Trade Me figures show that median nationwide weekly rents were 9 per cent higher in January than a year earlier. Photo / Thinkstock
Trade Me figures show that median nationwide weekly rents were 9 per cent higher in January than a year earlier. Photo / Thinkstock
Statistics indicate that the disparity between rents and house prices means the upward price spiral may still have a long way to go, reports Diana Clement.
Should rents in Auckland be higher? Tenants will balk at the thought. But statistics suggest that there may be room for more upward movement.
On the surface it looks like rents are sky high. Trade Me figures show that median nationwide weekly rents were 9 per cent higher in January than a year earlier. For Auckland the figure was 6.7 per cent. Head of Trade Me property Nigel Jeffries says the rental market is responding to pressure from landlords chasing better yields for investment property as a function of relentless growth in property prices.
That's painful for tenants. Yet Barfoot & Thompson figures show rents have risen 26 per cent in the past five years while house prices increased 38 per cent.
Another suggestion that rents are not at their peak is interest.co.nz's rent ratio table which compares the average house price with the average rent.
As a broad brush rule, a number above 20 means it is economically reasonable to rent. A number well below 20 makes a better case for buying. In January the ratio in Auckland was 25.44. In the North Shore the figure was 29.35, west 25.84, central 24.31 and south 25.91.
Barfoot's figures show that average gross yields, the numbers that landlords buy on, are at 3.54 per cent Auckland-wide. The highest is in Auckland central at 6.43 per cent and the lowest in Dairy Flat at 1.34 per cent. Rental yields tend to be higher west and south of the city.
Chris Tennant-Brown, ASB senior economist.
In short, many landlords could be getting a higher weekly return, excluding capital gain, by putting their money in term deposits.
ASB senior economist Chris Tennant-Brown says rents tend to track inflation more closely than house prices. Over the past 10 years rents have risen an average 2.2 per cent nationwide, compared to the Consumer Price Index, which has risen by 2.4 per cent over that same period. That would suggest there is room for rents to increase.
The housing shortage in Auckland is pushing up both rents and house prices up, Tennant-Brown says, and with building not keeping pace with population growth it is likely to continue happening.
A good way to identify an increase in tenant numbers is to watch water bills for increased usage.
Nonetheless there is enormous rental price variation. Tennant-Brown says he has little sympathy for tenants in Ponsonby and other expensive areas who complain about rent increases when they could move to a cheaper suburb or style of housing.
It's people on very low incomes or benefits who are really struggling says Angela Maynard of the Tenants Protection Association (Auckland).
"They call to say: 'I have got a rent increase. It went up six months ago and it's going up again'," says Maynard.
Beneficiaries in particular may have stretched themselves to get into the property in the first place and simply not have anywhere to turn to get more money to pay an increase. Most are already receiving the accommodation supplement and other benefits.
Andrew King, Property Investors Federation executive officer
Maynard says that sensible landlords who want to keep good tenants that pay rent on time and keep the property tidy shouldn't increase rents.
In times of financial pressure the number of tenants at a property increases because renters double-up with family. This is sometimes not in accordance with tenancy agreements. Landlords argue that more people results in greater wear and tear.
Andrew King, executive officer of the Property Investors Federation, says a good way to identify an increase in tenant numbers is to watch water bills for increased usage.
Three main factors restrain landlords from increasing their rents.
The first is supply and demand. They can't unilaterally increase the rent above the market. Second is the tenants' ability to pay. If they fall into arrears that's a problem for both landlord and tenant.
The third factor is inertia. Low interest rates mean existing landlords aren't under financial pressure, King says. "Their cashflow has been good because interest rates are low and they haven't felt the need to put rent up," he says.
If interest rates rise, says King, rent increases will be quick to follow.
