Local factors driving yields: Report

ANZ’s economists have looked at yields across the country as part of their latest Property Focus report.

They have determined yields based on REINZ median dwelling sales price compared to tenancy bond data. The higher the yield, the lower the house price relative to the sum of rental payments.

The report looked at 12 regions over the past 20 years.

Nationwide, the value of a typical dwelling is currently equivalent to 22 years of rental payments,  compared to about 13 years in the early 1990s.

The declining trend in rental yields over the past 20 years had been evident to varying degrees in all regions, the report said. "This suggests a common nationwide element at play, with the falling trend in mortgage interset rates and the subsequent ability to take on morfe debt for the same level of income being the obvious candidate."

In all regions, increases in property values had outstripped rents by a considerable amount. Between the early 1990s and 2007, there was a general downward trend in yields and the spread between the regions became narrower.

But the report said the divergence had started to increase again over recent years.

“Our analysis suggests that more of the difference in trends has been attributable to different trends in property values rather than diverging growth in rents.”

Between 1992 and 2014, rents increased between 70% and 175% across the country, with the biggest increases in Taranaki, Central Otago and Canterbruy. Property prices increased between 142% and 425% over the same period, led by Central Otago and Auckland. “The growth in nationwide property values has been about double that of rents over the past year or so. Property values have increased faster than the nationwide average in various Auckland centres and parts of Canterbury. More sizeable rental increases have been predominant in Canterbury areas, with those in the various Auckland areas slightly below the nationwide average.”

The report found yields were highest in Otago and Southland and lowest in Auckland and Central Otago/Lakes.

Otago and Southland reported yields of about 6%, followed by Manawatu/Wanganui, with about 5.5%, then Hawkes Bay, Taranaki, Canterbury and Northland.

The ANZ economists said the data showed that rising prices in Auckland were not just the result of a supply shortage because a true shortage would drive up rents as well as sale prices.

Canterbury’s yields are much higher, at almost 5% compared to less than 4% in Auckland, indicating that a shortage was a driver there, they said.