Rents Rise As Rental Property Shortage Bites
First National Media Release WEDNESDAY, MARCH 28 2011
Rents Rise As Rental Property Shortage
A nationwide shortage of residential properties for lease has led rental prices higher in many places across the country and there’s no respite in sight, First National’s quarterly property management survey shows.
“Rents have increased due to a shortage of rental properties across much of the nation – it’s the basic economic principle of supply and demand,” First National Group General Manager Colleen Milne says.
“The situation is unlikely to improve until more properties are available to rent, particularly in the Auckland market,” she says.
The survey, for the summer of 2011-12, measures property management vacancy rates, rent rate movement and demand/supply experienced by property managers in the First National network, which covers the length and breadth of New Zealand.
Nationally, 46% of First National property management offices say rents in general have increased from a year ago, while 43% say they are the same and 3% report rent decreases.
The survey shows 45% of First National respondents record two-bedroom rent rates the same as summer 2010-11, while 41% say rents are higher and 7% say they are down.
For three-bedroom properties, 48% of those surveyed say rent rates are up compared with summer last year, 41% say they are the same, and 3% say they are lower.
With regards four-bedroom places, 48% of First National property management offices say rent rates are up compared with summer last year, while 41% say they are the same and none indicate rents are lower.
Notably, all Auckland offices say rent rates are up across the board.
In Auckland the average rent rate for a two-bedroom flat was $312 a week, $320 for a two-bedroom house, $343 for a three-bedroom flat, $400 for a three-bedroom house and $462 for a four-bedroom house.
The highest rate was $580 per week for a four-bedroom house in Howick and $370 per week for a three-bedroom house in Glendene.
Wayne Boberg, from First National Bobergs in Epsom, Auckland, says February was insanely busy and March has been hectic for his property management team.
He says the main factor behind the rent rises is the lack of new construction in Auckland.
“There is no finance available for development or developers in the current economic climate after the demise of the finance company sector. On top of that, red tape with council consents and the cost of planning approval are anything but an incentive to build,” Boberg says.
Low Yields One Component Of Landlord
“At the same time, the returns landlords can achieve with development don’t justify their investment. There’s little incentive to be an active landlord anymore,” he says.
“When gross yields of 4.5% or 5% are the norm (3.6% or 4% net), it is more attractive for many people to leave their money in the bank.”
Next month’s law changes mean depreciation can no longer be claimed on investment properties.
“This has had a cumulative effect of making it difficult for new landlords to enter the market and for existing investors to grow their property portfolio, while keeping reluctant landlords in a holding pattern because they would have to pay back the depreciation if they sell,” Boberg says.
“There’s a gradual creep towards more people renting versus owning a home as people can’t afford to buy and the population of Auckland is growing, but there is no new development providing the accommodation for the increasing population.
On top of that as more people move out of the central city, from the expensive central areas, their transport costs rise as they commute further and further to work.
“These problems are not easily solved and rents will continue to rise in the meantime,” Boberg says.
“We’ll end up like Sydney before too long – always difficult to find a place and remarkably expensive.”
Ilam in Christchurch was the most expensive in the South Island with an average four-bedroom home renting for $450 per week and $390 per week being charged for an average three-bedroom house.
First National Giera Progressive Principal Joe Mullins says his Ilam agency has been inundated with multiple applications for every rental property on the market for the last three months.
Between relocating families from the eastern side of Christchurch due to earthquake damage and firms of tradespeople looking for accommodation for their rebuild staff, there is increasing competition for vacant properties, Mullins says.
It’s cheaper for construction companies to rent a house for their staff than pay motel rates so they are competing with families for properties. There’s little chance of success for those people searching for short-term leases while their houses are being repaired.
“Rents are rising after three years of stable prices,” Mullins says.
“Another consequence is that without question a higher proportion of leases are being renewed as people realise their choices are limited in the current situation.”
The available rental stock is stable or even declining as landlords take a capital gain in the present market.
“Homes for sale on the western side of Christchurch are rarely being bought by investors because the indicative prices are too high for the anticipated return to be attractive,” Mullins says.
“Many homeowners with earthquake-damaged properties are choosing to buy existing houses rather than build again because it is easier. So any investors who are in the market are put off by the competition and prices in this area.
“Unfortunately there’s no real solution to the problem unless landlord investors are prepared to accept a lower rate of return,” Mullins says.
All of the upper South Island offices say rent rates are up across the board.
The average for a two-bedroom flat was $220 per week, a two-bedroom house $265 per week, $275 for a three-bedroom flat, $315 for a three-bedroom house and $357 for a four-bedroom house.
In contrast, Cromwell noted that rents are down on two- and three-bedroom properties.
Not Enough Properties To Meet Rental
According to 47% of First National survey respondents, there are not enough available rental properties to meet tenant demand.
For 28% of respondents, there is a good balance between supply and demand, while 6% of property managers report an oversupply.
Families are currently the most active tenants in the rental market, according to 89% of First National property management offices. Young professionals are the most frequent applicants for 11% of offices.
The survey shows 50% of respondents nationally say there is a shortage of high-end properties of all sizes, 56% report a shortage of all mid-priced properties, and 36% note a shortage of all lower-end properties.
All offices in the Auckland region noted shortages across the board except for Howick, which shows a balance of supply and demand across the majority of styles.
The national average vacancy rate for First National properties under management is 5%, an improvement on 7% in October and 7% in July 2011, the survey shows.
The lowest vacancy rates are in Papakura, Glendene, Howick, Te Kuiti and Ilam in Christchurch. Those offices all report vacancy rates below 1%. Motueka has a vacancy rate below 2%.
The highest vacancy rates are in Mangawhai (17%), Bethlehem in Tauranga (12%), Stratford (9%), Dargaville (12%), Whangarei (7%) and Papatoetoe (7%). Waihi Beach has a vacancy rate of 48% which can be attributed to a large proportion of properties under management being holiday lets.