KEY POINTS:
Aucklanders could be in for a major rent shock, as landlords prepare to impose big price hikes to meet rising costs.
Property investors are vowing to push rents up to keep pace with crippling mortgage interest rates and say those who have not already increased their rents are about to.
Auctions held outside properties - a phenomenon earlier this decade which saw tenants bidding fiercely against each other - could even make a comeback, as landlords find crowds turning up to view places.
Rents have already risen in many Auckland suburbs, as well as in Wellington and Christchurch.
With about a quarter of the country's 1.4 million houses, flats and apartments rented, much is at stake for 1.2 million tenants who are a growing group due to historically high house prices and steep mortgage interest rates, forcing more people to ponder renting for life.
Landlords collectively control a $162 billion pool of private rental stock and they have backed a major Westpac report released this week which predicted rents would rise nationally by a third in the next five years.
Andrew King, an Auckland landlord and vice-president of the New Zealand Property Investors' Federation, said rents were already rising throughout the city and investors were preparing for a big tertiary student influx early next year.
He cited a double-whammy of more tenants but fewer rental properties, saying tenant numbers were ballooning as people resigned themselves to long-term renting, but fewer investors were buying because houses were too expensive.
"Landlords have had to wait to get tenants before but now there's much stronger demand for properties. The auctions on the lawns could possibly come back because there's lots of people turning up at the same time and competing to rent properties again," Mr King said.
"Wages are rising, employment is strong, the economy is strong, big Fonterra payments and net migration increases are all driving this."
Most tenants accepted that rent rises were inevitable, he said.
The Weekend Herald took Department of Building and Housing rental data and compared it with the levels rents could reach by 2012.
By 2012, residents of Parnell and Newmarket could be paying an average $926 a week for a standard three-bedroom house. The city could soon have entire suburbs where larger houses rent for more than $1000 a week. For example, a four-bedroom house in Parnell/Newmarket rents today at $767 but using Westpac's predictions would be $1022 in five years.
Westpac said landlords would no longer tolerate the extremely low returns on properties which had cost them a fortune to buy.
Rents had been subdued for most of this decade, up just 2.2 per cent a year during the past four years. But the bank reckons they could rise 6 per cent annually for the next five years, partly driven by strong wage growth meaning people could afford higher rents. The numbers no longer added up for landlords and they would not tolerate getting a 4 per cent yield on a property when mortgage interest rates were well above 9 per cent, meaning they had to tip substantial amounts of cash into the property to simply maintain ownership, the bank found.
Stagnating house prices would usually be a signal of an economic slowdown, cooling the market. But the bank said the levelling off in house prices had come at the same time as a strong world economy and while New Zealand was enjoying a dairy price boom, more government spending and tax cut prospects.
Helen Gatonyi, Christchurch co-ordinator of the Tenants Protection Association, predicted dire consequences from any rent rises.
"More people will start living in boarding houses, couch surfing or staying with friends," she said, saying poor families, young people and struggling singles would suffer most.
"People who are teetering on the brink of poverty and feeling depressed or desperate will slip further. More people will be homeless."
Some tenants were so desperate that they were striking fixed-term deals for next year now, she said.
Charles Waldergrave, a social policy researcher, said the Government's accommodation supplement was the most effective measure to help those worst off. But housing costs were the single biggest expense.
"You have to pay for your electricity and your rent so food becomes a discretionary item."
About 250,000 households receive the accommodation supplement from the Department of Work and Income which targets low income earners and beneficiaries.
On Thursday, Auckland agency Barfoot & Thompson, which manages more then 7000 houses and units, said average weekly rents had fallen from this year's high of $388 in October to $377 last month. Peter Thompson, director of Barfoots, said the latest drop was only minimal and rents had risen from $360 in January. Students were leaving Auckland so prices might drop temporarily to keep tenants over Christmas.
