Rental market favours tenants

Contrary to popular opinion, the rental market is actually a tenant’s market, according to new data from Trade Me Property.

Thursday, January 21st 2016, 2:00PM

by Miriam Bell

Complaints of sky-high rents and random rent increases, particularly in Auckland, have made headlines in recent weeks.

While there can be little doubt that some SuperCity housing is rented out at a premium, it seems the truth is far more complex than is usually presented.

Trade Me Property’s December data showed that median asking rents nationwide remained static, ending 2015 the year exactly where they began - at $420.

Head of Trade Me Property Nigel Jeffries said that, while national median asking rents have gone up by 23.5% in the last five years, they plateaued in 2015 after rapid increases in 2014.

In Auckland, the median asking rent started 2015 at $480 and ended it at $495, which was an increase of 7.6% on December 2014.

Over the last five years, Auckland’s median asking price rose by 26.9%, from $390 a week to $495.

However, Jeffries said the pace of rental increase is very modest compared to the rise in asking prices of properties for sale over the same period, which topped 60%.

“We expect to see the median weekly rents tick above $500 early in 2016 and stay there, but it certainly won’t be a significant increase like we’ve been seeing in the for sale market.

“Clearly investors in Auckland are hoping for long-term capital gains from their properties but, in the short term, the rent from their investment is a drop in the bucket on a significant Auckland mortgage.”

Further, it is not Auckland that has recorded the biggest increase in median asking rent in either the last year or the last five years.

It was Manawatu/Wanganui that recorded the largest rise in median asking rents in the year to December 2015. It was up 21.7% to a new high of $280.

And Christchurch’s five year growth - of 31.3% - represented the largest growth in median asking rents of any of the three main centres and any other region of the country.

Despite that growth trend, the Christchurch market is now weakening considerably as it adjusts following the post-earthquake rebuild, Jeffries said.

“Christchurch began 2015 with an average weekly rent of $450, but by the end of the year it was $420. Compared to 2014, median weekly rents are down 6.7% and we’re not seeing any signs of a halt at this point.”

Tenants should prepare for a rent correction nationwide in January/February as more properties come onto the market in the New Year, he added.

“There was a rent adjustment in January 2015 of about 5% on the previous month, which added $20 a week to the average weekly rent. We’d expect to see a similar jump this year.”

However, one commentator believes that the lack of income growth around the country will constrain rental growth.

Economist Shamubeel Eaqub said rents have not been doing much nationwide and nor will they - unless incomes rise which, in turn, is unlikely in the near future.

“So there isn’t actually much scope for rent raises. Until incomes rise, we won’t see much in the way of gains in rent across New Zealand - and certainly not outside areas that have supply shortages, like Auckland and Queenstown.”

In Auckland, where the rental market is tight with limited vacancies, there has been some upward pressure on rents, he said. “But that too will be constrained by incomes.”

NZ Property Investors’ Federation executive officer Andrew King said Auckland rents have not kept pace with sale prices.

That imbalance will be exacerbated by the additional costs that will come with new regulations for landlords.

“Ultimately, with any cost increase there is a chance of it flowing through into rental increases because the landlords can’t afford to simply supplement them.”

Many Auckland landlords are concerned about issues like overcrowding, he added.

“The current low interest rate environment is helping landlords keep rental increases in check for now. But, if any more regulatory costs are levied on to landlords, it is doubtful that will continue and rents are likely to increase.”

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