Reserve Bank policies get blame for lagging rents

Rodney Dickens, managing director and chief research officer at Strategic Risk Analysis, has done an analysis of rent trends compared to house values.

He found that while national average rents had only crept up over the last decade, house prices had surged ahead. He said the Reserve Bank underwriting low general price inflation had played a part. Interest rates have fallen and then stayed low since 2008.

Dickens said there was now a major disconnection between rents and house prices, and low interest rates were disguising the country’s housing affordability problem and enhancing the attractiveness of purchasing property, for investors and those considering whether to rent or buy.

He said:  “This raises the possibility that rising interest rates down the track will play a significant part in correcting the yawning gap that has opened up between the level of national average house prices and the rent on the average rental property.”

While rental returns largely tracked house price trends in the 1970s, 1980s and early 2000s, a big gap opened up between 2002 and 2008. It closed a bit in 2008 but is widening again.

He said: “It is possible that a mentality of low inflation has restrained growth in rents despite the boom in house prices in the 2000s and more recently but other factors will be involved.”

Landlords’ costs were reduced by low interest rates, which made them less likely to increase rents when there was not much growth in incomes, he said.

But his analysis showed there was a lot of disparity between regions around the country. Auckland and Christchurch rent growth has been significantly stronger than everywhere else. A number of provincial centres have had barely any increase in average rents whatsoever, and Wellington has been hurt by Government job losses.

Rangitikei’s median rent for a three-bedroom home dropped 2.7% between September 2010 and March 2013. And Central Hawke’s Bay, Otorohonga, Hauraki, the Grey District, Central Otago and Gore did not experience any move at all. Wellington's average increase was just 4.3%.

By comparison, the Waimakariri district was up 22.7%, to which a lot of quake-hit Christchurch residents have moved, and Auckland City up 12.7%.

Even within the cities, there was differentiation. Rural Waimakariri had an increase of 25% and Mt Albert and Parnell both experienced increases of almost 21%.