Property Investors Respond

The response from Property Investors to the change of rules around Tax, Tenant protection and Brightline tests was always expected to become a major factor in the Private Rental market, as per my earlier blogs.

However, I did not expect the impact to be as severe as it already is. It is clear that very large numbers of Property Investors have left the market in the last 6 months and the rate of selling investments continues at a very high pace. There are now just 361,000 rentals where we would expect more than 375,000 now, ie a loss of 14,000 rentals in 6-8 months.

Note: This is the first post on this topic since Tenancy Services updated their Active Bonds data in November 2020. "In November 2020 there were some changes to the way we report on the rental bond data to give a more accurate representation of the market.” I am cautiousaboutthe data, they may have created errors, I will keep an eye on it, but this is the ONLY data we have onthe rental market, so I must use it. My opinion is that they may have fixed something, because the data seems to better fit “gut feel” from anecdotal data. But we shall see.

Index of Properties rented with a Bond, by Region, by Month

As is clearly visible, the growth in rentals prior to November 2020, was around 20 points per year, but the loss of rentals is running at around 80 points per year. ie growth was 2%pa, but a 4% loss of rentals is 8%pa. At less than that rate, there will be less than 50% of rental homes remaining in 10 years.

I included the odd case of Otago, where rentals do not have bonds around Christmas ready for occupation the next year. I am not sure of the mechanism here, comments below would be helpful. Either way, there is a distinct 15% drop in active bonds for a month.

Of course rentals rise with time, in fact I have a page that proves rents rise at the same rate as household income. But, rents are now rising much faster as supply is being withdrawn at a rate that is pushing demand well ahead of supply. I have noted in the past that we are in surplus in some regions such as Auckland and Canterbury, but that also has changed and we are now in shortage in Christchurch as shown in my regional charts here.

Rents rising in response to changes in market rules

I have included a long timeframe for this chart because it shows some changes occurred early 2019, when some rule changes were expected from Politician "Kite Flying”. However, the rubber hit the road last November and prices are now on a sprint, especially in Bay of Plenty, Wellington and Canterbury (although Christchurch may be due to their final signs of recovery) Auckland and Waikato remain subdued with price rises matching household income at present,howeverthey do have a surplus of private rentals.

Apartment Dwellings

The central cities of Auckland and Wellington have now built too many dwellings, resulting in strong oversupply, rents are falling in both areas. The Wellington CBD supply is shown below, with supply hitting the all-time high of last year after a high-rise was opened, but was soaked up by students at the end of the year. Continued growth in construction is now heading to oversupply.

Jonette 2011