Rent keeps holding pattern
A rental crunch may be looming for tenants, while landlords will have to cover costs one way or another, writes Susan Edmunds.
Arental crunch may be looming for tenants, landlords are warning. The latest data from Trade Me Property shows that the national median asking rent remained unchanged at $440 a week for the third consecutive month in September.
Over the past 12 months, the median weekly advertised rent nationwide has only risen by $20 a week, or 4.8 per cent. Despite strong house price rises, Auckland’s median rent was particularly stubborn. Its rate of $500 a week is up just 0.2 per cent on a year earlier. Rents fell 4.8 per cent in Canterbury. Head of Trade Me Property Nigel Jeffries said while tenants would be pleased about an ‘‘extended breather’’, landlords might be starting to scratch their heads.
New Zealand Property Investors Federation president Terry Le Grove, said it was a problem for some landlords when rents were slow to rise.
He said costs had continued to increase at a much faster rate than tenants were paying. ‘‘At some point, it will impact supply because you can’t supply rental property if the costs keep going up and rents don’t match.’’
Things such as new requirements for insulation were adding to landlords’ bills, he said. That could put more pressure on rent in cheaper areas, where the investment was more significant compared to the rent coming in each week.
Investors could not sustain a portfolio based on capital gains because they were not guaranteed, he said. ‘‘If the capital gains aren’t there, the rents will have to be higher otherwise there is no return on investment overall. It’s a balancing act.’’
Jeffries’ colleague, Alistair Helm, said landlords who had purchased properties that were not delivering a high yield could be worried. ‘‘It’s fine having a low yield if interest rates are low but if you are highly leveraged, and getting low yield, even a 1 per cent interest rate increase could significantly affect your ability to maintain that property.’’
He said some landlords were running at a cash flow loss as it was.
Helm said the biggest barrier to increasing rents was the question of supply and demand.
With a third of properties in Auckland being bought by investors, there was a steady stream of new properties being made available for rent, he said. That would depress or sustain current rental rates because tenants would have the option to move if a landlord tried to increase their rent.
Outside Auckland, where there was less new supply, landlords were more able to ask tenants to pay more.
In Wellington, rents were heavily influenced by the student year, Jeffries said, but at a median $410 a week were up 7.9 per cent on 2015.
Another surge could be expected at the start of next year when students return to the city looking for accommodation for the year.
Median asking rent in provincial areas rose in September, Jeffries said.
‘‘In Manawatu/Whanganui [median rent] was up 16 per cent on a year ago to $290, adding over $2000 to a tenant’s annual bill. Marlborough and the Bay of Plenty also saw solid double-digit growth on this time last year, signalling that tenants could be looking to shift to areas with lower living costs,’’ he said.
Economist Gareth Kiernan, of Infometrics, was not convinced that a surge in rents was coming. ‘‘One presumes that generally landlords charge as high a rent as they think the market will bear, so a sudden surge in rents to increase yields is unlikely. That conclusion lines up with the fact that ratios of rents to people’s incomes are not unusually low.’’
He said the low rents would not be an issue for many at present because interest rates were low, the returns on alternative options were not that great, and capital gains were strong.
If that changed, house prices could fall, which would improve the yields that property investment delivered, he said.