Rents v house prices: Are tenants or buyers getting the better deal?

Tenants are getting a better deal than home buyers when it comes to inflation, paying only 39 per cent more in the past seven years compared to a 106 per cent rise in house values.

Rents rose from an average of $364 a week in 2015 to $508 a week by the end of last year. Yet house prices spiralled from a median of $745,000 to $905,000 last year alone.

Data from the Ministry of Business, Innovation and Employment’s Tenancy Services records the rent rise. And Real Estate Institute figures out this month showed rocketing house prices continued throughout last year.

Kelvin Davidson, chief property economist at property data company CoreLogic, said average house values at the start of 2015 were just $487,779. They now stand at $1,006,632, up 106 per cent in those seven years.

“There’d be many observations one could make about that, but certainly as interest rates have fallen, more people are able to buy, for example, in terms of deposit. That has seen large gains. Owner-occupiers are probably buying and selling in the same market, so a given capital gain generally just needs to be recycled when they shift house,” Davidson said.

On the flip side, although investors have also been beneficiaries of capital gains, their gross rental yields have fallen a lot, he said. While houses cost a lot more than they did, rent rises haven’t kept pace, so the returns are lower.

Sharon Cullwick of the Property Investors Federation said private rental market tenants were luckier than those on the public waiting list.

“Tenants get to live in a house rather than in a motel, which 24,000-plus people are calling home nowadays. So they are lucky to find people still willing to provide a property for them to live in,” she said.

But the relatively slow rise in rents was not good for landlords.

“It means with small returns and larger taxes, fewer people will be entering the market to provide rental properties. I imagine the emergency housing waiting list increasing after March when many rental property providers do their tax returns and realise that rentals are not the investment they once were,” she said.

In October, Barfoot & Thompson said the average Auckland rent moved less than $1 a week during the third quarter. Rents averaged $606.25 a week by September 30, 2021, little changed from $605.51 a week by June 30.

Barfoot & Thompson’s quarterly rental data showed annual rises of about 5 per cent in two areas. South Auckland rents rose 5.1 per cent a year to hit an average of $543 a week and West Auckland rents were up 4.4 per cent in the year to September, reaching an average of $567 a week.

The south and west have some of Auckland’s lowest average rents but the rate of increase has lately been strongest in those areas.

A survey by the NZ Property Investors Federation last year found 70 per cent of landlords do not charge full market rental.

“This is likely a result of rewarding good tenants with a reduced weekly rental price. This calls into question a commonly held belief that rental property owners will always charge whatever they can get for a rental property. It also demonstrates that rental providers are not as greedy as often portrayed by some opinion writers and online commentators,” said commentary with the survey of nearly 2000 landlords.

However, a Massey University study has found that rents for New Zealand’s 1.3 million tenants rose 9.4 per cent annually, far outstripping inflation and placing many in what academic Graham Squires called a “pretty bleak” position.

New data from Massey University showed Hawke’s Bay tenants had the steepest price rises, up 20.4 per cent from $401 a week in June 2020 to $483 a week in June last year.

Fast-rising Tauranga rents ranked the Bay of Plenty second, with rents up 16 per cent annually from $432 a week to $503 a week.

Manawatū-Whanganui had the third-fastest rising rents, up 14.2 per cent in a year from $339 a week to $387 a week.

The most recent annual inflation rate was 4.9 per cent, so the rent rises are nearly double that.

Squires, Massey University’s professor of property studies, said such steep rises made life harder for tenants

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