Rising house prices vs rents

Property

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

9th Jul 14, 4:00am by Greg Ninness

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

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

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46 Comments

by Triple | 9th Jul 14, 9:05am 1404853504

Good article Greg - factual, balanced and unbiased.

by ergo99 | 9th Jul 14, 9:50am 1404856210

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

by Happy123 | 9th Jul 14, 12:12pm 1404864726

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.

by KH | 9th Jul 14, 1:08pm 1404868111

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.

by Happy123 | 9th Jul 14, 1:46pm 1404870365

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.

by frazz | 9th Jul 14, 2:16pm 1404872161

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

by economist | 9th Jul 14, 3:37pm 1404877041

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?

by KH | 10th Jul 14, 4:11pm 1404965511

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.

by cowboy | 9th Jul 14, 6:03pm 1404885831

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?

by Happy123 | 10th Jul 14, 9:39am 1404941946

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.

by economist | 10th Jul 14, 10:11am 1404943915

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...

by Happy123 | 10th Jul 14, 3:16pm 1404962196

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.

by economist | 10th Jul 14, 9:42pm 1404985348

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....

by Happy123 | 10th Jul 14, 9:42am 1404942133

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.

by dtcarter | 10th Jul 14, 10:53am 1404946418

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.

by Happy123 | 10th Jul 14, 3:18pm 1404962294

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....

by dtcarter | 10th Jul 14, 11:55pm 1404993345

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?

by Happy123 | 11th Jul 14, 8:30am 1405024230

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.

by economist | 10th Jul 14, 10:03am 1404943437

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...

by Triple | 10th Jul 14, 11:19am 1404947963

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.

by cowboy | 10th Jul 14, 1:24pm 1404955442

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

by Triple | 10th Jul 14, 2:46pm 1404960361

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.

by Crazy Horse | 10th Jul 14, 2:56pm 1404960999

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.

by cowboy | 10th Jul 14, 6:31pm 1404973875

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...

by KH | 10th Jul 14, 8:09pm 1404979749

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.

by cowboy | 10th Jul 14, 8:29pm 1404980949

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.

by KH | 10th Jul 14, 10:14pm 1404987286

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

See how I go.

by cowboy | 10th Jul 14, 11:43pm 1404992598

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!

by economist | 10th Jul 14, 2:57pm 1404961027

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)...

by Triple | 10th Jul 14, 4:00pm 1404964815

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.

by economist | 10th Jul 14, 9:57pm 1404986276

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....

by Happy123 | 11th Jul 14, 8:38am 1405024704

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.

by cowboy | 10th Jul 14, 6:40pm 1404974436

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.

by dtcarter | 10th Jul 14, 10:57am 1404946673

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?

by Happy123 | 10th Jul 14, 3:23pm 1404962638

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.

by dtcarter | 10th Jul 14, 11:59pm 1404993576

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.

by Happy123 | 11th Jul 14, 8:33am 1405024429

"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.

by dtcarter | 11th Jul 14, 9:13am 1405026823

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.

by frazz | 9th Jul 14, 12:39pm 1404866346

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.

by Crazy Horse | 9th Jul 14, 2:16pm 1404872179

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

by BigDaddy | 9th Jul 14, 7:59pm 1404892790

Be patient, I'm coming.

I don't need to post on everything especially on subjects done to death already.

by Basel Brush III | 10th Jul 14, 11:12am 1404947546

Relevant to this discussion

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11290777

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11290678

by raegun | 10th Jul 14, 9:32pm 1404984744

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

by economist | 10th Jul 14, 10:06pm 1404986777

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...

by raegun | 11th Jul 14, 11:17am 1405034242

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

by rastus1 | 11th Jul 14, 11:32am 1405035156

.....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.