Where the rents are falling
Tenants around the country have faced nightmare rent rises but figures from the nation’s biggest city show what can happen when the accommodation supply is there. Dileepa Fonseka reports.
For many renters the prospect of rents decreasing is a more remote one than the chance they might own a home, yet there is one major city area where this is happening right now.
And it is in the city most often identified as being at the heart of the country’s housing crisis.
Auckland’s CBD is the country’s largest employment centre and the central node for almost every form of private and public transport from cars to ferries to trains.
Yet its rents keep falling thanks to a city-wide building binge spurred on by the Auckland Unitary Plan (which loosened planning rules across the city), more ex-AirBnB rental supply coming online, and a severe post-Covid-19 drop-off in demand.
Trade Me statistics show the median weekly rent in Auckland city was $500 in January, down 5 per cent on the year prior.
Dig deeper into their figures and you find demand for CBD apartments actually rose 5 per cent on the previous year while the number of apartments available for rent soared, up 34 per cent on the year before.
Data from AirDNA shows the number of whole properties being listed for rent on AirBnB in downtown Auckland in January was down 37 per cent on year before, indicating the increase in properties listed for rent probably came through a decline in AirBnB listings.
This at a time when renters across the country have been hit with the biggest rent increase in the nation’s history.
In Wellington, median weekly rent on Trade Me listings hit $560, the highest it has ever been (a 6 per cent rise on the year before). Meanwhile, in Christchurch, median rents for apartments in the central city rose 11 per cent to $400.
Apartment Specialists directorAndrew Murray says the rent drops in Auckland’s CBD will keep coming, something he believes makes it the best time to rent there, ever.
Sense Partners economist Shamubeel Eaqub says while Auckland’s story is one of a major demand drop-off, it also shows rents will fall if we can bring on supply ahead of demand.
‘‘When there’s a shortage of housing like in Wellington, rents are going through the roof because everybody’s bidding to find a place to live.
‘‘When there is sufficient supply we can see that rental costs will come down. Sometimes in absolute terms, but usually relative to incomes.’’
Of course, there were other factors which had probably dented demand, like a decline in employment and fewer international students, but Eaqub notes construction has been strong right through Auckland.
There were 16,293 consents issued in the year ended November 2020 in Auckland – a 9.6 per cent increase on the previous year. Additionally, the number of new homes consented per 1000 residents there increased to 9.5, a significant increase on the low of 2.2 seen just over a decade before in the year ended August 2009. Compare this to Wellington where consents issued actually went backwards last year. Between March and November 2020 there were 25 per cent fewer consents granted for dwellings than the year before.
Some apartment buildings in Auckland are still coming online. One of the latest is New Zealand’s largest residential tower, the Pacifica. Around 80 per cent of the apartments were reportedly sold two years ago, but a lot of apartments in Auckland are bought by investors who then rent them out to people working, studying or simply visiting the CBD. Which means even in a building dominated by owners some stock will eventually be rented out through agents like Ray White’s Sylvia Hu.
The prices Hu cites for the Pacifica certainly don’t sound like what you would expect during a downturn in the CBD apartment market.
She pulls out ballpark figures of up to $800 per week for one room or $1400 for a two-bedroom with valet parking. These are not ‘‘shoebox’’ spaces, and the common areas include a deck, pool, spa, sauna, a bookable dining room and even a movie theatre.
Hu says customers are showing up for property viewings, but often virtually on platforms like Zoom because they are mainly returning Kiwis stuck in quarantine.
However, Murray says you will see further movement downwards even at the Pacifica.
‘‘[The Pacifica has] got to find its rental market. It’s going to affect the high-end market.
‘‘And stuff that’s not new is going to come in behind [the Pacifica] because everybody likes brand new, but the prices they thought they were going to get for rentals, it’s going to be way lower. I reckon it’s going to be 20 per cent lower than what they thought it would be.
‘‘It’s a big drop from what you’ve been sold, and I pretty much guarantee
The number of consents issued in Auckland in the year to November was 9.6 per cent higher than in the previous year. By comparison, consenting went backwards in Wellington.
that.’’
However, he believes the big drops won’t be seen so much at the top-end of the market, but at the bottom-end.
Murray says rents associated with student apartments went from $380 to $420 last year, but were now coming back down to the $350 per week mark.
Investor and student apartment buildings like Zest and Volt have 400 to 500 units inside.
Swankier CBD apartment buildings have more owner-occupiers and fewer apartments available to rent so are likely to see rents decline by about 10 per cent.
‘‘You’re going to see the best time to rent in the CBD, ever,’’ Murray says.
‘‘We’re going to see the biggest drop [in rents] since the oversupply in the mid-2000s.’’
Yet rents are often seen as ‘‘sticky’’ and tend to remain flat rather than fall across the country, so why is Auckland CBD any different?
Crockers Property Group chief executive Helen O’Sullivan says the Auckland CBD rental market is more fluid than others around the country, which means price changes are reflected more quickly.
About a quarter of Crockers’ portfolio is based in the central city, and in January it saw a 4 per cent decline in rents on the year before.
‘‘In the CBD part of Auckland there’s lots of good-quality apartments available and good value for money. I think things are very different in the Wellington market, based on reports I see out of there.
‘‘Wellington is just a really challenging environment in which to develop given its seismic issues. Nothing in Wellington is going to be cheap
to build and obviously a return is necessary on that.’’
Murray says the declines in apartment rents in the mid-2000s eventually spooked the banks around lending for apartment purchases.
Back then, supply almost doubled from 10,000 apartments to 18,000 just before the global financial crisis hit, reversing migration and international travel flows for a number of years.
Now international tourists and students had been cut-off, and there has been a decline in lowerpaid employment in the CBD too.
Murray says there wasn’t enough apartment stock before the pandemic hit, which means there is a historic opportunity there for people who want to buy now.
In a post-pandemic world travel and employment could very well return, just as it did after the global financial crisis.
And major infrastructure works like the City Rail Link will drive up the desirability of central city living too – eventually.
‘‘What that means to me is the future is very bright, but it’s at its worst right now,’’ he says.
‘‘[And] you should always buy before the crowds come in.’’