Anticipate a cooldown in rental rates

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. 

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