Barfoot & Thompson says the biggest rent increases are occurring on Auckland's northern and southern fringes

Barfoot & Thompson says the biggest rent increases are occurring on Auckland's northern and southern fringes

There was a big increase in residential rental activity in Auckland but only a slight increase in rents in the first quarter of this year, according to the region's largest real estate agency, Barfoot & Thompson.

The number of new tenancy agreements the agency handled in the first three months of this year was up 24% compared to the same period last year, while the average weekly rent charged on the 13,000-plus residential rental properties Barfoots manages increased by just 5.3% compared to a year earlier.

"The year began swiftly with a notable increase in the number of properties rented across almost all areas of Auckland over all three months," Barfoot & Thompson's Property Management Business Development Manager Will Alexander said.

"Typical for this time of year, activity peaked in February, then remained steady in March - a month when things usually taper off a bit."

A notable trend over the quarter had been that average rents for homes in Auckland's northern and southern districts had increased at a faster rate than the regional average, with average weekly rents in Rodney up 7.8% compared to a year earlier and average rents in Franklin and Manukau up 8.4%.

"While these are typically some of the more affordable areas to rent in, comparative rental price increases are now significantly above the average," Alexander said.

"The rents in the Franklin and rural Manukau area are now getting closer to the averages seen in South Auckland.

"These increases suggest that Aucklanders are struggling to find suitable properties in closer suburbs, or are happy to travel further afield to find the right home at the right price," he said.

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It just re-affirms what we know. Investors buying 80% in some areas and the young unable to get on the ladder causing a social imbalance. Wakey wakey Mr Key.

The front page headlines reads "... rents up just 5.3%". That's a decent increase. How much are wages up?

With more newer houses on the market, and a lot of houses that have been modernised due to the wealth effect people have felt with increasing house prices, some of this increase would be driven by nicer houses being rented out rather than owner occupied (as a greater proportion of houses being rented out).
Excluding the effect of the above, surely this 5.3% increase closer represents the current demand/supply imbalance in the Auckland housing market.
This can help show the portion of current house price increases that are driven by speculation rather than fundamentals.

"Excluding the effect of the above, surely this 5.3% increase closer represents the current demand/supply imbalance in the Auckland housing market."

You are probably right. I've been talking to various large developers this week about "large" housing developments. Large in Auckland is in the hundreds. This is a key issue. Even though the supply gap may not be as high as often reported, our ability to close the gap is not good. To close the gap we need to be doing developments in the thousands. So a supply shortage will remain for at least a few years under the status quo. With ongoing immigration it's hard to see the gap closing. This provides continuing buoyancy for house prices.

Personally, as a property owner I'm nervous. I've got good equity but I'd like to keep it. Despite the above I like many others feel the prices being paid in Auckland are irrational. But hey, maybe the world has changed...

What my issue is with is that there is a clear difference between inflated house prices, and continued increases in house prices from this point.

In a normal market (I recognise this may not be one), such a sharemarket, the price of an asset will not just reflect historic and current information/results, but also factor in future expectations (i.e. profits will grow X% in the future / possible regulations in the future).

If this is applied to the housing market, the current pricing of housing should reflect not only that there is a housing shortage and interest rates are low, but also that:
- immigration is expected to continue at high rates for X years into the future (lets say 10 years)
- the demand supply imbalance will continue to grow (lets say at 20,000 houses a year)
- interest rates will remain low for X years into the future (lets say 5 years)

For the house prices to continue to rise from current prices based on the assumptions above, the future assumptions above must change by even more (i.e. shortfall of 20,000 houses a year changes to 25,000 houses a year, or the shortfall will continue for 15 years rather than 10).

I see the shortfall still existing in the next 2-3 years / near future, but I don't see the shortfall getting worse than current estimates, and I don't seem immigration getting worse than current high levels (note: I'm not saying they won't continue to be high, just not get materially higher).

Thus, whilst house prices will probably stay high in the short term, I struggle to see how the fundamentals (based on assumptions on the future supply/demand/interest rates) could continue to support further increases. Thus, I feel future increases, if any, would only be driven by speculation.

Yes it is alot and don't forget that 5.3% on some $500-$600 a week for some people so it's big. Lets not forget that people with a mortgage are now paying a lot LESS in interest so thats going in the other direction. Fat chance of the average worker getting a 5.3% pay rise. The worry is that rents will just keep going up at this rate on an annual basis. Work that out year on year its not pretty and you have no control over it, pay or move out.

Rents would probably go up in Rodney due to the amount of brand new houses being built there.

Same in areas like Takanini in South Auckland - lots of new housing developments that are priced much higher than the surrounding areas (newer, bigger, more modern houses on average).

Rents continue to rise and life's still good in landlord land.

It's hard to see how the doom and gloom brigade on interest.co.nz can think that house prices will collapse, when the yield return on houses is increasing.

ummm...

For yield to be increasing, property values have to increase at a rate that is less than the rental rate increase. That doesn't seem to be the case in Auckland at present.

That's for gross yield. Net yields are up due to interest rates being down.

The difference between gross and net yield isn't the denominator (i.e. the value of the house). Net just accounts for the outgoings such as rates / maintenance / insurance.

If you are truly looking to see how your investment is performing, you should be calculating your yield based on the current price, not the price you paid for it. Or else you could be ignoring the chance to sell the property and invest it in a higher yielding asset (this is all just rental yield - excludes capital gains)

Hey Mach, You seem a switched on landlord. What calculation do you use for yield? I see so many, just curious. Thanks -

Your technicalities blind you to the reality.

As time passes, my rental income is rising. The yield on my original purchase price is getting higher and higher and higher and higher...

No complaints from this long-term investor.

Exactly. The purchase price is locked in so are repayments to a lesser extent. How can you calculate yield on current value when a house has gone up 150k in a year? You would have to be asking your tenants for huge % increases which we all know are both unreasonable and shooting yourself in the foot.