Renting a house in New Zealand is expensive.
An OECD report released in April stated that New Zealand was among the most expensive places to rent in the world, on several measures:
- More than 25% of disposable income was going on rent for renting households, it calculated, ninth in the world.
- The country was one of only eight in which median housing costs consumed more than 40% of disposable income for the lowest-income tenants.
- More recent figures published by Corelogic show that rents currently consume 28% of gross household income across the country.
Renters in Tauranga and Auckland are taking the biggest hit, paying average rents of $692 per week and $660 per week respectively, based on the last three months.
There was some talk that the reinstatement of tax relief for landlords could put a dent on rents. But that didn’t eventuate. Doubtless, persistently high interest rates gobbled up tax savings, discouraging landlords from passing them on to renters.
Cooling off
Landlords hoping to further increase rents will need to think again.
Over the last three-to-six months, demand for rental properties has cooled, while more houses are available for rent.
June data from realestate.co.nz showed that while available rentals had increased by 40% over that quarter, the number of rental seekers increased by just 2.5%.
TradeMe data confirmed the shift, with Auckland showing 1,450 additional homes for rent between 28 February and 28 May – a 41% increase in stock. The firm’s July rental price index also showed that New Zealand rents had fallen for the second month in a row, with the national median weekly rent at $640 in July, down from $645 in June – though prices are still $20 higher than last year.
Other factors bringing cooler temperatures to the rental market could also include:
- Slowing wage growth
- A sharp drop in immigration
- Rezoning in some major cities that enabled a construction boom, increasing rental stock
- A general weakness in house sales that encourages sellers to rent their houses instead
These changing dynamics seem to be driving a shift away from shorter term rentals, according to Realestate.co.nz spokesperson Vanessa Williams. “It is a significant increase in rental stock, and anecdotally what we’re hearing is that people are shifting away from shorter term rentals like Airbnbs and book-a-bach, and they’re moving to longer term rentals due to the economic climate that we’re in at the moment,” she said. “If we continue to see the oversupply of stock, the thing that will need to change will be price, so that properties can be rented.”
Let’s see
Current conditions have certainly released steam from what has been a hot domestic rental market over recent years. Given our OECD country ranking as the most expensive places to rent in the world, that’s not a bad thing.
But let’s see how recent changes to the bright-line test impact house sales and how that flows through to rental supply. The theory is that the new two-year bright-line test may reduce the lock-in effect associated with the five and 10-year bright-line periods, encouraging some landlords to offload their properties, shrinking the pool of rental properties.
The deepening pool of available rental properties encourages renters to be more discerning about the houses they are willing to call home. Call 0800 GOODWINS to see how small improvements to your property can increase chances of renting success.