Navigate Shifting Tides in New Zealand's Rental Market
At Property Brokers, we run our financial year from July to
June, and at the time of writing, I am finalising our budgets for the next
financial year. I enjoy this task. It is a time of reflection as I review our budgets
for the current fiscal year and assess how accurate I have been. When I
calculate our budgets, I review several factors.
- How many new properties will come on
board?
- How many properties will we
lose?
- What will happen with rents?
For the 2023-2024 fiscal year, I predicted an approximate 10%
increase in our average rent. This doesn't mean all rents will rise by this
amount. Typically, properties leaving the rental market have lower values than
new ones. However, pressures on the rental market have contributed to
above-average rent increases.
This has been a pattern for about five years now. Added costs
such as healthy homes, rising costs such as insurance, regressive tax policy,
Council rates, and, more recently, interest rates have squeezed
landlords.
Since records began in 1993, rents have traditionally increased
at about 4% per annum. It is unsustainable for rents to continue at their level
over the last half-decade. At some point, the rate of rent increase must slow
down, and I believe that time has come.
For the first time since we started measuring rents on a
month-by-month basis, we have seen a small drop in our average rent across the
company. Our average rent across the regions we service was $464.51 in April.
It dropped to $458.89 in May, a drop of –1.2%. We are starting to see a slight
increase in the time it takes to rent a property as more and more people hunker
down as the cost of living bites and unemployment starts to increase.
There are other factors at play. There is no doubt that the
sales market has slowed down. Property prices have pulled back, and it is
unrealistic to expect rents to keep increasing as the property market enters
the doldrums.
With rising unemployment, people are becoming more frugal, which
has a broader economic impact. Less tenant movement results in increased stock
availability, which is good news for tenants on the move.
Wellington has been particularly impacted as thousands of
Government jobs disappear. A prominent Wellington property management company
recently reported a significant increase in stock available on Trade Me.
“We see about
650-700 properties available for rent at this time of year. However, as of now,
there are over 1000 properties on the market,” says Harrison
Vaughan, Director of Tommys Property Management.
Not all regions are going to be impacted by a slowdown. I have
been saying for some time that the West Coast is under-rented. Our average rent
on the West Coast was $353.60 at the time of writing, and it was the only main
region that witnessed an increase in rent from May to April this year. There is
still a chronic shortage of rent stock on the coast, and with Tenancy Services
showing the median rent for new bonds being lodged around the $400 mark, there
is still plenty of room for growth.
Prudent, cashed-up investors will be fully aware that there will
be some great buying over the next few months, and the West Coast will continue
to provide strong yields. REINZ April data reported that Grey District recorded
an equal record high of $430,000 median price, also recorded in November 2023.
This shows that there is still strong interest on the coast.
My advice to landlords is simple: Look after your tenants by
attending to issues such as maintenance quickly and professionally. If your
property is available to rent, ensure it is presented professionally and stands
out from the crowd. Be realistic in setting your price and be prepared to
negotiate.
