Rental cost rise predicted

The Property Institute of New Zealand looks at the year ahead.

At the beginning of last year the Property Institute of New Zealand saw its predictions for 2017 score a 100 per cent success rate. Their assessment for 2018 is also likely to be a relevant assessment of what to expect.

Institute chief executive Ashley Church predicts the cost of renting will replace the price of housing as the number one housing issue in 2018.

‘‘The housing polices of the new government, combined with uncertainty around housing investment over the next few years, will ‘scare’ some property investors out of the market, creating a growing crisis in the number of dwellings available for rental.’’

He says some property investors will abandon the market and the impact on the availability of rentals will start to become a problem in the second half of 2018.

‘‘There are always a number of less experienced property investors who panic and sell when a market flattens or who decide not to invest further during downturns. An increasing number of rentals will convert to owner occupied dwellings and that puts pressure on the rental market at a time when the demand for housing is already acute.’’

Church also predicts the cost of renting will continue to rise, replacing the cost of housing as the number one housing issue in 2018.

‘‘While it’s normal to see rent increases after a property boom they will be made worse in 2018 as a result of the combined effect of unusually high inward migration, loan to value restrictions that have closed investors out of the market and Labour’s plans for capital gains taxes, ring-fenced tax losses and significant new compliance costs. These will cause many property investors to increase rents to offset new or anticipated costs.’’

Church suggests as a result, we’re in for big rent increases in some parts of the country over the next couple of years with those increases already showing up in the Property Institute Regional Insights Report. He expects house prices will continue to flatten through 2018, but predicts there will be no ‘crash’ in property prices.

He does, however, expect longer term mortgage interest rates to continue to rise and says we can expect further increases of up to 0.5 per cent or more.

‘‘As was the case in 2017, the general consensus is that interest rates are on their way up – partly because of uncertainty around international events and partly because New Zealand banks will need to pay more to attract a diminishing fund of investment from Kiwi depositors.’’

He says we can expect little change in six-month to two-year mortgage rates, but a jump of up to 0.5 per cent or more in longer term rates as banks try to woo borrowers into shorter terms, in anticipation of further increases in the cost of funding over the next two or three years.

He also expects new home construction in Auckland will slowly increase but most of it will be for owner occupiers and the loan-to-value rules will be further relaxed.