ANALYSIS: The recent fall in rental prices in some parts of the country shouldn’t be too surprising for a couple of reasons.
First, house prices nationwide have fallen in five of the past six months. There are plenty of sellers, but not as many buyers, with the supply situation partly reflecting the spike in new-build homes immediately following the pandemic – especially in Auckland. Those unsold townhouses will eventually find owners, but perhaps not this year.
Second, population growth is slowing, with annual net migration dropping from a peak of 135,000 in October 2023 to just 13,000 in July this year. The average annual gain over the past 10 years has been 50,000, so things are much weaker than normal.
My monthly surveys of residential property investors, conducted in conjunction with Crockers Property Management, have shown weakness in the tenancy market for quite some time. This can be best seen in the net proportion of landlords saying it is easy to find a good tenant.
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In April last year, a net 25% said things were easy; landlords could pick and choose. Three months later, a net 12% said things were hard. In November, the reading was -21% and it reached a record -41% in July and August of this year. The latest reading is -36%, which I interpret more as things not getting worse rather than a new improving trend appearing.
Landlords are strongly saying that it is hard to get the type of people they want in their properties. Interestingly, it has taken over a year for this turn in tenant availability to manifest itself in falling rents.
Having said that, weaknesses in the rental market became evident in early 2024. Near the end of 2023, landlords were looking to raise rents by 6% over the coming 12 months. By mid-2024, they had scaled back their ambitions to a rent hike of 4.5%, and the latest reading is 3.9%.
Independent economist Tony Alexander: "Landlords are strongly saying that it is hard to get the type of people they want in their properties." Photo / Fiona Goodall
Rents are still rising on average, but the increases are small, and in some parts of the country, they are falling.
Are the weaknesses in the rental market putting people off buying an investment property? For existing investors, the answer is only slightly. In the last three months of 2023, 21% of existing investors said they wanted to buy again in the coming year; now, just 19% want to buy again.
My recent surveys of real estate agents found that only a net 14% of agents had noticed more investors in the market. While that's down from the net 22% at the end of 2023, the number is still positive. Investors have not deserted the market.
However, when I ask the real estate agents if they are seeing more investors looking to sell, the net proportion saying yes is almost 24%, compared with 11% late in 2023. More investors are looking to sell their property or properties, and this is one of the factors making the current market so positive for first-home buyers.
They have plenty of new and used townhouses to choose from, plus plenty of older houses, perhaps held by investors for a great number of years.
Where are things headed? Slowly for the better. The outlook for the economy is improving as the effects of lower interest rates and higher farm incomes feed their way through. There are also hints that the net migration flow may be bottoming out, assisted by some recent rule changes by the Government, plus the welcome mat being pulled away in the United States.
- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz
