Rents increasing more than twice as fast in Wellington as Auckland, interest.co.nz analysis shows

Rents increasing more than twice as fast in Wellington as Auckland, interest.co.nz analysis shows

By Greg Ninness

Rent increases are much lower in Auckland and Canterbury than they are in other parts of the country, according to interest.co.nz's latest analysis of bond data.

Across the entire country the average rent charged for new tenancies was $437 a week in the first quarter of this year, up 4.9% compared to the same period of last year.

But there were big regional variations. The biggest rate of increase occurred in Upper Hutt where the average rent increased from $369 a week in the first quarter of last year, to $412 in the first quarter of this year, an 11.6% rise. 

The area with the lowest increase was Timaru. There the average rent was $319 a week in the first quarter of this year, down 0.2% (just a few cents) compared to a year earlier. Upper Hutt was also the only area in the country where there was a significant number of new lettings, recording a double digit percentage increase in average rent.

Of the main centres, the areas with the lowest percentage increases compared to a year ago were Auckland (+2.8%) and Canterbury (+1.5%). The main centres with the highest increases were the Wellington region on +6.4% and Dunedin on +6.9%.

Within the Auckland Region the average annual increase ranged from 1.2% on the North Shore to 5.4% in Franklin. Auckland rent increases tended to be stronger in the region's northern and southern edges than they were in Auckland's central and western districts (see table below).

Rental growth was generally weak throughout the Canterbury region with Christchurch posting a gain of just 1.4% compared to a year earlier, while rental growth was strong throughout the Wellington region.

However a notable feature was that rental growth appears to be slowing in most parts of the country.

In Auckland the rental growth of 2.8% between the first quarter of last year and the first quarter of this year was well down compared to growth of 4% achieved in the previous 12 months. The same trend was evident in the Wellington Region, although Canterbury and Dunedin went again this.

The table below shows average 2019 first quarter rents, and the percentage changes compared to the first quarters in 2018 and 2017 in all main rental districts throughout the country.

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Changes in average weekly rent over the last two years
  Average weekly rent $       Q1 2019 Change from Q1 2018 Change from Q1 2017
Whangarei 398 4.9% 13.6%
Rodney  525 2.9% 4.0%
Waitakere 511 2.2% 7.5%
North Shore  580 1.2% 6.3%
Auckland Central 524 2.9% 6.0%
Manukau  530 3.0% 8.0%
Papakura 507 4.7% 9.1%
Franklin  481 5.4% 9.2%
Auckland Region 526 2.8% 6.9%
Hamilton 404 3.7% 8.6%
Tauranga 479 6.5% 8.7%
Rotorua  355 4.9% 16.2%
Napier  405 5.7% 12.9%
Hastings 360 3.6% 13.9%
New Plymouth  355 4.6% 3.5%
Palmerston North  306 3.3% 3.8%
Whanganui  292 7.8% 26.0%
Kapiti Coast 423 7.3% 15.1%
Porirua 465 3.7% 22.7%
Upper Hutt  412 11.6% 14.9%
Lower Hutt 442 4.0% 21.1%
Wellington City 538 6.2% 13.9%
Wellington Region 511 6.4% 14.7%
Nelson 388 3.5% 13.7%
Ashburton  337 4.0% 1.7%
Christchurch 392 1.4% 3.0%
Selwyn  453 2.1% -1.0%
Timaru  319 -0.2% 4.4%
Waimakariri  399 1.8% 2.6%
Canterbury Region 388 1.5% 2.6%
Queenstown-Lakes  606 4.8% 10.9%
Dunedin  350 6.9% 9.4%
Invercargill  266 3.2% 8.2%
New Zealand 437 4.9% 10.0%
Based on new bonds received by Tenancy Services, MBIE

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In Auckland landlords can probably put the rent up by 10-20 dollars a week which is modest however at the same time mortgage interest rates have dropped. The income from a typical rental that is only slightly positive may now give the landlord an extra 30-40 dollars a week which is not too bad. In my case this has seen a rise in income of 18% from one property. A fairly modest income in the first place though.

Some may say that landlords should drop their rents with decreasing mortgage costs however we need to get as much money as possible in order to keep our rentals healthy. I have to replace ceiling insulation at a cost of $1500 even though it is insulated, too thin now apparently. This will suck up my year's gain from the rent rise and mortgage drop.

Rent should have nothing to do with mortgage costs.

The market will dictate what level of rent is acceptable.
How you choose to finance your "investment" has nothing to do with the housing market or your tenants.
If a landlord overpays for a property such that the yield is inadequate and/or has too much leverage to service then that's their problem.
And their problem alone.

They perhaps should have thought about that extra $10k they paid for the property that should have held back to, you know, ensure it was liveable and maintained.

There is a connection between rent and mortgage costs though. If mortgage interest rates were halved I would wager that rents would drop because it would become cheaper to buy than rent. Rents would lower in order to compete.

That 10k would only cost about $7.60 a week to service and would be tax deductible. The rent could be raised $10.

I have in the past not raised rents if my own costs have gone down. Just a personal ethics thing.

Thats big of you not *raising* rents when your costs have gone down.

Don't worry Zac. You don't have to make an income - capital gains will look after you. Wait...... Hang on a mo.

I'm not surprised that Auckland's Landlords are finding it hard to put up their rents without losing good Tenants. See the thing is once house prices start to drop as they are now especially in Auckland, rental rates also start to fall. There are several reasons as to why this happens in a declining housing market:-

1) The pressure is off First Time Buyers and they can start to buy their own properties with lower mortgage rates.

2) A lot of younger people are deciding to move back in with their parents to save money for a deposit since they can now see the light at the end of the tunnel with falling house prices. So they can become FTB's to afford their own home.

3) We're still in a low wage economy even for Auckland, which has been losing business of the last few years due to the very high cost of living forcing a lot particularly tech companies to move out of Auckland and to move to more affordable cities like Wellington.

4) Landlords here have squeezed their Tenants to breaking point already.

So basically if you look at it logically, since the property bubble has popped this also causes the Rental market to gradually deflate too.

Ill take number four and leave the rest to your imagination

You forgot all the property HODLers. Those who tried to sell their property, but couldnt get the price they wanted, so they decided to hang on to it and put it on the rental market until prices "recover". The increase in supply of rentals drives rents down. Same thing is happening in Sydney.

Not sure how accurate the average rent figure for Christchurch of $392 is?.
There must be a hell of a lot of landlords who are under renting their properties to come up with that figure!
If you were buying property in ChCh now and were only getting $392 per week on average, then I wouldnt be bothered, with all the new changes that are being brought in, including ring fencing losses.

Them the stats mate

Landlord's can and will only ask what the market allows. Multiple house ownership/land banking is slowly but surely becoming undermined by legislation and the turning tide of easily got capital. If you are silly enough to believe house prices double every ten years, deploy capital elsewhere whilst you still have it. Disinflation is now here. A decade or two of Japan style deflation is now a real possibility.

Hi Retired-Poppy,

You write: "Landlord's can and will only ask what the market allows."

Unfortunately, that's far from true.

Conceptually, while every property might have a rental "market value", plenty of residential properties are leased for above (or below) whatever $ figure that might be deemed to be.

I know of a woman that owns a block of 6 near-identical flats and she maintains she always seeks the "market rental" when they come up for re-tenanting and also when she carries out (annual) rental adjustments. Yet, somehow, no two of the flats are currently fetching the same rent - and she says that's quite often the case. The variance is usually considerable.

Many readers will know of properties that are let for $ amounts well beyond what any reasonable person would consider a "market rental". I conjecture that a typical reason for this is that there are mercenary landlords happy to price gouge. Exploiting/ripping-off tenants is fair-game and a lucrative pastime as far as they're concerned......

They know all the tricks and don't give a damn about ethics. And, sadly, there's bugger-all to stop them. (From what I've heard anecdotally, Auckland has it's fair share of them.)

TTP

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Prices will have to come down, along with rents, for affordability to correct to historical averages. Expect this to happen, just like it is in Sydney right now. We’re not diffrunt.

Yep and the Warriors will win the NRL

Warriors winning NRL is about as likely as house prices doubling in the next 10 years.

I don’t follow NRL so I don’t know what that means sorry.

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According to IRD, 40% of Landlords are negative geared. $190 million is claimed annually by those who bought in expecting uninterrupted (tax free) capital gains. With ring-fencing fast approaching, and capital gains fast departing, there are many late comers facing a future of being financially unhinged and disillusioned. All this despite interest rates at 80-year lows.

Meanwhile in Australia, they have reported a 0% inflation rate. Unemployment is at 5%. If you drive a Uber or deliver Pizzas a few hours a week, you are counted as employed. How are we different?

Yes they think 5% today is equivalent of 7% in the past, because there’s lots of underemployment.
The fact is we aren’t much different to Aus at all. And that’s why I think many of us see the Auckland market going a similar way to Sydney ( I personally don’t think it will be quite as bad here)

One area of concern regarding property investors is that in the 2016/2017 tax year, there were 116,000 tax filers who claimed tax losses resulting from rental property ownership. (Refer http://tenancieswar.nz/other/loss-ring-fencing)
1) the average loss claimed was $7,138, which means a total of $828,008,000 of losses.
2) assuming little non cash expenses such as depreciation, this is cash that has to be paid from household budgets.

If these rental property owners experienced unexpected financial cashflow strains, then that is likely to increase financial pressures. Some potential areas of cashflow strains:
1) costs to meet Healthy Homes Guarantee Act requirements
2) interest only mortgages that are converting to P&I mortgages - in some cases debt service payments could increase 30-40%.
3) potential ring fencing of losses from rental property operations

There are also rental property owners who are profitable from a tax perspective, yet the property is also currently a cash burden on household budgets. The negative cashflow arises from the required payment of principal of the mortgage payment in a P&I mortgage.

There are also rental property owners who are profitable from a tax perspective, and the property is currently cashflow positive due to interest only financing. If that interest only mortgage becomes a P&I mortgage, then the debt payments may result in the rental property now becoming a cash burden on household budgets. Remember when these mortgages were taken out in 2015 / 2016 when there were auction frenzies for property in Auckland, many assumed that interest only loans would be rolled over into another interest only mortgage - the credit environment in 2019 is very different to the credit environment in 2015 / 2016.

All of the above are vulnerable in a recession when unemployment rises which results in a lower household income if a household income earner is laid off (or has lower wages) and there may be households that need to sell their rental properties as they are cashflow stressed in meeting the costs of maintaining ownership of the rental property.

The 116,000 claiming tax losses on rental property represents
1) about 22% of rental properties privately owned in NZ by my estimates (i.e excluding Housing New Zealand)
2) based on the last 12 months sales transactions of residential real estate in NZ of 75,320 - that 116,000 represents 154%, and at current sales volume levels would take about 18 months to sell through. You can put your own assumptions as to how many could come under stress and wish to sell.
3) based on the current national sales listings of 37,713 on realestate.co.nz, even if you take 20% of the 116,000 coming up for sale that is 23,200 or about 61% of current listing levels.

And this is before counting for those profitable rental property owners who may come under cashflow stress, or owner-occupiers who may come under cashflow stress.

That is how there becomes an imbalance between effective supply and effective demand for residential real estate. If property owners find that there are no interested buyers at their price expectations levels, and if the property has been listed for sale for a long period time, the vendor's price expectation may drop to attract potential buyers.

One key variable is what the banks will do with financially stressed borrowers - they may choose work with borrowers to give them time - they may extend loan repayment periods, allow borrowers to go on interest only for a period of time (I hear that these techniques were used in 2008/2009). If a borrower is already on interest only terms, then there may be little that the bank will do.

I also hear anecdotal stories that many who are unable to get financing from the big 4 banks are seeking alternative lenders such as non banks and other banks that might be less stringent in their debt servicing credit standards, so this may help those in financial stress for a period of time, until these institutions reach the capacity of their lending constraints. When these institutions reach their lending capacity limits - what will these financially stressed borrowers do?

Apparently there is a surplus of houses in Auckland, so why are rents rising faster than inflation?

Let's see what ringfencing and insulation requirements do to rents by the end of the year.

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BLSH, there is a surplus of unaffordable homes. Worry not, market forces and legislation are hard at work. Over time, the leveraged will be silenced and the gap between the haves/nots will be reduced. Consider it as a pill to cure social unrest. For the long term future of our great country, let's hope the transition is a smooth one.

Why are rents going up faster than inflation?

The answer is because there is a shortage of rentals. But I'm keen to hear what you think the reason is. And FYI, there will always be a shortage of cheap houses, in the same way that there will always be a shortage of 10c avocados.

Govt supplied accommodation allowances?

A surplus or shortage of rentals is determined by demand relative to supply. Demand being willingness and ability to rent a property. Changes to productivity aside, I think the demand curve shifts to the right, creating a shortage, when incomes increase (min wage, benefits like accomodation supplement, labour shortages etc). A shortage of rentals is a shortage of rentals whether it is due to changes on demand or supply side, or both:

https://3.bp.blogspot.com/-sq5bOczST5U/T0tZlmK_klI/AAAAAAAAAeI/pfX3UGyHF...

Motu says 1/3 of increase in accomodation supplement goes into increased rent.

RP, I like your optimism about a big housing downturn correcting inequality but I’m not sure that’s what will happen unfortunately. There are a lot of overleveraged middle NZ folks who will no doubt slip down the ladder, while the wealthy (with no capital gains tax anywhere on the horizon) will scoop up extreme bargains in the depths of the decline. Yes some yet to be FHBs will be able to buy at more affordable levels but unemployment will also be high for quite a while I’d say. These things happened in the US during and after the GFC, the middle class was eroded further, fuelling Trump suppprt.

VR, if the downturn was an "L" shape with no quick recovery, a flattening of expectations and a levelling out of the playing field and closing of the wealth divide might be the byproduct. I agree, a lot of today's middle class folk are sitting ducks unfortunately.

I think it could to be a long, slowish slide down, which will likely fool many to think it’s a soft landing. The slide in Perth has been a bit like that, and it keeps going and going...

Surplus of houses? According to who?

Nic Johnson and many others on this forum.

Right... I'll give that argument all the weight it deserves then. There might be an excess of $1.2m+ homes on the market, they seem to not to be turning over so well, but affordable houses there certainly isn't an excess (until you get out to areas that most people don't call Auckland).

FYI, according the the Auckland Council economist there is a shortfall of 46,000 dwellings in Auckland

"Auckland's shortfall is around 46,000 dwellings."

Please refer https://www.interest.co.nz/property/97513/auckland-councils-chief-econom...

Note that the economist is referring to an imbalance between underlying supply and underlying demand for housing, not an imbalance between effective supply and effective demand. There is a big difference between these two types of supply and demand and they each have different purposes.

Nick is referring to the potential imbalance between effective supply and effective demand.

Whom

Hi BLSH,

I fear that insulation requirements will cause rents to heat up by the end of the year.......

TTP

Hi TTP,

That's what I'm picking. I don't oppose the policy, but it is almost certainly going to put upward pressure on rents. And for negatively geared landlords, ringfencing will do the same, I think.

FYI, according the the Auckland Council economist there is a shortfall of 46,000 dwellings in Auckland

"Auckland's shortfall is around 46,000 dwellings."

Please refer https://www.interest.co.nz/property/97513/auckland-councils-chief-econom...

Note that the economist is referring to an imbalance between underlying supply and underlying demand for housing, not an imbalance between effective supply and effective demand.

Some surprising numbers, Christchurch is looking pretty terrible but who'd invest there? Better returns in Porirua.

All the people who have uninsured houses from rent payments they where creaming after the quakes and now Karma has bitten them for being to greedy

Personally find the Christchurch property market is a fantastic market to buy into!
Returns are positively geared, plenty of good buys with upside!
If investors are not making money over the past few years the. They would be better off getting out, and letting professional landlords provide the accommodation that renters require!
Why would you want to be subsidising other people’s living costs???

$524 in Auckland central looks low, however I think it must be explained by the large number of 1 bedroom apartments in the CBD.

I bought the long awaited dream house this week. Mortgage free. 4.5% below the RV too.

Congrats.

Awesome, well done Ginja!

Great news Gingerninja! Congratulations!

If your new abode is in Wellington’s city suburbs, then I’m picking you’ll do very nicely out of it - lifestyle and investment!

TTP

I'm sure she's found a nice place that suits her needs. Whether it will be a great investment remains to be seen. I think Wellington might be close to peak.
If I was looking at Wellington right now I would strategically buy property near a local centre, with a bit of land and at least relatively flat. The council is going to need to rezone areas to higher density, if Auckland is anything to go by there could be significant value uplift for the property in the 'right' location and with the 'right' characteristics.
My father's property would not benefit. Even if it got zoned higher density (unlikely) the section is only 300 square metres and with a moderate slope.

We bought at a very good price, 100k below all the online valuations and 4.5% below the RV. It needs a major renovation, which is what we have been looking for (if we were unable to buy a section to build on and we eventually had to give up on that plan because sections in Wellington are a sh$%show!) So we have bought a 600sqm, North/North East facing, stones throw from the Botanical Gardens, easy stroll to the CBD, moderate slope, garage on the road (but our first big spend will be having a driveway built to the house) character villa. I am in love with NZ ornate character villas, especially the double story ones with wraparound verandas but they very rarely come up with decent access or that haven't been renovated yet. I hate modern style aesthetics, and all the renovated villas in Welly seem to have modern style kitchens and bathrooms, so really wanted to do my own renovation.

Excellent to hear ginger.

Hi Gingerninja,

You'll soon find that dealing with the WCC will be the worst part of your renovation. (Apparently, AC is much better.)

WCC is a nightmare - irrational and unhelpful to deal with......

It's main focus is extracting money from people for building consents, inspections etc.

In terms of dealing with technical/building issues, it's obstructive and unhelpful. You'll get told 3 different things by 2 different people.

Often, it refuses to give straight-forward information over the phone - and eschews face-to-face meetings.

WCC might best be described as a greedy parasite - and a blot on our community.

I suggest you engage a good architect, at least to shepherd you through the process with the WCC. Otherwise, you risk facing a lengthy period of anxiety and frustration.

Good luck!

TTP

Nice. My dad will be listing his 3 bedroom house in Hataitai in a couple of weeks. I think he's just snuck in at the right time, I think it will be a harder market to sell in in another year.

Friends of mine (married couple) have just bought an investment property in Miramar.

I think they've snuck in at the right time. I think Wellington will be a harder market to buy in, in another year.

Wellington has a chronic shortage of housing - and the situation's worsening by the month.

TTP