Rents have risen sharply in the past four years, but new data shows the trend is changing. Photo / 123rf
OPINION
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Q: Hi there, I’m wondering where the statistics of an increase of 4% in rental prices are coming from, I see it’s over the last year but surely the last quarter would be a more helpful statistic. (I seriously have doubts about the accuracy of Statistics NZ.)
It would be really good if some journalists could fact-check as the rental market in Wellington has certainly taken a very dire turn downwards, (obviously, there are other issues at play there) but I’m hearing the same to a lesser degree in other areas. Getting in touch with some property managers (particularly in Wellington) would be a good start for a realistic view….
They’re all saying the same thing. It’s a problem if rental inflation’s so-called stickiness is holding up a recession recovery. People are dropping rents by up to almost 20% and are still unable to get tenants in Wellington… I’m one of them and it’s a brand new build!!!!
Kind regards,
(name withheld)
A: Hi this is a great question. That figure (4.5%) is the annual figure for the stock measure of rental prices, reported by Stats NZ this month as part of the Selected Price Index.
The good news is that if we dive a bit deeper into Stats NZ’s rental price data it shows that it does match your experience!
Stats NZ now collects rental price data monthly and the last few months show rental prices are falling in Wellington, Auckland, and Canterbury.
There are a few reasons why the national annual average you quote shows them rising. Broadly though, it is a reminder that statistics, while facts, can paint all sorts of different pictures depending on how we dice them.
So I wouldn’t have doubts about Stats NZ’s data. But I would always be cautious about which figures are being highlighted.
Stats NZ’s rental price data comes from the record of new bonds lodged with the Ministry of Business, Innovation and Employment. So it’s very robust for new tenancies. This data gives us a price index number called the ”flow measure” of rentals.
The other indicator of price movements (the one you’ve seen, I think) is the “stock measure”.
That is an estimate of rental price movements across all tenancies, new and existing. To measure that the bond data is merged with Housing New Zealand rentals and private secondary boarding fees data.
The flow measure is a better indicator of the current trend in the market than the stock measure.
The stock measure is less reflective of the trend, partly because rents of existing tenancies are less fluid and perhaps partly because it is more of an estimate.
However, the flow measure doesn’t capture the lived experience of most tenants who are already in existing tenancy agreements. So it makes sense to consider them both and I’m sure the Reserve Bank does when it considers how much weight to give rent prices in its inflation calculations.
When we look at the rental price trend since 2020 we can see the flow measure for new tenancy agreements peaked in January this year after a sharp spike.
Since then it has fallen away quite sharply (see below).
Another reason why the number you’ve seen doesn’t match your experiences is due to its timeliness - or lack of it.
Looking at the annual average means we’re including data from 12 months ago when the economy was quite different. That does raise questions about why the Reserve Bank bases its rate calls on the annual figure and can’t consider just the latest most relevant quarter.
There’s been plenty of debate about this lately and I have some sympathy with the argument.
When I asked them about it in April they said this:
“We take into account a range of the most timely information available, including quarterly inflation data, to form a view on what OCR settings are necessary to return inflation to our target.
Although we often report on headline inflation figures in annual terms (because our Remit is specified as an annual inflation target, annual numbers tend to be more easily understood, and quarterly figures can be driven by volatility and seasonal price movements), we closely examine high-frequency movements in key economic data series such as CPI inflation, and make judgments about whether recent movements will be sustained.”
I’ve also argued that we should be funding Stats NZ to deliver the full Consumer Price Index monthly as they do in the United States - to give the RBNZ the most relevant information.
It’s pretty crucial when you think that some businesses are just hanging on week to week until interest rates fall. Last week I noted that Massey University had launched a live, AI-driven, inflation tracker similar to the GDPLive tracker it launched in 2018.
Finally, there is some regional data buried in the Stats NZ website, which doesn’t always see the light of day.
It makes for interesting reading. It also shows that what you have noticed in Wellington matches the data. In the graph below we can see that Wellington’s rental market was tracking ahead of the national average until May 2023 but has slipped behind since then. It has fallen quite sharply since May.
It’s great that topline inflation is coming down. The annual Consumer Price Index inflation rate is now just 3.3% - which doesn’t sound too bad.
But before we start talking about an end to the “cost-of-living crisis”, it is worth remembering that inflation is cumulative.
The damage it does to our spending power is stark when we look back at how much prices have risen since the start of 2020 when the pandemic hit.
Independent consulting economist and data scientist Aaron Schiff recently posted a series of graphs on Linked In to illustrate this point (recreated below by the Herald data wizard Chris Knox).
CPI by sub-group
They show that topline inflation has risen by 20.9% throughout the period. Food was up 23.2% and housing costs rose 26.1%.
These categories are the real killers because they are non-discretionary. We can see food coming down since late 2023 but housing still rising. The housing category includes rents and new houses but not the bulk of the residential property market. It also includes the cost of maintenance and bills for rates, water, and power.
Schiff notes that lots of price increases have also come from local services - water, rubbish, and rates. But even though they have spiked recently, electricity prices have only risen by about 11% across the period compared to gas prices up 25%.
The miscellaneous category is an interesting one, he says. It’s a broad category that includes anything from haircuts to jewellery to insurance.
“Haircuts are up 20%,” Schiff notes. “But the really interesting story is insurance. All three categories are up by around 40-50% since 2019. For dwelling, contents, and vehicle insurance, most of the increase happened in 2023, with clear inflexion points around late-2022 /early-2023. Health insurance has a similar overall increase but this has been at a steady rate.”
Before we get too depressed about these numbers, we should consider that wages have risen a lot across this period too. The Stats NZ Employment Survey for ordinary-time weekly wages across this period shows an increase of 27%.
I don’t know about you but I didn’t see that much. But then I didn’t change jobs or get a promotion through that period. The large number is an average and includes gains made by those people who have shifted jobs and upskilled during the period.
There’s no doubt that those on fixed incomes or relying on annual pay adjustments went backwards. But clearly, some people have done all right through the past four years. It’s a reminder that the pain of inflation isn’t evenly shared.
Weighting matters
One last graph for this week shows just how much weighting different categories of goods and services get in the Consumer Price Index that determines our overall inflation rate.
We’re a long way from the days when Aussies were looking across the ditch and calling our economy a rock star. In fact, it was a decade ago, when our economy was humming on a tourism and dairy boom with high net migration adding to the growth.
But what has been noticed - by the same economist who coined the rock star line - is that we’re talking about cutting our interest rates while in Australia they are talking about another hike.
“While the Kiwis will likely be discussing whether to cut their cash rate or give guidance that cuts are coming soon, the Aussies will likely be talking about a hike or the prospect of one,” writes HSBC Australia and New Zealand chief economist Paul Bloxham.
“Our central case is that both central banks will opt to sit still and be on hold in August. But the risks are for divergence – with the real possibility that the RBA could hike the same month that the RBNZ cuts.”
How did we get here? Bloxham asks. Great question!
Perhaps it should not be that surprising, he says.
“After all, the central banks have taken different approaches to dealing with the post-pandemic inflation surge right from the beginning. The RBNZ was one of the first G10 central banks to start hiking, back in October 2021, while the RBA was the last, only starting in May 2022.”
He notes that from early on, the RBNZ spoke about prioritising getting inflation down. In contrast, the RBA has stated that it has been seeking to maintain as close to full employment as possible while accepting that inflation might fall more slowly.
“Divergence in the strategy was blatant in early 2023, when the RBNZ was still jamming on the brakes, while the RBA was starting to just tap on them,” Bloxam says.
“For New Zealand, demand has been weaker than in Australia, given the more substantial monetary tightening. New Zealand’s GDP has fallen in four of the past six quarters – recording two technical recessions – and is roughly the same level that it was in mid-2022.
“By contrast, although Australia’s growth is close to stall speed, GDP has not fallen outright – partly reflecting the RBA’s less aggressive approach to monetary tightening.”
Timely partial indicators suggested that inflation will be falling less quickly than the RBA was forecasting back in May, he said.
“Across the Tasman, the recent dovish pivot by the RBNZ, at its July meeting, combined with the recent economic data, has opened the door for cuts. So, although it is not our central case, there is a risk that the RBA could hike the same month that the RBNZ cuts.”
As I made clear in a recent Sunday column, I’m sceptical about the sudden enthusiasm the new Government has for mining as an answer to New Zealand’s economic needs.
I’m not anti-mining by any stretch. I’m just unconvinced that it is realistic to expect it to be a big driver of wealth. If we find lithium or other high-value rare metals, then great, let’s go. Some more gas fields would be nice, given we are running out of the stuff.
But, I am doubtful that after more than 150 years of exploration and prospecting, there are vast undiscovered reserves of oil, gold, coal, iron ore, or copper sitting there waiting to transform our economy.
New research from S&P Global highlights one of the flaws in relying on mining to get rich - it takes a long, long time.
The research shows that on average (globally) it takes 23 years for a mine to go from discovery to production. The figures vary around the world and the United States is highlighted for having the second longest lag time (after Zambia) at 29 years.
In Australia, the average is a brisk 20 years. Even in China, where the Government has “fast-track” powers our politicians can only dream of, the average wait is 19 years.
Some minerals are quicker than others and around the world, gold mines are developed the fastest (an average of 20.8 years) compared to copper which is the slowest (with a global average of 24 years).
For the record, New Zealand doesn’t feature in the study, presumably because too few mines have come on stream across the time-frame being looked at.
To be fair, another point you could make using this study is that to have an economically significant mining sector you need to have a pipeline of projects.
Which neither New Zealand nor (surprisingly) the US do. The study points out that the US has only seen three mines come online since 2002 and makes the case that the US is not achieving its mining potential.
I guess that’s a point the current Government is trying to make about New Zealand. I’m sure there are opportunities for growing the sector without ruining the environment.
But the study is a timely reminder that, whatever mining might represent to our economic outlook, it is not a quick fix for our current woes.
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003. To sign up to his weekly newsletter, click on your user profile at nzherald.co.nz and select “My newsletters”. For a step-by-step guide, click here. If you have a burning question about the quirks or intricacies of economics send it to liam.dann@nzherald.co.nz or leave a message in the comments section.
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