Moving Forward

Having read all this about the property market is hopefully making you, as investors in residential rental properties, more comfortable. We do not see any pending drop in demand for good quality rentals. In fact, there are many commentators predicting the emergence of ‘long term or life long renters’. This is a common situation in many parts of the world – especially throughout Europe and the USA – so it was a matter of time before it hit our shores.

A study by the Financial Services Council of New Zealand has identified there are 1.5 million New Zealanders between the ages of 18 and 39. Of these 60% are renters and 40% own a home / live at home. Around 83% of those interviewed believe that home ownership is the ticket to long term security and 55% are actively working towards buying their own home. BUT 82% of all of those interviewed believe that the dream of home ownership is now unattainable for the average kiwi.

(An aside. There are over $90 billion in Kiwisaver. The value of New Zealand’s housing stock runs into $trillions.)

Renting is not the reserve of younger people. Many elderly New Zealanders find themselves in the rental market. Many with just their superannuation to live on. Increases in rents are something they simply cannot afford. But increases in property values, rates, insurance and the like, means that increases are inevitable.

Shamubeel Eaquib, economist and writer on property matters, places the cause of current problems squarely on the fact that rental stock levels have remained at much the same level over the past 5 years. Considering the extraordinary growth in the population over that same period this is unacceptable.

TradeMe has the largest site on which to advertise rentals and its listing’s have fallen by over 20% over the last 12 months. And much of what is being advertised is not what is being sought by renters.

Eaquib argues that whilst the Government is so focussed on picking a fight with investors it’s stopping new ones from entering the market and bringing more rentals to meet the demand.  Its no longer a city issue either with increases and shortages hitting small places as well.

It is argued that renting should not be seen as having a stigma attached to it. We have to get used to the fact that for an increasing number of people renting will become the norm. It is not a ‘great evil’. Renting needs to be viewed in a respectful and dignified way.

Some commentators see renting moving away from smaller investors to larger, institutional corporate landlords. This is already being witnessed with players such as Simplicity Investment Funds establishing Simplicity Living and teaming with NZ Living in the building of Build to Rent developments in Auckland.

A shifting market sector but in our view it remains a good place for investors big or small.

Earlier we mentioned the falling number of listings on TradeMe. The last comparison we gave you was in July 2021 so an update:

As at 19.7.21: By bedrooms:

 12345+ 
Christchurch174225260134141934
Banks Peninsular5331012
Selwyn5112217762
Waimakariri151612135
 1852443011641491043

As at 20.4.22: By bedrooms:

 12345+ 
Christchurch1392062258728685
Banks Peninsular3541013
Selwyn352421356
Waimakariri3464017
 14822025911331771

What does this comparison show us?

  • A drop of 272 properties over the period – 26% (this ties in with national trend)
  • 13% of available properties are 1 bedroom – the demand isn’t very high for this part of the market.
  • The huge drop is in 5+ bedrooms which is surprising. Had last years figures say been around August/September then we would have thought those would be student flats which form a large part of this sector of the market. July seems early to be advertising properties for the following year but it may well have been this. Outside of students there is little demand for 5+ bedroom properties.
  • Drop in the 4-bedroom sector represents 31%. This is of concern as it is the most popular sector. Many people ask for 4 bedrooms and end up taking 3 bedrooms if the rest of the home suits their needs.

As at 19.7.21: By weekly rent level:

 $0 – $200$201- $300$301- $400$401- $500$501- $600$601- $800$801+ 
Christchurch396414627717814585934
Banks Peninsular123411012
Selwyn221016224662
Waimakariri01512134035
 4269164309214154911043

  As at 20.4.22: by weekly rent level:

 $0- $200$201- $300$301- $400$401- $500$501- $600$601- $800`$801+ 
Christchurch23567918017813336685
Banks Peninsular014034113
Selwyn103102416256
Waimakariri002645017
 24578819620915839717

So, what does this comparison show us?

  • The biggest swing is in the high rent $801+ level which leads us to believe that the drop in numbers is represented by student flats. There are very few properties in the market at high rentals other than student flats.
  • The other area was room by room rents but there are few of those on the market at this time. We are anticipating that the demand for room by room may increase as our borders open to foreign students and selected skilled trades people.
  • The number of properties, as a % of the total available, that are under $500 per week has fallen slightly from 56% to 51%. This surprised us as overall we would have felt a larger share of the market had risen to over $500 per week. The market is weighted heavily to properties 3 bedroom or under which would impact on these rent averages.

So, some significant swings over the period. Our prediction is that available property numbers may remain fairly low but will adjust over time to reflect not just additional properties but also additional demand through immigration now the borders are re-opening. It’s a balancing act that frankly the Government hasn’t got right and is aggravating through its constant interference in the rental. Every good landlord knows how important good tenants are and do not go out of their way to create issues. But until inflation is under control, available new housing is increased, councils better manage rates and maintenance and material costs quieten down we see increasing rents continuing.