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A CLOSER LOOK AT THE RENTAL SHORTAGES IN AUCKLAND AND WELLINGTON

By Marketing Parnell

A nationwide rental shortage has been worrying prospective tenants all over New Zealand for years. To make matters worse, the number of rental properties available in New Zealand halved in 2017, according to a press release from TradeMe. All the while demand for housing has grown, prices have increased and supply has waned, keeping Kiwis in rentals for longer.

These changes in the market (among many others) have played a part in causing the current rental shortages that are rearing their heads in cities all over the country. The most recent available census data tells us that around 42 per cent of the population rent so this trend could make life a little harder for many New Zealanders.

WELLINGTON: THE EPICENTRE OF THE RENTAL SHORTAGE

Over the year the average rental price in Wellington increased by 7.2 per cent.

If you have an interest in property investment or renting in Wellington, there’s a good chance you’ve read at least one article about the city’s rental shortage. The most obvious sign of this shortage is the increase in the cost of renting in the capital.

CoreLogic RP Data research shows that over 2017, the average rental price in Wellington increased by 7.2 per cent. To put that number in perspective, Auckland rents increased by just 2.8 per cent during the same period, while Christchurch’s average rent actually decreased by 4.8 per cent.

What’s caused this lack of rental properties and the resulting price hikes? For one, population growth in 2017 was high at 1.8 per cent, with 9,100 more Kiwis calling Wellington home, driving up demand for rentals. Secondly, the Kaikoura earthquake of 2016 is still affecting supply with many buildings damaged, or undergoing strengthening. This not only removes rental stock from the market, but also means many landlords have to shell out huge body corporate fees for strengthening, or avoid certain properties completely due to structural concerns.

Property prices in Wellington increased by 5.4 per cent during the year to December 2017, according to the Real Estate Institute of New Zealand. This is yet another factor that will push rents up, exacerbating the current shortage.Whatever happens, it’s clear that Wellington’s rental market is as tight as it’s been in years.

AUCKLAND’S SUPPLY SIDE PROBLEM

There’s less and less incentive for new Auckland residential investors to get into the market.

Just like the capital, Auckland may be in the grips of a rental shortage. CoreLogic RP Data analysis of the market shows that the city’s rents increased by 2.8 per cent over last year, but all signs suggest that this is only the beginning. Over 2017 there was a 35 per cent drop in available rental stock, according to TradeMe.

This may be due in part to the fact that Auckland does not have enough homes, and isn’t building at a fast enough rate to catch up with demand. In 2016 estimates put the total housing shortage at 36,000 dwellings, however, recent data from Infometrics suggests that the reality is far worse.

The construction industry is building at a rate of 6,000 to 7,000 homes per year to remedy this issue, and is currently stretched to its limit. Despite the industry’s efforts, the current build rate falls far short of the 14,000 new homes per year that are needed to meet demand. Infometrics forecasts that residential building will climb steadily until 2021, but it’s unclear whether that will be make a significant difference.

What this means is that there’s little chance of rent prices decreasing in Auckland, and every chance that supply will fall even further behind demand. The fact is, there’s fewer and fewer incentives for new Auckland residential investors to get into the market as time goes on. Rental returns are at near historic lows, sitting at around 2 per cent for most Auckland properties. With capital gains drying up, and Labour policy further increasing the cost of holding a rental property, it seems as if this trend will continue.

The cost of renting replace property prices as the number one issue.

THE PROSPECTS FOR THE FUTURE OF OUR CITIES

The rental markets in Auckland and Wellington are incredibly complex, making future trends very difficult to predict. However, The New Zealand Property Institute, a group whose predictions often hit the mark have made some worrying forecasts.

For one, they mentioned that investors will abandon the market thanks to slowing capital gains, and the rising costs of holding a rental investment. Secondly, The Institute predicted that as a result of 2017’s turbulence, the cost of renting will replace property prices as the number one issue.

The rental market is incredibly tight right now, and circumstances can be challenging for investors. Before making any property decisions, whether you’re buying, selling or renting, make sure you speak to a local real estate agent you can trust for advice in this difficult market.

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