KEY POINTS:
Renters are hurting as much as homeowners - national average rents are up by just over 7 per cent, and the average rental now costs $300 a week.
A Massey University survey shows rents in February were 7.1 per cent higher than last year.
The biggest rises were in Invercargill, Lower Hutt and Napier.
Professor Bob Hargreaves, of Massey University's economic and finance department, said landlords were feeling the pinch of rises in mortgages, insurance and rates.
"[Landlords] have been arguing for a while they need rental increases," he said.
Another reason for the increase was a reduction in home ownership rates, which meant there were more people wanting to rent.
Professor Hargreaves told the Herald landlords had seen rises in capital gain in recent years but would be now looking at rentals to get some profit from their properties.
"When you take out the capital gain part of the equation, you're not left with much."
He said there was a strong correlation between rents and wage rises.
"Wage rises are on the move so people are able to afford more."
This year is the 10th year he has completed the survey and is the highest he's seen median rents.
"It seems to be the trend for rents to increase at least for the next 12 months ... but there is the risk for landlords that they'll end up with vacant properties," Professor Hargreaves said.
Andrew King, vice president of the New Zealand Property Investors Foundation, wasn't surprised by the increase.
"It wasn't unexpected and was a little on the lower side if anything," Mr King said.
"There has been a huge increase in demand for rentals. Our members are getting phenomenal responses to new properties they're letting."
The foundation has more than 4500 members and 20 associations.
Mr King said the cost of buying homes, particularly for first-home buyers, was driving the increase in demand for rentals because people were renting for longer while they saved for a deposit.
Building and Construction Minister Shane Jones said officials were already at work on the long-term leasehold proposal, and could report back as soon as July.
But he did not know if the proposal would be completed in time to be included in a planned Residential Tenancies Bill.
Because an economic analysis of the proposal was still to be done, Mr Jones said he was loath to speculate on whether the scheme would push rents up or down.
The long-term rental proposal was driven by changing demographics in New Zealand, notably a boom in apartment-dwelling, rather than a recognition home ownership was a harder dream for people to realise, Mr Jones said.
"I think it's just changing tastes, and there will only be a growth in apartment complex living."
* CATCH-UP COSTS INEVITABLE, SAYS OWNER
Lee Whiley has six rental properties in Auckland and has put up the rent at four of them over the past few months.
"This is catch-up after rentals being fairly static," he said.
He tried to change the rents when the houses changed hands rather than hit existing tenants in the pocket.
His houses - five of which are in Arch Hill - are popular with students and people who have just left home.
He said the demand varied significantly during the year.
One of the houses became free at the end of November and stayed empty for nearly three months.
"We took the rent right down but no-one wanted it. Then in January, once the students were back, people were falling over themselves for it."
Mr Whiley said when he and his wife came to Auckland in 1986, he recalled paying about $100 a room.
"Now in the houses I'm renting out people pay $100 to $150 a room. So it has gone up 50 per cent in 20 years, which is only 2.5 per cent a year."
After inflation, that was a relatively small rise, he said. "Any increase now is compensating for that."
