Property values are rising faster than rents in Auckland but it's a different story in the rest of the country

Property values are rising faster than rents in Auckland but it's a different story in the rest of the country

Property values continue to rise much faster than rents in Auckland, although investors in other parts of the country may be seeing better rental growth.

The latest figures from Quotable Value show that average residential property values throughout the Auckland region increased by between 10.1% (in Rodney) to 15.2% (Waitakere) in the year to June.

But figures from the Ministry of Business Innovation and Employment show that the average value of tenancy bonds received from most of the same districts in June this year, were up less than 3% compared with June last year.

The exception was central Auckland (within the boundaries of the former Auckland City Council), where the average bond value was up 6.8% compared with June last year. 

But even that was well behind the 11.4% increase in house values that occurred in central Auckland in the year to June. (See the value and rental change figures for all main centres in the table below).

The strong increase in house values throughout the region will no doubt have been welcomed by existing home owners and landlords, because it should mean the value of their properties has risen, increasing their equity.

For renters the figures are a mixed blessing.

For those renting properties outside of Central Auckland, rent increases are likely to have been relatively modest over the last year.

However for those looking to make the move from renting to home ownership, the strong rise in property values will have made made that goal harder to achieve.

The figures are also likely to have made life more difficult for those landlords wanting to grow their portfolios in Auckland.

Because property values have been growing faster than rents, it will likely become harder for them to find new rental properties that will provide them with an acceptable return.

However investors in other parts of the country such as Tauranga, Hastings, Palmerston North, Nelson and Invercargill, should see better rental growth, with rents keeping pace with or overtaking property values.

In Wellington, the market appears subdued, with property values only increasing by between 0.5% and 2 % in the Hutt Valley and Wellington City, while rents posted a slight decline in the both Lower and Upper Hutt.

In Christchurch, property values and rents appear to have risen in tandem, with both up 6.8% in June compared with June last year.

Rising Property Values vs Rising Rents
  Average Value % Change since  Average rent % Change since 
  June 2014  June 2013 June 2014  June 2013
Whangarei 333,294 0.7 294 0.0
Rodney 674,090 10.1 439 1.4
North Shore 852,928 13.2 502 0.8
Waitakere 561,506 15.2 414 3.0
Auckland Central 848,024 11.4 490 6.8
Manukau 597,199 13.8 447 2.3
Papakura 431,142 13.2 404 2.2
Franklin 468,940 12.2 399 9.6
Hamilton 365,549 4.9 313 1
Tauranga 452,431 5.5 362 7.4
Whakatane 297,636 0.9 275 2.2
Rotorua 268,486 -0.2 254 -2.3
Napier 325,095 0.3 300 1.7
Hastings 300,145 0.3 296 4.6
New Plymouth 350,891 4.6 341 4.6
Wanganui 180,041 -5.4 205 3.4
Palmerston North 285,050 -0.2 276 1.5
Upper Hutt 336,043 0.5 295 -3.3
Lower Hutt 372,998 1.4 327 -1.8
Wellington City 535,962 2.0 427 3.6
Nelson 400,554 1.7 326 3.8
Christchurch 459,617 7.0 422 6.8
Timaru 280,066 4.7 264 4.3
Dunedin 288,609 1.1 293 0.0
Queenstown 664,353 4.3 393 2.1
Invercargill 211,625 3.7 236 7.3
Sources: Quotable Value/MBIE      

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Good article Greg - factual, balanced and unbiased.

Are there any stats available that split out Kapiti Coast from Wellington.. ?

Generally not good practice to draw conclusions from incomplete data; the methodology used to calculate the average rent figures does not include increases where an existing tenant’s rent increases but they do not change properties and hence no forms are sent to DBH.  This type of rent change makes up the bulk of increases and the absence of it in your data skews the results and makes any conclusions questionable at best. 

And of course Happy, it doesn't include all the ongoing tenants where the landlord is scared of losing the tenant, and doesn't put the rent up.

Yet another flaw in the methodology further skewing the sample from reality and making the conclusion yet more meaningless.  We might as well start drawing conclusions from commentators "I went to a auction yesterday..." comments. 

The data coming in must be worrying to you Grumpy happy..

I thought when rent goes up the tenant has to also pay more bond (to keep it at 3 weeks etc), so then this bond gets passed on to the DHB so wouldnt these figures be fairly correct?

Bonds never worked for me.
Tenant will give three weeks notice and say.  I'll stop paying the rent and take it out of the bond.  Those were with good ones.
The ratbags would do the same, and there would be damage found,  but no bond left.  Go figure. 
Never had a nightmare tenant.  But if there was $10k damage say.  Bond would not even go near it.
There is a case for forgetting about bonds.  The only reason I found them useful was sorting out the broke from the cashed up.   If they don't have cash in pocket for a bond,then they will always struggle.  Good test. 

Generally not worth ther hassle.  The bond is a set registered amount held by a third party.
No damages or other losses are capped at the bond, so if there's any problems and the bond isn't enough, then the tenant is liable anyway.

So asking for small increments of bond to pay to the third party, would just be an unneceesary expense to the tenant, and paperwork for everyone.  Whats the point?

Hi Economist, it's up to the parties involved but generally you just cross out the old rent figure, write the new and then both initial the tenancy agreement.  Nothing goes to the DBH. 

Good to know. I have a rental in Franklin - looking at increasing the rent 4-5%. Suppose should get a rental appraisal done each year.... but the tenant after 3 years never has missed a rent payment, but I probably have it slightly under rented.... Lots of new builds in Franklin which tend to rent for a bit more (for brand new house I mean) so think the 9% figure is a bit skewd to the high side, to be honest...

It's always a bit awkward rising rents, despite what many on here would believe, I have a good relationship with all my tenants and delivering bad news is not fun. 

I have a good relationship with my tenants too. Learnt from past mistakes not to be friends though. I have it written into the tenacy agreement to only do anual rent reviews, because I dont really like them, but its a business after all....

I have no doubt that the DBH is providing everything they have, problem is they don't have all the data. 
 
Have you put your rents up?  If so you should understand. 

DBH data shows the current market rent.  Nothing more, nothing less.  
If you want to go and rent a house tomorrow, that's the sort of money you can expect to pay.  What someone negotiated 5 years ago and is still paying to an off the ball landlord is irrelevant, that's not a rate that is available to the general public.
If you  are asking, what's the average landord getting? Then yes DBH figure will overstate that.  Average rent paid by all renters will always lag the current market rate as it takes time for landlords to raise their rents.

Back for more, are you sure you want to do this again, I had you up half the night last time and you still got owned....

Well if you stop misrepresenting the DHB data as undercounting rent increases, i'll stop replying.  Or do you really still think that the average tennant is paying a higher rent than what they would pay if they took out a new tenancy last month?

This is the difference between arm chair experts like your self and people who live in the real world and are actually running business' and investments.  I know the DBH data is incomplete because it doesn't include all my rents, a fact that you can't dance around.  And all my tenants go onto 12 month contracts, again I wouldn't expect you understand because you have no professional experience in the property industry what so ever.

I think you're right ostrich. Its probably as close to the reality as we are likely to get. From what I can tell rents have hardly moved, most people Ive spoken to who rent have confirmed this and these figures also tell the same story. I think large increases like Olly and co would have us believe are false. Also some of those increases particularly in south AKL would be because landlords have added a minor dwelling or sleepout and substanually increased the rent...

This is exactly what I've been harping on about - property prices have become completely divorced from rental growth and people's wages.  Then factor in increasing interest rates and expenses and something has to give.... 
Either property prices fall, or rents go up, and/or household incomes increase.
I see the first scenario as the most likely.
 
Interestingly a few years ago i looked into rental returns in America after the GFC where house values were decimated.  Rents from what i could ascertain (- and please don't hammer me as this was just a quick look) did not appear to drop.  So rental returns were not reliant on property values being maintained.
 
If the American situation is any sort of guide, then even if we do have a house price correction, i would not expect rents to decrease significantly. 

So if the US situation is any sort of guide, what do you see are the price setting factors...

When you say price i assume you mean rental price.
I think for the majority of people their incomes dictate how much they can pay for rent.
 

Hi Triple .....'spot on' comment, as I have properties,  both here in Auckland and in the US.
 
Rents in the US are totally dictated by income ...not based on a landlord's wish list....sorry Big Daddy, Happy123 et al
 
BTW gross ROI  - Auckland  3.9% ......USA 16.0% ......SAYS IT ALL.
.

I think the amount the landlord demands dictates how much people can pay for rent.

question is what sets that, if you've kicked one leg off the chair (house price) why isn't the it falling.  Obviously this wasn't the load bearing leg... or is it...

Haha.  I've been a landlord who has dictated the rent up.  And sure enough shortly after I had a vacant flat.
In the long run experiment, and over a number of properties I found there was a correct price, and it was not dictated by me.  There was a market.  And tenants made decisons and choices like I did.  There was a 'correct' level determined that reflected all the factors and competing interests.

You got to say it went up, but then you had to say it went down.  That still makes you the price setter.

Now what influenced you to make the decision, after all an empty flat is still an asset.

Yeah na.  I will 'set' the price then three times that of similar rentals.
See how I go.

Or you could try not being a complete inability to utilise brain matter and think for a intercoursing moment about what was said.  Oil level detection device.

You could set it 3 times lower.  and you could get away with it.
So what controls -your- choice, that is the factors we are looking for.  Something caps it - obviously as the "three times lower" -is- possible and the times higher is not, therefore the Landlord is _A_ price setter. And as -most- rentals are set too low, because most landlords fear putting rents up or can't be bothered, then that means that the landlord is a setting factor.  Whats more, the landlord is the one under law which gets to decide on the Ask price, so they are definately a Key Relationship Target (aka Decision Maker), when it comes to sale making and price.  
 And the signing tenant is the other Key Relationship Target (aka Decision Maker), so what are their weighted factors?  (clearly wage and location are 2 for the Buy-er)

What really astonishes me though...is New Zealand... people with the neural processing organ like KH can get high paid employment or equity enough to own rental accomodation.  Clearly, if that is possible, then it must be capable for anyone who tries, anyone of 30 or better IQ even!

You are aware Triple that outside CHC and AKL you can still buy a property for about the same (or less) as you could several years ago (when interest rates were a lot higher)? For a lot of NZers (esp in provincial cities) its debatable in real income terms if property prices have been divorced from rental growth and peoples wages.... A PI can also find AKL or CHC property that costs about the same as it did serveral years ago to run (yields are less but interest costs are a lot less - even with them going up a % or 2. (They used to be 8-9%++)
 
I wouldnt use the American  situation to compare with NZ, totally different market. Where in NZ are the streets of empty homes for sale? Where in NZ are lenders committing fraud on a mass scale? Banks in NZ require usually a personal guarantee from the borrower, etc... though I wouldn't expect rents to decrease by much in NZ either, even if houses drop, unless people took big cuts in income (unlikely) or there was a mass decrease in NZs population (also unlikely)... I know Robert Kiyosaki saw what was coming in the US and exited from expensive homes to cheaper ones (well people have to live somewhere)...

Hi Economist, you are correct i predominantly watch the Auckland numbers as that's what interests me.  These other areas may have a better return than Auckland but if you factor in inflation, most prices are still below their 2007 peak. 
 
I've always thought foreign buyers (and new NZ citizens) are driving prices up in Auckland and i don't believe these buyers have the same interest outside of Auckland.  Hence, prices outside of Auckland have not seen the same capital gains. 
 
I know the USA situation is different in many ways, however I'm trying to present both sides of the argument.  I have argued I dont think rents will rise dramatically, but i also think it's accurate to state that if property prices fall, it seems unlikely rents will significantly fall.  Assuming i am correct, this is an important point.
 
 

Yes. I think its far more likely rents will be 10% higher in 2-3 years than 10% less. The only way I see rents falling dramactically is if there was a massive increase in supply of rentals (very unlikely) or a massive decrease in population, (also very likely).
 
If house prices took a hit the OCR would come back down asap, thereby increasing the net yield, and this time around with the LVRs people aren't so highly leveraged, so don't need to sell, so are more likely to hold on, esp if the mortgage is around what they would pay in rent anyway. So I think a crash is unlikely. Perhaps the way to affordable housing for FHB in AKL is townhouse/apartments, and we just have to get used to a change in housing lifestyle in AKL like most other large cities....

Very true, whether we like it or not all forces point to higher house prices in Auckland and the RBNZ will step in to stop any significant falls.  What needs to change is peoples expectations, life in most big cities around the world starts in flats, apartments, townhouses, etc.  FHBs need to lower their expectations when buying in Auckland and look at these smaller and more affordable options. 

Ronert probably realised that most of his book market couldn't afford to enter the high end property market, and that capital turnover was faster in the lower end, where decent yield can be had.   Higher End provides nice steady income, will low maintenance but your annual yield suffers - which makes the empire building process (where the rents service the mortgages and are cashflow positive like Robert promotes) much harder.

Happy, the DBH does not include increases to existing tenants.  In fact it does not include existing tenancies at all!  It is only new tenancies.  
 
As such as well as missing those increases, it is also missing the far larger number of existing tenancies that this month did not have their rent increased.  The DBH data overstates average rental, you seem to be implying the DBH data understates rental levels?

So the only way to know which existing tenancies went up, or down, we have to survey landlords.  So dtcarter, of all your rental properties how many did you increase the rent on and how many stayed the same....
 
A separate point, tenancy agreements tend to be 12 months so there will always be a lag between rents and prices.  And the houses that tend to cycle through new tenants are the bottom of the barrel, hence the reason the tenants keep leaving. 

tenancy agreements tend to be 12 months?  I haven't seen a fixed term tenancy since my student days in dunedin.
 
You don't need to survey landlords (and who would believe them?)  Actual bonds lodged shows what the current market rent is.  Who cares what existing tenants are paying?  The market rate is enough to inform decisions.  When you are doing your yield  and cashflow calculations, simply discount the market rate by how much less than the market rate you are willing to put the rent up each year.

"So dtcarter, of all your rental properties how many did you increase the rent on and how many stayed the same...."
 
Avoided that question didn't you, probably so you don't have to type, I have no rental properties and really don't know anything about it, I don't even live in Auckland. 

Good point, i hadn't considered that.  You've really turned me around with that and i'm now convinced that the current market rent actually understates the average rent.

Simply survey the current tenants not changing properties? If the rent increase is too high they simply move, and a new form is sent to DHB. So the data seems pretty accurate Grumpy.
 

....and still no word from "Big Daddy" ???
 
 

Be patient, I'm coming.
I don't need to post on everything especially on subjects done to death already.

What would be really good, would be if there was no need for this conversation as we had put in place policies that make landlording an unattractive investment, house prices settled at a price more in line with wages and instead of being prisoners of usurous rents, people once again owned their own homes, by and large

Firstly, isn't that a bit like saying if we had policies making farming unattractive then farms would be more affordable and food a whole lot cheaper?
 
Secondly, at least rents have kept in line with incomes for many years...

Home ownership has far, far more benefits for society than merely economics. Those benefits outweigh renting being the norm many, many times, especially the way properties are rented in this country.
When it comes to bad tenants etc, i am not at all sure if the advent of that is not a chicken and egg situation, and that an overall sense of hopelessness means people struggle to make a home, and I mean HOME

.....well the cost of food production is not being fully costed due to the ability to overstock, pollute and degrade.  So one could say yes to your question.  Lower farm prices mean lower debt and thus lower need to push land and environment to beyond breaking point.  I bet there are many farmers out there who would vouch that if land was based on it's productive value they would farm in a much more sustainable manner - and therfore make food more affordable in the long term.