Rent rises could contribute to more inflation

A new source of inflationary pressure could be on its way.

Friday, September 23rd 2022, 10:51AM

by Sally Lindsay

More than 70% of landlords responding to the latest Tony Alexander/Crockers Investor Insight survey say they will raise rents in the next six months. This is up from 65% last month.

Landlords are targeting an average rent increase of just over 5%. Proposed rent increases have dropped by about 1% since March when landlords were looking at a rise of more than 6%.

Independent economist Tony Alexander says the drop in proposed rent increases is not surprising considering many landlords have caught up after the pandemic rent freeze and renters’ incomes are stretched by the cost of living surge.

“Rent rises ultimately reflect market conditions and those conditions for many families are fraught.”

He says if landlords again show next month they are considering rising rents by a bigger percentage, then this could indicate a new source of inflationary pressure in the economy is emerging. “However, anecdotal reports strongly suggest slowing rental growth.”

Landlords are still saying it is hard to find good tenants. The ease with which good people can be found switched to negative in July and now stands at 9%.

The survey also shows a lift in the number of existing property investors saying they are considering buying another property in the coming year. These numbers rose 29% from just under 22% in August. The rise is in line with data from other surveys showing more investors are considering expanding their portfolios – perhaps following on from evidence of first home buyers re-entering the market to some degree.

Alexander says this month 10% of respondents indicated property buying intentions - the strongest result on record.

“Because it follows an unusual negative result in August the jump should be treated with caution. It does not signal a big movement of investors back into portfolio expansion given the many negative factors in play. These include tax changes, low prospects for interest rate cuts in the coming year, and difficulties accessing finance.” Despite the negative factors there is no upward swing in the number of landlords who intend selling.

For those investors looking at buying a new property the preferred option is a townhouse followed by a standalone house. The surge in demand for a new apartment over July and August has not been sustained.

In the latest survey there has been a noticeable lift in interest in buying a townhouse and a fall in demand for a standalone house.

For those investors looking at buying an existing property the preference for a standalone house remains strong.

The downward trend in the number of investors who will do a development themselves has re-established itself.

Reports from developers, builders, and buyers indicate problems for many newer operators including difficulties sourcing materials and staff and making projects profitable amidst soaring costs. Anecdotal reports suggest a noticeable decline in new projects over the coming one to three years.

Tags: rents