longer buy those homes and more burden on our economy which is already laden with debt. To me that looks more like a parasite to society than a contributor to society.

by Your Landlord | 24th Jul 13, 8:26pm 1374654382

Well Julz, someone has to own the property and, after great thought, I can think of no more worthy owner than me.

PS please keep putting in the effort.

by brilliman | 24th Jul 13, 11:43am 1374623016

All landlords and PI are Gods.

I , the renter, worship them

And when the time comes, (it will)

I will tumble them and have new gods :)

by Keyser Söze | 24th Jul 13, 11:59am 1374623992

*LIKE*

by Your Landlord | 24th Jul 13, 12:04pm 1374624242

brillman, you should buy yourself a house and lease it out. You will derive great joy and pride, in both ownership and contributing to society.

Many people will "LIKE" you then.

by jh | 24th Jul 13, 1:22pm 1374628924

My neighbours for this property have been ringing and complaining but I believe that all people, regardless of race colour or creed should have the same opportunity to rent as long as they can pay the rent.

..........................

but your tenants don't have the right to **annoy** the nieghbours?

by KH | 24th Jul 13, 12:12pm 1374624755

Thumping each other on this issue avoids the real issues.

One thing that strikes me that if rent increases are 'low', it indicates that demand is low. And indicates the property price rises we see are not a supply issue.

And if property prices are rising at the same time, in the absence of a supply issue, then it is a pure sort of bubble. No great fundmental demand but people still are buying frantically, in anticipation of future prices rises. A system that feeds itself, and is ripe for popping at some stage.

Comment.

by jh | 24th Jul 13, 1:32pm 1374629522

....................

Given the perception of a great big welcoming mat, a gigantic supply of wealthy buyers and a dirty, smokey world plus continually being informed as fact that Aucklands population would increase by large chunks.....

yet the government has clearly nailed it's colours (same as the Houston Chamber of Commerce) to the mask: "land supply".

by jh | 24th Jul 13, 1:41pm 1374630101

Your Landlord claims everything is straight and fair, that landlords provide a service, build accomodation to suit need etc but you have to consider the context:

Tonight, a pumped de Roos tells his audience that he wants people to invest in property and write to him 12 months down the track and tell him they’ve “made one million or three million, or you’ve got 16 properties, or we’re taking six months off because our cash flow now exceeds our outflow!” He says, “I don’t know any other activity where the rewards are so huge. If you want to invest a million dollars in the sharemarket, you need a million dollars. If you want to invest a million in real estate, you only need $100,000.”

You can buy one property, get it revalued, use the equity to buy another property and then buy another and another. “And you do it all with OPM. Other people’s money. OPM. It’s like being high on drugs!” What’s more, the wonder of depreciation claims on the building and contents means “the government subsidises your investment! It’s delightful!”

House of the rising sum

by Pamela Stirling

Listener Magazine. You also have to consider it from a perspective of urban form since the profit motive is # one for many property investors.

by jh | 24th Jul 13, 1:44pm 1374630245

The Rent Trap

For the housing market’s winners, the gains have been spectacular.

Infometrics director Gareth Morgan calculates that between 1989 and 2005, the residential property market has provided investors - and owners - with a tax-free 319% gain.

http://www.catalyst2.co.nz/blog/news/the-rent-trap/

by Your Landlord | 24th Jul 13, 2:34pm 1374633284

Thank you jh, great statistic there.

Did you know, Mr Morgan, he who knows everything, said back in 1989 (the Reserve Bank Act had just been instituted at the time) that there was now no point buying a house 'cause inflation was effectively banned and there would be no capital gain.

Your info indicates he must have finally realised he was wrong. Horribly wrong if anyone took his advice in 1989.

PS My experience confirms that on a capital basis only, Morgan is approximately correct.

Of course if the investor also adds rental income into the equation, returns are much much more than 319% (although not all tax free!)

by Plan B | 24th Jul 13, 3:18pm 1374635926

Don Brash as Governer of the RB effectively removed housing from the statistics used to determine the CPi which is our stupid measure of inflation.

Our currency has been allowed to be debased ever since the RB act. Our dollar is worth only a fraction of what it once was in 1989.

Much of the increase in house prices can be understood in terms of the massive decrease in value of the NZD.

by splineman | 24th Jul 13, 3:29pm 1374636587

Absolutely......just rent and don't worry about it.

Why be a debt serf all your life.

by splineman | 24th Jul 13, 4:25pm 1374639939

I am a homeowner just never paid any interest.......for a young person today, wait it out. Save up and enjoy life a bit. You only get one. Why be a slave to banking all your life.

by jh | 24th Jul 13, 1:45pm 1374630320

Background of housing in NZ

1.4 million houses

Most houses inhabited for 70 to 90 years

Many houses are old, cold and damp

High level of deferred maintenance

Relatively low building code standards

Declining home-ownership rate

Mäori home-ownership rates remain lower

No wealth tax, capital gains tax or death duties

Around 30% of people rent from private landlords

5% of people rent social housing

Public consequences

• Untaxed increase in house prices helping to fuel

wealth concentration and income flow

• Increase in relative inequalities has social and health

consequences at both individual and neighbourhood

levels

• Housing is probably our poorest maintained

infrastructure

• Poor housing leads to health problems that lead to

greater health care utilisation

• Poor housing leads to inefficient use of energy

http://www.treasury.govt.nz/publications/media…/tgls-howdenchapman.pdf‎

by macbet | 24th Jul 13, 1:58pm 1374631131

I think this is the most interesting statistic of all. For what it's worth my take is kiwis (along with most of the sensible people in the world) don't trust banks / pension companies etc and prefer to invest in property. Safe as houses.

For this and other cultural reasons, it turns out that everyone's a property developer now and there is an inevitable consequence if that trend continues. I'm sure the smarter landlords who look at yield etc might be questioning whether to keep ploughing into property.

What happens next? Here's one scenario...

Stage 1: Rents don't keep up with prices rises ✓

Stage 2: Rents start to fall as landlords compete for the quality tenants while even more investment properties come to market and are offered to tenants, add further price pressure.

Stage 3: Property stops increasing in value, interest rates notch up. Johnny-come-lately property developers, those attracted by the radio ads offering courses etc decide it's all too much hard work, realise they aren't making any money and try to offload.

Stage 4: ?

by jh | 24th Jul 13, 1:52pm 1374630755

Dolf DeRoos (on his mentoring program) talks about choosing a buyers agent when he is buying in a new town. He goes around the agencies asking "who is your best agent" at # 5 he is told "fred"... and he says: "and Fred will find you properties 30% below value". So who sells below value? Ans: a distressed, isolated person; a person with problems; a person needing support; a person who needs the extra money a lot more than Dolf deRoos.

by Plan B | 24th Jul 13, 3:21pm 1374636073

A great read, on Land Tax

http://michael-hudson.com/2013/07/china-avoid-the-wests-debt-overhead-a…

If China follows our path and taxes work and transaction but not unearned income then all bets are off, But what if they do follwo another path and tax land instead? Then they really will rule the world.

by Boatman | 24th Jul 13, 3:27pm 1374636424

I have said this before , these artificially low interest rates have had unintended consequences on house prices and rents .

The rental market is nowhere near as bouyant as sales would led you to think , simply because at 5% mortgage rates it has been cheaper to buy than to rent .

A family member was renting a 4 bed house on the shore for $625 a week and they bought it in Jan 2011 for $600k with a $50k deposit ( no agents )

The mortgage repayment is under $600 a week , which is less than what they were renting for .

The low interest rate environment has caused all sorts of hidden faults to appear in the market

by bigblue | 24th Jul 13, 5:28pm 1374643731

A massive net migration gain of say 40,000 people over 12 months will soon see rents on the rise. (much of this gain will come from a big drop in Kiwis moving to Oz)

Main reason rents are down is that the 18 to 25 year age bracket can't find work so are staying home with Mum and Dad rather than renting.

by Your Landlord | 24th Jul 13, 8:06pm 1374653209

Totally agree with you bigblue.

Also re the relatively low rents, another cause is the current low deposit rates on bank accounts. When those start to rise rents will start to rise to. Rising deposit rates will push up yields on all other investments.

by notch | 25th Jul 13, 4:25am 1374683153

Who acts like a troll, sounds like a troll, and is probably a troll?

My advice to any young kiwi's in NZ is to get the hell out of there. Go somewhere where the dice have not been stacked so far against you by your elders.

Believe me, there are many better options than becoming a slave to debt to a overpriced shitbox in a crap city with no infrastructure or public transport.

by Your Landlord | 25th Jul 13, 4:18pm 1374725904

Gee notch, that is very unfair of you.

I ain't no "troll," whatever that is. I have been investing in property since my late teens and still going at it today.

Had ups and downs, for sure, but time smooths 'em all out. Wouldn't change a thing.

I am much more positive about owning a house in a New Zealand city than you seem to be. New Zealand is a great country to live in.

I have earned enough money from property that I am now able to help out some of the organisations I am interested in.

Us PIs have got great big hearts notch. If you know a few you will know that we are neat guys.

by ex agent | 25th Jul 13, 8:19am 1374697142

Notch do not take it too personally. Your Landlord will just be a poxy stirrer having some fun. Probably just a renter in fact. I agree with you though. Us boomers have made it very difficult for our children and grandchildren. And with Australia and the UK/Europe on the back foot financially there are not as many opportunities currently to go overseas and build up some quick capital. But markets ebb and flow like the tide so there will be some opportunities in the future. One thing for sure, you will never see a world like boom like the mid 2000's again in our lifetime. The boomers were perfectly placed to take advantage of those times and they did a great job in doing so.