Are Rents Going Up?

Rents going up, old news you might say? Well you’d be wrong. According to Statistics New Zealand, rents were less affordable in the late 1990’s than they are today. Obviously, the rents have gone up in the meanwhile, but average wages have risen faster. In 1998 the average household spent 34.% of their income on rent, by 2012 the figure had fallen to 31%. Even in the super-heated Auckland housing market, this is true. In 1998, the average Auckland household spent 37.6% of income on rent, by 2012 this was down to 35.1%

Wellington, New Zealand

Unfortunately, if you consider the future it’s very likely that rents are going up, particularly if you live in Auckland or Christchurch. That’s because of a perfect storm of increased costs for landlords, and demand for rentals in these two cities.

The post-quake rebuild is still moving slowly, and Christchurch has a shortage of decent undamaged rental properties. While Auckland, still appears to be the destination of choice for many migrants from overseas but also from elsewhere in New Zealand. The Auckland housing price boom is also meaning more people are being forced to rent for longer as they can’t save a deposit for a mortgage. The new Reserve Bank rules restricting the banks’ ability to loan to borrowers with only 10% deposits will only make this worse in the short-term, at least.

Meanwhile, landlords are seeing big cost increases. As a result of the Christchurch earthquake, this year insurance premiums are in some cases doubling. Plus insurance is now on an agreed cost, forcing some landlords into the expensive exercise of paying for a detailed survey of the property.

Owners of older apartment buildings and being threatened with Council’s “red stickers” as new, more stringent, Earthquake Code rules come into force. Some landlords face costs of many ten’s of thousands of dollars. Two scenarios are likely; either the building will be demolished and replaced with something more modern, with higher rents. Or the rents will go up to help pay for the remedial building work – either way it’s going to hit the tenants in the back pocket.

The biggest driver of rents may well come down to interest rates. Most renters probably think mortgage rates aren’t their problem, but interest is most landlord’s single largest expensive, by a big margin. Interest rates have been low for several years, historically low, the lowest for 30 years. It won’t last and predictions are that rates will start rising in 2014.

So what can you do to escape rising rents? Well there is a few things some drastic. One option is to move to Southland, which boasts the country’s most affordable rents. Households in Invercargill only pay 20% of their income on rent. If that’s a step too far, there are some other options though.

If you like, the current place you rent, then try to get a longer fixed-term tenancy. Most New Zealanders rent either on a periodic basis, or a one-year fixed tenancy. If you can persuade your landlord though, it’s perfectly legal to commit to a two-year, or even longer tenancy. Just be sure that you really will want to stay in the property for that length of time, as you are liable if you decide to break the tenancy early. On the other hand, you will have the certainty that the rent can’t go up.

If you are moving this time of the year – try to get a tenancy through to early 2015. Most property owners prefer their fixed term tenancies to come due in January or February, when most tenants are looking for a rental. So if you are e moving in the latter half of the year – try to negotiate a longer-term tenancy which will suit both sides.

Rents don’t always go up in line with increasing costs to landlords, if a property is too expensive, tenants will look elsewhere. However in market where there is plenty of demand; it seems likely that, at least in Christchurch and Auckland, unlikely that rents will be going anywhere but up for the near future. Sure, you don’t fancy a relocation down south?