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Reserve Bank policies get blame for lagging rents

Reserve Bank policies may have increased the gap between average rents and average house prices over recent years, an analyst says.

Tuesday, May 7th 2013, 12:00AM 1 Comment

by The Landlord

Rodney Dickens, managing director and chief research officer at Strategic Risk Analysis, has done an analysis of rent trends compared to house values.

He found that while national average rents had only crept up over the last decade, house prices had surged ahead. He said the Reserve Bank underwriting low general price inflation had played a part. Interest rates have fallen and then stayed low since 2008.

Dickens said there was now a major disconnection between rents and house prices, and low interest rates were disguising the country’s housing affordability problem and enhancing the attractiveness of purchasing property, for investors and those considering whether to rent or buy.

He said:  “This raises the possibility that rising interest rates down the track will play a significant part in correcting the yawning gap that has opened up between the level of national average house prices and the rent on the average rental property.”

While rental returns largely tracked house price trends in the 1970s, 1980s and early 2000s, a big gap opened up between 2002 and 2008. It closed a bit in 2008 but is widening again.

He said: “It is possible that a mentality of low inflation has restrained growth in rents despite the boom in house prices in the 2000s and more recently but other factors will be involved.”

Landlords’ costs were reduced by low interest rates, which made them less likely to increase rents when there was not much growth in incomes, he said.

But his analysis showed there was a lot of disparity between regions around the country. Auckland and Christchurch rent growth has been significantly stronger than everywhere else. A number of provincial centres have had barely any increase in average rents whatsoever, and Wellington has been hurt by Government job losses.

Rangitikei’s median rent for a three-bedroom home dropped 2.7% between September 2010 and March 2013. And Central Hawke’s Bay, Otorohonga, Hauraki, the Grey District, Central Otago and Gore did not experience any move at all. Wellington's average increase was just 4.3%.

By comparison, the Waimakariri district was up 22.7%, to which a lot of quake-hit Christchurch residents have moved, and Auckland City up 12.7%.

Even within the cities, there was differentiation. Rural Waimakariri had an increase of 25% and Mt Albert and Parnell both experienced increases of almost 21%.

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Comments from our readers

On 10 May 2013 at 3:19 pm Peter Lewis said:
By my own analysis, Auckland rents are now about half of what they should be.
My first investment property is now valued at four times it's 1992 value, but the rent I can get has barely doubled over that time.

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AIA - Back My Build 5.44 - - -
AIA - Go Home Loans 7.99 5.99 5.69 5.69
ANZ 7.89 6.59 6.29 6.29
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 5.99 5.69 5.69
ASB Bank 7.89 5.99 5.69 5.69
ASB Better Homes Top Up - - - 1.00
Avanti Finance 8.40 - - -
Basecorp Finance 9.60 - - -
BNZ - Classic - 5.99 5.69 5.69
Lender Flt 1yr 2yr 3yr
BNZ - Mortgage One 7.94 - - -
BNZ - Rapid Repay 7.94 - - -
BNZ - Std 7.94 5.99 5.69 5.69
BNZ - TotalMoney 7.94 - - -
CFML 321 Loans 6.20 - - -
CFML Home Loans 6.45 - - -
CFML Prime Loans 8.25 - - -
CFML Standard Loans 9.20 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 5.79 - -
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Owner Occ 7.65 5.99 5.75 5.69
Co-operative Bank - Standard 7.65 6.49 6.25 6.19
Credit Union Auckland 7.70 - - -
First Credit Union Special - 6.40 6.10 -
First Credit Union Standard 8.50 7.00 6.70 -
Heartland Bank - Online 7.49 ▼5.65 ▼5.55 ▼5.55
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.00 6.50 -
ICBC 7.49 5.99 5.65 5.59
Kainga Ora 8.39 7.05 6.59 6.49
Kainga Ora - First Home Buyer Special - - - -
Lender Flt 1yr 2yr 3yr
Kiwibank 7.75 6.89 6.59 6.49
Kiwibank - Offset 8.25 - - -
Kiwibank Special 7.75 5.99 5.69 5.69
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 8.44 ▼6.39 ▼6.09 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
SBS Bank 7.99 6.95 6.29 6.29
SBS Bank Special - ▼6.15 5.69 5.69
SBS Construction lending for FHB - - - -
Lender Flt 1yr 2yr 3yr
SBS FirstHome Combo 5.44 ▼5.15 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.75 - - -
TSB Bank 8.69 6.79 6.49 6.49
TSB Special 7.89 5.99 5.69 5.69
Unity ▼7.64 5.99 5.69 -
Unity First Home Buyer special - 5.49 - -
Wairarapa Building Society 8.50 ▼6.19 ▼5.79 -
Westpac 8.39 6.89 6.39 6.39
Westpac Choices Everyday 8.49 - - -
Westpac Offset 8.39 - - -
Lender Flt 1yr 2yr 3yr
Westpac Special - 6.29 5.79 5.79
Median 7.99 6.17 5.79 5.69

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