Tenants the winners as rents tumble in tourist town
Covid-19 hit the rental market in Queenstown like a freight train, and unlike the rest of the country it hasn’t recovered, finds Melanie Carroll
The coronavirus lockdown sparked a 20 to 25 per cent drop in rent in Queenstown and the tourist town is struggling to bounce back.
According to the Ministry of Business, Innovation and Employment, Otago was the only region in the country where mean rents in October this year were lower than a year ago, down to $467 a week from $471.
‘‘I think a lot of people thought that as soon as we came out of [the Covid lockdown] we’d bounce back,’’ said Hayley Stevenson, director at Queenstown property manager Housemart.
‘‘But unlike other parts of New Zealand we lost a lot of tourism staff, hospitality staff, hotel workers, and without the bulk of our tourists there’s simply just not the work there for them.’’
At the same time as closed borders hit tourist and seasonal worker demand for rental properties, Queenstown’s ongoing accommodation crisis appears to be correcting itself, with the completion of some developments, including the Shotover Country Club and Hanley’s Farm subdivisions, and others nearing completion.
The last time rents were at current levels was during the global financial crisis, Stevenson said.
‘‘We did need a wee bit of a correction in the rental market, because some of the rents were getting too high and it was becoming unaffordable here for families.
‘‘A four-bedroom family home was up around $850-$900 [a week]. That same property now would be in the $700s.’’
Investors who entered the market early were still seeing good returns, and low interest rates provided a buffer for many. Rental yields were still about 4 or 5 per cent, she said.
But a rental recovery would be a slow burn, as it is likely to take some time for tourism
‘‘There’s a lot of stock out there. There are in excess of 200 vacant properties in Queenstown, that’s just the tip of the iceberg.’’ Paul Hibbett Harcourts Queenstown
businesses to ramp up once borders reopened, and for working visa issues to be sorted.
Paul Hibbett of Harcourts Queenstown said Covid had turned Queenstown from a very landlord-centric market to a very tenant-centric market overnight.
Rent was ‘‘a bit ridiculous’’ before lockdown, he said, with four-bedroom homes being rented out for $1000 a week and more.
The arrival of Airbnb had an impact on rents, he said, with owners taking their properties out of the long-term market and letting them short-term.
It seemed like Queenstown was the only area in the country to take a significant hit, he said.
‘‘There’s a lot of stock out there. There are in excess of 200 vacant properties in Queenstown, that’s just the tip of the iceberg.’’
Rents held up in the Auckland region in the wake of lockdown, but the lack of international students and tourists means rents in Auckland’s city centre are falling for the first time in years.
‘‘People want to live in Auckland, I don’t think the demand for people wanting to live in Auckland is going to decline, therefore prices will keep going up,’’ said Barfoot & Thompson director Kiri Barfoot.
But rents don’t follow the trajectory of house prices, she said. ‘‘Just because someone pays another $1 million for a house doesn’t mean they can double the rent, it doesn’t quite work like that. So rents will still go up, but they’ll definitely not go up like house prices do.’’
Kiwibank chief economist Jarrod Kerr said houses being built had not kept pace with the growing population for at least 10 years, meaning New Zealand was an estimated 80,000 dwellings short at least.
‘‘What we have seen over the past two years is a decent pick up in the number of dwellings being built, which is a positive sign, but it hasn’t kept up with population growth,’’ Kerr said.
Even with closed borders and slower population growth, it doesn’t mean we’re going to reduce that shortage any time soon.
Incomes, rather than house prices, were the main driver of rents. New Zealand is in a recession, but it’s one that’s affecting 5 to 10 per cent of the economy – the rest of the country has essentially returned to normal, he said.
‘‘Generally, you need strong income growth, strong GDP growth, to see the stronger rent rises. Demand-supply mismatches can have an impact as well.’’
With a $1m nest egg in the bank no longer providing enough interest to live on in retirement, people were instead putting their money into property which offered returns from 3 per cent to 5 or 6 per cent, if you know what you’re doing.
‘‘Some of those savers will become investors, and that’s what the Reserve Bank is trying to do – they’re trying to drive people out of deposits, out of lazy investments.
‘‘The argument about firsthome buyers versus investors is incorrect – it’s supply versus demand,’’ Kerr said.
‘‘It doesn’t matter why demand is strong, it is strong. The issue is that we haven’t supplied enough affordable homes for the people who want them.
‘‘That’s our biggest failure as a nation over the last 50 years,’’ Kerr said.