Prediction of squeeze ahead on rental front

Tony Brasier

Rising interest rates could force landlords to sell their properties, creating a shortage of accommodation which would push up rents, according to Tony Brasier, president of the Real Estate Institute of Australia.

Brasier, visiting Auckland yesterday for the New Zealand Real Estate Institute's national conference, said conditions between the two countries were similar.

He was concerned about New Zealand's rental housing supply, saying investors had few incentives to buy more properties due to further threats of interest rate rises.

In Australia, rising interest rates have forced debt-burdened landlords to sell.

Those rental properties were being removed from the sector because in many cases, owner-occupiers were buying, creating a shortage of rental homes.

This has sparked rising demand which in turn has triggered rent rises. Rents rose 24 per cent in Perth in the year to June, 23.5 per cent in Hobart and 18 per cent in Brisbane.

Reserve Bank Governor Alan Bollard last week signalled the possibility of further interest rate rises and Brasier said this could tip the balance of the rental market in New Zealand.

Even if Bollard does not raise rates again, the interest rates paid by some investors might rise as their fixed-rate mortgages expire and they have to take on new mortgages at higher rates.

"If New Zealand's rental sector follows Australia's pattern, then interest-rate increases mean investors don't have confidence to buy places, which leads to a shortage of rental accommodation," Brasier said.

Australia had eight million houses and flats and almost a third of Australians rented, Brasier said. The Australian institute's latest market facts pointed to the critical shortage.

"Very low vacancy rates resulting from high levels of demand for rental accommodation across all cities put upward pressure on rent levels over the year," the institute said.

"This is expected to continue into the coming months, particularly if the number of first-home buyers entering the market continues to decline and if interest rates rise again as forecast by many commentators."

Deutsche Bank chief economist Darren Gibbs said: "The investor market is the part of the market that softens most when things turn down."

Data from the Real Estate Institute of NZ and Auckland agent Barfoot & Thompson shows rents have been relatively static in the past two years. Rents rose in 2003 when demand was high but an increasing number of investors have bought rental holdings.

John May, vice-president of the Auckland Property Investors Association, backed up Brasier's comments but said New Zealand had no shortage of rental accommodation right now, " ... not like two years ago where you had tenants lined up in the street."