Rents rising faster than wages in Auckland and Wellington

Property

Rent rises outpacing wage growth in Auckland and Wellington but Canterbury renters are on the pig's back

9th May 18, 7:44am by Greg Ninness

By Greg Ninness

Rents are continuing to rise faster than take home pay in Auckland and Wellington, but in Canterbury the reverse is true, according to Interest.co.nz's latest quarterly review of rents.

This shows that in the first quarter of this year, the average rent for all new tenancies through out the country registered with the Ministry of Business, Innovation and Employment was $446 a week, up $23 (+5.4%) compared to the first quarter of last year.

Over the same period, the average pay packet rose from $929.84 a week after tax*, to $960.87, an increase of $31.03 a week (+3.3%).

The fact that rents are rising more strongly than wages has some potentially significant implications for the economy, because it means progressively more of the household budget is being eaten up by rent, leaving less money for people to save or spend on other things.

However there are also some significant regional differences.

	Average Weekly Rent			Average Weekly Net Pay
Region	Q1 2016	Q1 2017	Q1 2018	Q1 2016	Q1 2017	Q1 2018
Auckland	$493	$517	$540	$950.20	$965.81	$999.44
Wellington	$441	$470	$506	$993.58	$1,014.73	$1,045.62
Canterbury	$390	$382	$390	$895.61	$910.83	$941.03
All NZ	$402	$423	$446	$912.19	$929.84	$960.87

In Auckland, the rental and income figures both follow the national trend very closely.

The average rent in Auckland increased by $23 a week (+4.4%) between the first quarters of last year and this year, while average net pay was up $33.63 (+3.4%) over the same period.

But in the Wellington region, rent rises have far outstripped pay increases.

Between the first quarters of last year and this year, the average rent in Wellington increased from $470 a week to $506, up $36 (+7.7%).

But over the same period average after tax pay increased from $1014.73 to $1045.62, up $30.89 a week (+3%).

That means rents in Wellington increased by more than average take home pay in both percentage and actual dollar terms and that appears to be part of a longer term trend.

In the two years since the first quarter of 2016, the average Wellington rent has increased by $65 a week, while average take home pay in Wellington has increased by just $52.04 a week over the same period.

But while renters in Wellington may be doing it tough, renters in Canterbury are on the pig's back, with rents there hardly moving and wages continuing to rise.

The average rent in Canterbury was $446 a week in the first quarter of this year, up just $8 a week compared to the first quarter of last year and unchanged from the first quarter of 2016.

However average take home pay in the region has increased by $30.20 a week between the first quarter of last year and the first quarter of this year, and by $45.42 since the first quarter of 2016, leaving Canterbury's renters laughing all the way to the bank, or perhaps to the pub.

No chart with that title exists.

*Notes: Average rent is calculated by interest.co.nz from bonds data supplied by the Ministry of Business Innovation and Employment. Average weekly net pay in based on pay rates in Statistics NZ's Querterly Employment Survey (Full Time Equivalent, including overtime) with income tax and ACC employee levy deductions calculated by interest.co.nz using IRD's standard rates for individuals. This does not include any student debt repayments or Working For Families allowances.

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133 Comments

by Chessmaster | 9th May 18, 8:29am 1525811351

Not surprised at all, less buyers means more renters. It's almost worthwhile not selling now as rents are pretty decent and no shortage of renters. If you can afford to keep your investment property keep it as this trend will continue. Only the savvy are buying right now so not a great time to sell. Simple supply - demand rents will keep going up as cities with lots of jobs keeps attracting people.

by rastus1 | 9th May 18, 8:40am 1525812009

..another tiresome repetative real estate spruiker comment. Give it a rest.

by Yvil | 9th May 18, 8:55am 1525812919

He's just stating the obvious, no "spruiking" there.

by HeavyG | 9th May 18, 4:05pm 1525838704

Rastus should just call Chessmaster a "racist" if he wants to end the discussion. "Spruiker" is not derogatory enough to play the man.

by Zachary Smith | 9th May 18, 9:25am 1525814701

Chessmaster's comment was very reasonable and on topic. I can't fault it.

by Boatman | 9th May 18, 10:11am 1525817485

Chessmaker is 100% correct .

This Government has done everything legally possible to discourage , prevent, bully , frighten and intimidate anyone from investing in residential property .

Landlords are in many cases running scared of likely changes to the tax treatment of their investments .

There is now no one left to provide rental stock in to the market , the Government has shown its incompetence and Housing New Zealand is a shambles .

The only consequence is that rents will rise as no one provides rental stock

The only thing the Government has left to hammer landlords with is illegal in New Zealand ............... we all know what Chairman Mao did to landlords.

by Solidname | 9th May 18, 11:59am 1525823994

Removing privileges ≠ persecution. You're welcome.

by Zachary Smith | 9th May 18, 4:20pm 1525839608

Removing privileges absolutely is persecution. Whatever next!

by Canton | 9th May 18, 2:36pm 1525833416

Wrong. Being an amateur landlord is not being an investor. This is foolish. Unless you like the idea of dealing with problem tenants, rates, insurance, repairs, maintenance, liabilities, etc.

If you absolutely must invest in real estate just buy a REIT and call it a day. Otherwise a low cost diversified index fund is a much better long term investment at about 1/100 the expense

by rastus1 | 9th May 18, 12:10pm 1525824603

..its same old same old adding nought. Tiresome

by Zachary Smith | 9th May 18, 4:24pm 1525839871

I thought it was a really good comment. It could be hard work selling that old rental at the moment. If you can afford to, hold onto it.

by Hardly | 9th May 18, 6:49pm 1525848540

The statement ‘rents are pretty decent’ seems easy to disprove with a yield calculation.

by Zachary Smith | 9th May 18, 7:26pm 1525850772

Landlords calculate yield on their initial purchase price and not current value so yields seem preddy gud.

by theglc | 9th May 18, 10:50am 1525819813

The problem in Auckland is that the yield is so low, My Landlord gets a 2.9% yield which equates to about the same as an after tax term deposit only there are rates, repairs and maintenance on top of that.

Now that capital gains have disappeared its no wonder there are 12500 houses for sale on Trade Me, its not worth the effort in a flat to falling market.

Obviously there is more space for increased rent for some but for others they will just move or get more people into the house to help pay it.

If you have a good long term tenant you may wish to keep them. There are a lot of instances of tenants who don't pay and make promises but end up bailing and even if the bond covers it, it is a hassle.to manage.

by Retired-Poppy | 9th May 18, 11:51am 1525823478

theglc, well said. Those that can't see a problem with today's yields are just addicts to debt and property. They won't stop until sanity returns. Risk/reward no longer stacks up.

by Pragmatist | 17th Dec 19, 7:59pm 1576565998

by fat pat | 9th May 18, 5:41pm 1525844508

All these rental yields that people complaining about. Are they based on purchase price, or the inflated current market value? Because if it's the latter then I detect a wry smile on the face of the complainant

by Pragmatist | 17th Dec 19, 8:00pm 1576566022

by fat pat | 9th May 18, 6:05pm 1525845919

The place I'm currently renting was taken over recently by the son. Our neighbour told us his dad purchased the block of 6 back in the 70's The son explained to us (with a straight face) that he had to raise the rent because the yield was so low.

by Pragmatist | 17th Dec 19, 8:00pm 1576566032

by CN | 10th May 18, 3:00pm 1525921240

For what it is worth, median gross yields in some suburbs in Auckland currently - (this is before operating costs such as rates, insurance and repairs and maintenance)

1) Epsom 1.4%
2) Mt Eden 1.7%
3) Herne Bay / St Mary's 1.8%
4) Westmere / Surrey Cres 1.9%
5) Remuera 2.0%
6) Pt Chev 2.1%
7) Mt Albert 2.2%
8) Kingsland 2.3%
9) Royal Oak / One Tree Hill 2.3%,
10) Mission Bay 2.3%
11) St Heliers / Glendowie 2.3%
12) Kohimarama 2.3%
13) Parnell 2.4%

For other suburbs, check out - https://www.qv.co.nz/property-trends/rental-analysis

Note one observation - Most of the house prices of the suburbs in Auckland (excl apartments) are yielding below 3.5% p.a - that rate is the 1 year time deposit rate offered by ANZ Bank currently (bear in mind, gross rental yields still need operating costs such as rates and insurance to be paid)

Food for thought - from a purely financial perspective, for some owner occupiers, and financially driven owners who have negligible mortgages (and unwilling to take on additional debt), it might be better to sell their low yielding property and rent in the same area as they would receive higher interest income on the proceeds than they would need to pay if they rented. Of course, this excludes peace of mind and other benefits of ownership.

by Double-GZ | 9th May 18, 8:05pm 1525853156

FWIW if you bought your properties in the 90's and early 2000 like me who cares about yield? LOL!!

by Rex Pat | 9th May 18, 8:48pm 1525855701

When you have a mortgage, you think Nirvana is getting rid of it. Then you realise you can’t retire without a swag of cash. When you have a swag of cash you worry about returns and principal loss. I can’t imagine what I would do with the pressure of investing another swag of cash or for that matter becoming a renter.

by Chessmaster | 10th May 18, 5:04pm 1525928654

Yields are irrelevant for owner occupiers. Not sure when you last looked trying to rent a place in those Central suburbs, it's fn expensive with zero upside for the tenant. You'll be lucky to even get a property to rent, no pets of course and can't change anything you want. You get f all from the bank in interest and in my experience shares, commodities, etc are way too risky. Others will disagree of course, but these types of investments are too easy to manipulate by the big players. Poor mum/dad investors at their mercy. It's better to have a house for stability and live happily with family before you start venturing into riskier stuff. If it's your own house, what does it matter that it goes up or down. You not looking to sell on a hurry.

by Canton | 9th May 18, 2:35pm 1525833324

Wrong. Being an amateur landlord is not being an investor. This is foolish. Unless you like the idea of dealing with problem tenants, rates, insurance, repairs, maintenance, liabilities, etc.

If you absolutely must invest in real estate just buy a REIT and call it a day. Otherwise a low cost diversified index fund is a much better long term investment at about 1/100 the expense.

by mayanknz | 10th May 18, 10:50am 1525906247

absolutely true...

by gordon | 9th May 18, 8:40am 1525812015

It certainly does not pay to have all ones eggs in one basket. It does take imagination , courage and intelligence to diversify.

by Yvil | 9th May 18, 8:58am 1525813112

Actually I disagree, diversification is not a result of courage but rather fear, fear of losing, hence diversifying minimises a loss

by Hardly | 9th May 18, 6:52pm 1525848722

Sort of. But the theory of diversification is that you can maintain the return while reducing risk.

by Yvil | 9th May 18, 9:00am 1525813229

"Diversify" is the mantra of the financial advisor to cover their back.

by gordon | 9th May 18, 9:31am 1525815063

I am actually talking about having all ones rentals in one town. Todays data advises us of the losers in this area of investment.

by Yvil | 9th May 18, 9:56am 1525816618

Can you please quote the paragraph that "advises of losers" I think is a figment of your imagination

by Didge | 9th May 18, 10:09am 1525817375

Unbeleivable Yvil. Do you really need it o be made even more obvious as to what Gordon is correctly alluding to?

by Yvil | 9th May 18, 10:11am 1525817483

So you can't quote the paragraph Didge?

by Penfold | 9th May 18, 12:19pm 1525825145

Data, not paragraph.

by THE MAN 2 | 9th May 18, 11:11am 1525821087

Nothing at all wrong with having your rentals all in one city or town, providing your returns are good.
Rather continue to make money and be provided with income than having to worry about what the financial adviser is doing with my portfolio.

by HeavyG | 9th May 18, 4:17pm 1525839445

Agreed. I also manage my own properties myself and to do this and keep an eye on them I would not buy outside of Auckland.

by Canton | 9th May 18, 2:38pm 1525833513

Terrible idea. Buy an index instead at 0.07% expense ratio. Much less than property management fees, rates, insurance, liabilities, maintenance, and repairs.

by CJ099 | 9th May 18, 8:46am 1525812388

Just remember Landlords; the more you hike your rents up, the more pressure you are placing people under to leave and move to a more affordable city/town. Or they simply move back to their parents home so they can save to buy their own home.

I can tell you from my own experience that all the young kiwi staff that I work with, the majority have decided to stay with their parents or have had to up stakes and move abroad.

by Averageman | 9th May 18, 8:59am 1525813194

Agreed. Its simply driving one of our biggest export to Aussie - educated youth. Not that factors anywhere in an investment decision.

by Yvil | 9th May 18, 9:04am 1525813470

Also the more expensive the government makes it for landlords to hold a rental house, the more pressure to raise rents to cover expenses...

by Boatman | 9th May 18, 10:18am 1525817903

@cj099 ............. DONT BLAME LANDLORDS ............ they are simply reacting to market conditions , in part created by a Government who does not want residential property investment by the private sector .

The Government has put every obstacle in the way of residential property investors , so they are leaving the market .

No one is filling the void to provide housing stock , and only a fool would do so

The consequence was always going to be a mess , as we see renting families being turfed out and the houses being bought by DINKY'S ............( Double Income No Kids Yet )

by HeavyG | 9th May 18, 4:12pm 1525839154

Yes I often wonder who I can rent my Auckland houses to now given the recent exodus of people due to the rent increases... Auckland is now like a ghost town and I can drive from Albany to Papakura in 30 minutes during peak hour.

by Small Kev | 9th May 18, 9:22am 1525814557

Multiple families/income earners in one rental and that’s the way of the future with not enough houses being built in Auckland. Rent to wage ratio is just assuming there’s only one or two income earners. Renter chose to live in Auckland will have to live with others or move to other affordable cities.

by Boatman | 9th May 18, 10:19am 1525817984

@Small Kev .............yes multiple extended familes are commonplace ..............In India

by theglc | 9th May 18, 10:58am 1525820337

and in Auckland

On the corner of my street there are 2 family's and one set of grandparents living in a 2 bedroom house. 9 people and 5 cars in total.They are of Asian decent but I wouldn't know if that is normal practice in their culture.

There is also another house around the corner that is 4 bedrooms with 9 cars, got to imagine there are a far few occupants.
.

by waymad | 9th May 18, 9:33am 1525815186

Interesting, that Christchurch curve, innit.

It demonstrates, over a long-term series, that taking the constraints off land supply and actually allowing new development, close to the city (e.g. Prestons) has, quelle surprise, a stabilising effect on house prices and median rental costs.

Mind you, it took a substantial earthquake sequence (>16K at latest count with at least 5-6 of those in the Hazardous to Health range), and an Enlightened Despot, to achieve this happy result. It's hard to detect either of those preconditions (an unfreezing of the status quo, and Gubmints - local or central - that know what they are about in economic terms) in Awkland......

by Yvil | 9th May 18, 11:34am 1525822466

Wayman, I used to live & practice Architecture in Chch up to the EQ when I lost my house and moved to Auckland.
IMO what Chch demonstrates is supply & demand.
1) The EQ wipes out many houses, supply drops rentals & house prices rise
2) The rebuild is complete, supply increases, rent & house value drop
I do think it is that simple

by unaha-closp | 9th May 18, 10:59am 1525820391

But the point is, it is that simple in Auckland as well.
1) Council cuts land supply, constrains building industry of Auckland City (whilst opening up amazingly large sprawls miles away).
2) Housing supply drops, rental and house prices rise.
3) Professionals with transferable skillsets (like you of 10 years ago) leave.

by Yvil | 9th May 18, 11:10am 1525821031

Agreed

by THE MAN 2 | 9th May 18, 9:51am 1525816267

It is very interesting to see that the average wage is bugger all more in Auckland than Christchurch!
The average weekly rent seems pretty low for Christchurch going by our prices, so,there must be a lot of landlords under renting their property.
Gordon doesn’t really appear that Chch rents are dropping, although if you say they are, then you must be right as you are an authority on Chch property aren’t you?

by gordon | 9th May 18, 10:00am 1525816844

People still chose to live in Auckland where the weather and opportunities are better than other parts of New Zealand. Such a vibrant city with a very magical harbor and surrounding islands.

by THE MAN 2 | 9th May 18, 10:17am 1525817851

Extremely debateable that you think that Auckland weather is better than Chch!
Always rains in Auckland and Chch summers are better!
Living is far more costlier than Chch so I will stick to CCh where I find there are more opportunities and the people are friendlier.

by Yvil | 9th May 18, 5:23pm 1525843414

TM2, I lived in Chch for 20 years and now 6 in Auckland. There is no debate at all, Auckland weather is much, much warmer (or less cold as the maxima are often close but the minima in the evenings, nights and mornings are often 8-10 deg less cold in Auckland). Yes amount of rainfall in Auckland is much higher but that is due to the fact that it rains hard vs drizzling for hours in Chch. The proof is that Chch & Aucks have about the same amount of sunshine hours pa (about 2'000 hours).

by Boatman | 9th May 18, 10:03am 1525816983

Why am I not surprised at this headline ?

If we discourage investors from providing the market with rental stock , they will not supply rental stock, and Demand , bless his cotton socks , is not going to go away or disappear .

by Yvil | 9th May 18, 10:09am 1525817348

Yep, that's true. I'm not saying it's good or right for the poor renters who need to fork out more $ but it's an logical outcome of disincentivising the private sector of providing rental accommodation

by Eco Bird | 9th May 18, 12:04pm 1525824291

The bitter fact is that this Clever CoLs are going to fork out more AS of our money as time goes by to help lower income and beneficiaries, Let alone the Homeless people.

PT crocodile tears about homelessness doesn't fool anyone anymore, he is actually making little sense while reducing his kiwibuilt quota now as he faces reality... while insisting on going down the same road and continue the same nonsense.

They've already started begging for anything available to rent or to house the homeless people. these are the same people crying foul and blue murder about motel expenses 8 months ago ! ..Hypocrisy is not enough to describe their action.

Once the Negative Gearing ban takes its toll, they will face a bigger problem in rental supply shortage, and they will spend many folds of the TAX take from NG on topping up AS and housing people made homeless by these actions ...

They just refuse to comprehend what "Unintended Consequences" means and eventually hurting the same people they are claiming to be protecting.

by Retired-Poppy | 9th May 18, 12:10pm 1525824606

......bitter facts as presented by a bitter person.

by Eco Bird | 9th May 18, 12:54pm 1525827244

No, the bitter facts as being reported everyday by everyone - there is a reaction to every Action taken !

You can hide behind your thumb RP, Blaming me, Landlords, or National wont serve the people who are suffering from the consequences of ill studied policies and lack of solutions, it just serves the narrow political aims of some, and that is gradually becoming apparent to all and sundry.

The deniers moan about how tough and expensive life is becoming. They don't want to know about who is causing it and why it is happening and what is done about it!

Just finding someone to blame wont make the problem go away. Defying common sense is worse than defying gravity.

I wonder which would be Fairer to people, Gathering more tax from landlords who are on NG and chasing them away from the market Or more homeless people and higher rents and higher AS and motel expenses?

by Retired-Poppy | 9th May 18, 2:16pm 1525832219

Echo Bird, can you think first before you whinge about Coalition policy? First, study the nine years of policy that got us here and then drum up some logically thought out counter policies and solutions.

You have one big axe to grind that's made pretty clear. Presenting un-oiled arguments against well oiled policy only outs yourself as a bitter sufferer. Be thankful for the nine years you had on the take. Although it's mostly unbanked.

by Eco Bird | 9th May 18, 2:54pm 1525834449

lol, well oiled policy ..eh?

Oh I didn't know that , But hey, that is great then.

Everyone including tenants, homeless, beneficiaries, and FHBs should be happy and feel great as long it is well oiled.

And No one should complain about rental shortages and rents getting higher because , as you say, the Policy is Well Oiled !! :)

I rest my case RP, keep trolling and misguide your audience with this BS until they feel the pain and realise what a clever dude you are (were) , Not!

by Retired-Poppy | 9th May 18, 3:14pm 1525835643

and your logically thought out counter policies and solutions are what exactly.......? You think not, whinge a lot, unconcerned about tenants, homeless, beneficiaries, or FHBs. Simple tasks such as calculating percentage yield is beyond you and it appears you lack the business acumen to diversify. Your views are just so warped and self indulgent is scary. I rest my case too.

by Eco Bird | 9th May 18, 3:31pm 1525836694

I hope you feel better now RP ..:)

lol, in fact coming to think about it, you seem to be right... there is no better policy than this "well oiled" one that is being implemented.

Spoon feeding is what their supporters are used to, gives us an alternative or else they make a big mess ....

2.5 years left RP ... just a blip in human history.

by Retired-Poppy | 9th May 18, 3:47pm 1525837655

Ha-ha-ha-ha :) I know chessmaster certainly does. No doubt you'll make that vote count in 2020. I think we're in for at least one more term. It's in the first year of term, Governments usually implement new policy - sometimes unpopular. Polling takes a small battering then its hopefully all bearing fruit by 2020 and for the Coalition its a home run.

by Chessmaster | 9th May 18, 2:59pm 1525834793

Retired Poppy - you just called eco bird a bitter person. Really is that even a necessary comment. Very personal and absolutely unnecessary. You Can disagree with people's view but no need for personal attacks like this. Clearly when we behind a keyboard, we can say anything as no physical consequences but I'm sure you're clever enough to debate opinions so need for personal attacks. You make your points articulately anyway which is always interesting to read even though I disagree. Try to keep it professional Sir.

by Retired-Poppy | 9th May 18, 3:34pm 1525836873

chessmaster, Echo Bird is bitter about our Coalition policies and is always complaining. He takes it and certainly gives it back. When you're ready, please feel free to gracefully descend from your moral high ground.

by Rex Pat | 9th May 18, 3:37pm 1525837029

How do you define "our"? Freudian slip from the hive?

by Chessmaster | 9th May 18, 4:10pm 1525839035

Retired Poppy - Haha you are the "Anthony Joshua" of keyboard warriors

by Nzdan | 9th May 18, 4:11pm 1525839097

There there, dry your eyes.

by Yvil | 9th May 18, 5:26pm 1525843613

Great minds discuss ideas, small minds discuss other people

by K.W. | 9th May 18, 2:49pm 1525834152

Need to do what they do in Tasmania. Give the homeless a tent and let them pitch it in the Showgrounds. Way cheaper than providing motels or private rentals.

by Sluggy | 9th May 18, 11:12am 1525821121

By discourage you mean level the investment playing field.
I look at those graphs, 2br flats in Akl have gone nowhere, and the long term rent graph shows it is following its natural course with 3 brm houses. A one month spike is pretty meaningless.
Plenty of people are leaving the fine shores of AK, plenty of employers are also leaving. It will work itself out.

by Tui12 | 9th May 18, 10:14am 1525817649

Yes indeed Auckland is low salary and low wage just as the rest of the country but with an exorbitant cost of living. You have to really want to live there to put up with so much. Younger generations are much better off leaving to experience a bigger, well run efficient easy to live cities where you will earn far more and have many many more opportunities. There is always the option to come home later but what usually happens is one partner will convince the other that they should move home for family/nostalgia/children or whatever reasons. They finally pull the trigger make the move and realise very quickly what a terrible place its become. Then they are usually back where they were living a year later. I see it time and time again.

by swapacrate | 9th May 18, 9:37pm 1525858633

I'm opposite of that Tui12, not Auckland per se, but I loved living in Auckland when I was last there great fun. But I have been through 8 months of utter dreariness in London, cold, no sun utter utter dreariness. I have lived here off and on for 18 years. Last time I was back in NZ lived in Whitianga for 6 months, I also lived in Waiheke for 6 months. Im looking at buying a bach in Whiti as I'm into kitesurfing and friends have a nice big boat there. Been doing sums and things look reasonable.

I miss home quite a lot, I like the down to earthiness of NZ where I wear jandals and shorts all the time, go fishing and go to beach with kids. Whiti has some nice cool places to eat now as well.

I do agree cost of living is high, but I have been looking at a few businesses, and working things out so I can make the trip home. I feel suffocated by traffic, and people so when your away from city NZ is a great country. If you like big cities like London I understand, but its definitely not for me. Give me a beach with hardly anyone on it any day, or sitting on a boat with my friends and a cold beer while catching fish. Bliss.

by J.C. | 9th May 18, 11:15am 1525821302

Most NZers don't really understand the relationship between consumer spending and the economy. However, what they understand even less is the relationship between consumer spending and house prices. For example, if rents increase 5% in real terms, that is effectively revenue that is not "spent" into the consumer economy in certain sectors. For example, a consumer may have to forgo certain food categories to balance the h'hod budget. What the Hosk and the other commentators don't talk about is the pressures that puts on the economy. Probably good to think about it another way. The more h'holds spend as a proportion of h'hold income on rent, the more detrimental the impacts on the wider economy.

The impact on house prices caused by less consumer spending into the economy is unknown. All we really know is that bubbles are generally positive for consumer spending. It is smart to pay attention to this.

by Tui12 | 9th May 18, 11:20am 1525821652

I am sorry but Auckland and vibrant don't belong in the same sentence Gordon you need to get out more. Its the dullest city I have ever lived in by a country mile and a ghost town most of the time unless you are taking about the traffic being vibrant. Vibrant is Sydney, Melbourne, London, New York etc. not Auckland

by Yvil | 9th May 18, 5:28pm 1525843704

I think we are discussing cities/towns in NZ

by unaha-closp | 9th May 18, 11:23am 1525821785

High land costs in Auckland City mean less construction jobs and higher rents. Low wages, high rent are now the norm.

But wait there is more.

Phil Goff has tripled the land supply of almost every town in the Auckland region except Auckland City to give us more sprawl, more congestion and more pollution as well.

by Te Kooti | 9th May 18, 12:18pm 1525825106

It never ceases to amaze me how much energy is wasted fighting residential housing as an investment class. Sure, debate the morality of it if you want but in my experience, unless you pick the next Apple or Amazon, there is no better investment available for the long term investor. Nothing comes close to the stability and benefit of leverage and inflation. Who cares what house prices do over one or two years, over the long run (15+ years) they will return 10% to 20% per anum on a 20% deposit. The biggest mistake/limiting belief is that it's different now - it's not. The entire economic system supports this and it will continue. It make take a bit of time and effort dealing with tenants but if the alternative is to pay ridiculous fees to fund managers and over-promoted and under-performing execs and boards, I welcome it.

by Andrewj | 9th May 18, 12:27pm 1525825677

It's about the debt, houses go up on a bed of debt.

by Yvil | 9th May 18, 5:31pm 1525843886

Yes but as houses go up, debt doesn't... it generally even goes down with P&I so you are much better off in time

by Brock Landers | 9th May 18, 1:05pm 1525827901

Please provide figures for house prices 15 years from now using your growth numbers.

And alongside them incomes and debt servicing costs.

Do they reconcile?

I'm am keen to not make this biggest mistake but I can't get past the math.

by Nzdan | 9th May 18, 2:31pm 1525833066

Supposedly houses will double every 10 years, forever. It's going to happen again so i'm told. Wages however increase at around 3% per annum.

Average Auckland house is $800k (conservative)
Average salary is $70k

in 15 years time, the average house will be $2.3 million and the average salary will be $105k.

Assuming interest rates and taxes remain the same:

25 year mortgage of 80% = $2500 per week
$105k salary = $1500 per week

People won't be buying properties to live in, people will be buying properties to farm the middle class.

by Yvil | 9th May 18, 5:33pm 1525843980

That's right, so what's the best thing to do now?

by Pragmatist | 17th Dec 19, 8:00pm 1576566057

by Greg-Hamilton | 9th May 18, 5:40pm 1525844426

They say house will double every 10 years . what does the historic data suggest for wages ? did u check how avg salary increased last 10-15 years ?

by Pragmatist | 17th Dec 19, 8:01pm 1576566063

by Nzdan | 9th May 18, 6:06pm 1525845993

Yeah 3 % average, i think actually it’s dropped to around 1.8% these past few years.

by J.C. | 9th May 18, 1:06pm 1525828019

Nonsense. In the case of Australia, house prices have risen by a factor of 10 since 1870, but for 75 years from 1870–1945, prices barely moved. Prices rose 3.6% from 1955-1975. From 1991-2012, real house prices doubled.

Most of what you consume about how house prices behave is garbage and little more than snake oil.

by Te Kooti | 9th May 18, 1:20pm 1525828808

Can I suggest you re-read my post. You are missing both the income from the asset and the leverage (I specifically said 20% deposit). If you bought a house in 1996 Auckland or Wellington then the IRR on your 20% deposit will have been 12-18%. The key point is leverage, it brings risk but also reward. I would far rather rely on rent than dividends. Leverage and inflation are the key determinants, the compounding affect is material.

by J.C. | 9th May 18, 1:42pm 1525830126

I see. 1996 is 'Year Zero' in your narrative. Is this some decree from Granny Herald or Mike Hosking? The BBQ explanations of the fantastical nature of how asset classes behave are flimsy at best. You need work to convince me that asset markets and prices are only really understood in the suburbs of NZ.

by kiwimm | 9th May 18, 1:48pm 1525830488

Suggested reading topics: return arbitrage across assets, reversion to the mean, black swans

by Brock Landers | 9th May 18, 1:52pm 1525830743

It has occurred to you that the other 80% you've borrowed from the bank you have the pleasure of paying interest on right?

What you are suggesting is playing a high stakes game of arbitrage and extrapolating past performance to future returns.

I really don't think you've thought about this very hard.

by Te Kooti | 9th May 18, 2:10pm 1525831807

Has it occurred to you the rent pays the interest? This is about as simple an IRR exercise as you can manufacture, what is the return on the equity invested in the house? I'm simply giving my experience that the two investment properties I bought in 1996 have performed light years better than my stocks and pension over the same period. A lot of this is due to the easy access to leverage on housing. Will this continue for the next 22 years? I believe so. My point is simply this, the bitterness in these forums seems to suppress any rational discussion on the economics and that leverage and inflation are powerful tail winds in the long run.

by J.C. | 9th May 18, 2:53pm 1525834426

Will this continue for the next 22 years? I believe so.

OK, so you;re saying that your forecasts are "faith based" (what you believe) because people can "leverage". Fair enough. That's not really any different than extrapolating the past and present into the future based on your personal experience.

Any old monkey can do that, but it doesn't mean that it will happen as you expect.

by Retired-Poppy | 9th May 18, 2:45pm 1525833906

Oye-psssst!, I heard this insanity will continue 22 more years. Don't tell anyone OK.....

by Pragmatist | 17th Dec 19, 8:02pm 1576566128

by Greg-Hamilton | 9th May 18, 7:59pm 1525852744

I guess so long as interest rates drop to 1% that might end up being doable..

I guess we have 1% loans in some part(s) of the world right ? japan ?
If your maths suggest that 35:1 is possible by manipulating interest rate ? I think these bankers will even do that. or rather what stops them doing the rate manipulation further, to keep this going ? :-(

by Pragmatist | 17th Dec 19, 8:02pm 1576566175

by Bobster | 9th May 18, 2:51pm 1525834282

Well, don’t want to rain on your parade, but if prices were to revert to their long term averages in terms of rental yields and loan to income ratio this would imply a fall in houses prices of 30-50%. Maybe it’s best to think of house prices over the whole of the economic and interest rate cycle and not just look at it through the prism of the biggest credit bubble in our history....just saying

by J.C. | 9th May 18, 2:58pm 1525834716

Well that all depends. If Year Zero is 1996, that paints a whole different picture than if it were 1870. Hence the problem of "LTAs". How most people perceive is a construct of what they have consumed.

Under the Khmer Rouge, Year Zero was actually 1975. However, Cambodia is pretty new to the paradigm of asset prices.

by Bobster | 9th May 18, 3:03pm 1525834997

Golly, didn’t quite understand all that. But even if we take 2010 as Year Zero, that still implies a drop of around 40% (?). The bubble giveth, and the bubble taketh away...

by J.C. | 9th May 18, 3:17pm 1525835850

Bagrie gives his piece courtesy of Granny Herald:

Eyes will be on how investors react in the near term though. Will they flee markets where rental yields are very low? That's Auckland in the first instance where rental yields are below borrowing costs. You need the capital gain. There isn't any in Auckland at present.

However, times are changing, and quickly. Weaning the economy off a capital gain mantra won't be easy and will create economic potholes.

Rising asset prices not only boosted spending, they make that next investment easier to finance. The challenge is to find economic replacements — and quickly, such that the potholes don't turn into a crevasse.

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12…

by Bobster | 9th May 18, 3:55pm 1525838154

Indeed, not the sort of thing he felt minded to vocalise while at ANZ

by J.C. | 9th May 18, 6:53pm 1525848829

Yep. That's what you call self preservation. Pretty straight-up kind of guy compared to the smarmy persona of some other bank economists.

by Te Kooti | 9th May 18, 3:21pm 1525836065

How is 22 years not an interest rate or economic cycle, what would you use?

by Bobster | 9th May 18, 3:54pm 1525838086

This property bubble has been building since the early 2000s. The GFC caused that bubble to pop in various parts of the world and in those parts the deleveraging has been severe. That bubble did not pop in our part of the world (seems to me more by luck than judgment) and our bubble, like Australia and Canada’s, has continued to inflate. So I see where we are now as a continuum from the early 2000s, it’s the same cycle with a blip for us at the GFC stage. But however you look at it, we are at the top of the cycle now, surely

by Te Kooti | 9th May 18, 5:48pm 1525844925

Tradeable goods deflation has been the most significant contributor to house prices as the RB has had to hold the cash rate very low. Internet aggregators, China production and advances in manufacturing technology have pushed prices down to the point where you can buy a TV or pair of jeans cheaper today than 20 years ago. Wage growth is low however demographics are changing. More people are entering the workforce (unemployment is at record lows), family units are changing, people are living and working for longer, it's expensive to build. Property bears battle the entire financial system relying on historical relationships and correlations that I suspect are breaking down. The entire financial system is structurally set up so house prices grow. Those who want to swim against this and a fast changing world in the hope you pick one of the few pullbacks, knock yourself out.

by Zachary Smith | 9th May 18, 4:35pm 1525840523

Past Performance Is No Guarantee of Future Results

I often see this stated. Pretty sure it only applies to stocks and casino gambling. The key word is "guarantee", well, yeah, but it is a good indicator.

by K.W. | 9th May 18, 2:58pm 1525834686

Ah, leverage! The great magnifier of returns on the way up, but the harbinger of bankruptcies, divorces, suicides and drug addictions on the way down.

by Rex Pat | 9th May 18, 3:10pm 1525835417

Cause life's like this, uh huh, uh huh that's the way it is. Chill out, what you yellin' for?
Lay back, it's all been done before https://teara.govt.nz/en/economic-history/page-5

by Te Kooti | 9th May 18, 4:04pm 1525838692

I called out leverage as a significant contributor. Any asset with those returns must have some risk associated with it. The question is whether the returns justify the risk (risk/reward), in my experience yes, nothing else has come close. I get that this is an emotive topic and many have not benefited from the last 7 years.

by steven | 9th May 18, 3:18pm 1525835917

I did but its a stranded asset in effect, ie I cant realise the capital gain. Also you are looking at that 22 years and guesstimating that the next 22 will be similar, my view is that is totally wrong due to, a) peak oil, b) CC, c) demographics, d) debt e) financial fraud. These 5 were and are all significant and all will play havoc with your guess.

by Yvil | 9th May 18, 5:37pm 1525844234

Te Kooti, you are 100% right but the majority can't see it. It's no point wasting your time and sanity arguing with ........ people.

by Te Kooti | 9th May 18, 6:27pm 1525847269

It was a battle of wits and they came unarmed

by Te Kooti | 9th May 18, 6:28pm 1525847296

n/a

by Te Kooti | 9th May 18, 1:23pm 1525829007

n/a

by Te Kooti | 9th May 18, 1:23pm 1525829025

n/a

by Yvil | 9th May 18, 5:47pm 1525844871

Halleluiah Te Kooti, are you new to this site?
Brace yourself for the wrath of the peoplel who don't own investment houses (the majority)

by vman | 9th May 18, 8:26pm 1525854367

No wrath here,no rentals...only A2 milk shares...white gold...get on the wagon before they shoot up again...
there is more than one game in town...

by kiwimm | 9th May 18, 1:33pm 1525829608

So net pay after rent is:
AKL - $459
WEL - $540
CHC - $551

So renters would be $92/week better off in Chch than Akl. That is quite significant. With the extra amount and lower house prices, the time to save for a deposit would be years less.

by gordon | 9th May 18, 2:41pm 1525833692

But Auckland has a future and that is why the population is five times or so bigger than the population in Christchurch. Throw in the weather, the harbour and surrounding waters, the work and business opportunities and you can understand why. People want to live in Auckland hence house prices have risen. People have left Christchurch for obvious reasons and hence house prices are going backwards. Auckland will continue to grow in size to the expense of other areas of New Zealand.

by Brendon | 9th May 18, 3:53pm 1525838001

Canterbury in absolute terms is the second fastest growing province in NZ after Auckland. Up 50,000 in last five years. Mostly coming from Greater Christchurch. So it is not falling demand that is causes Christchurch to have affordable rents. Maybe it is increasing supply.....

by steven | 9th May 18, 3:21pm 1525836115

Except there are way fewer and poorer paid jobs in ChCh. So at present I am earning 20k more by not being in chch that difference would eat the above. Also when I go to CC I find food is more expensive, so I doubt the NET is much if anything.

by theglc | 9th May 18, 3:26pm 1525836413

Looks like even the NZ Herald is turning bearish. i kid you not!

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12…

by Retired-Poppy | 9th May 18, 4:47pm 1525841279

theglc, a balanced and accurate reflection of the current state of play. Interestingly, its not published in "one roof" so it's worth reading!

by Nzdan | 9th May 18, 4:18pm 1525839517

Why does the Web Address for this article say canterbury-renters-are-pigs?

https://www.interest.co.nz/property/93618/rent-rises-outpacing-wage-growth-auckland-and-wellington-canterbury-renters-are-pigs

by Property Leader | 9th May 18, 5:58pm 1525845507

The reporter needs have a course in understanding statistics. You should not be comparing wages with rents. Firstly you should be using income not wages. (they are different). Secondly they should be comparing household income against rent levels.
I would like to see an article on the characteristics of property investors. Are the number of properties per investor going up and what relationship there is between investor income (not wages on their day job) and the number of properties they own.

by Houseworks | 10th May 18, 7:02am 1525892574

Hamilton and Dunedin figures please Greg? Based on the "all nz" rent totals some of the regions must have jumped going on the drag down effect from Auckland and Canterbury.
Is there much difference between average vs median? Thank you

by Retired-Poppy | 10th May 18, 8:45am 1525898746

Houseworks, (spoon fed) if you want to know what you think you can get away with charging, you can just Google it; https://www.tenancy.govt.nz

by David Chaston | 10th May 18, 12:04pm 1525910647

Greg is on vacation for a few days; hopefully he doesn't mind me responding. The data he used for incomes was from StatsNZ QES, and unfortunately that doesn't come with more city drilldown. But we do have our HLA FHB income data which is close to that StatsNZ series he used, and we can extend it based on that. Here is an update for March 2018:

	Avg weekly rent	Avg wkly Net pay
Napier	$385	$745
Palmerston North	$305	$823
Nelson	$364	$774
Dunedin	$371	$709

by Houseworks | 10th May 18, 1:21pm 1525915304

Rents in cities like Hamilton, Tauranga, Dunedin and the likes could have had average rents rise up by 7 and 8 percent over the last 12 months. Auckland 4 percent, Canterbury 2 percent and All NZ average is up over 5 percent. Despite the govts extra specs its good times right now and ahead for landlords with homes in ever increasing demand. Legislation sure does work, retired poppy.

by Retired-Poppy | 10th May 18, 3:03pm 1525921385

Houseworks; Sorry to burst your little utopia. It seems you missed out on some vital earthbound facts. Read the following; https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12…

Yes, legislation works.