Will rates increases add impetus to Auckland’s rising rents?

Rental prices in Auckland reached a new high in May as the median weekly rent hit $490 per week, according to new Trade Me Property data.

This is an increase of 6.5% in the year to May 2015.

At the same time, rental price increases around the rest of New Zealand have slowed.

While there was an increase of 6.3% in the national median rent in the year to May 2015, the national median weekly rental rice remains at $420 – a mark which it has been hovering around since January.

Trade Me Property head Nigel Jeffries said Auckland tenants are now paying a median rent of $25,480 a year while the national median sits at an average of $21,840.

“It’s an all too familiar scenario for those renting in the SuperCity - we’ve seen the average price of houses explode and the rental market continues to follow a similar trajectory.”

Renters outside Auckland had it a little easier, with median rents in the regions flat or declining, Jefferies said.

Meanwhile, further rent rises in Auckland could well be on the cards.

In the latest Crockers Property Investment Index survey, 76% of Auckland investors surveyed said they planned to increase rents to partially or fully cover the council’s rates increase next year.

While 33% indicated they would increase rental prices to fully cover this increase in rates, 43% stated they would raise prices to partially cover the increased rates cost.

The remaining 24% did not plan to raise their rental prices to cover the increased rates.

Auckland Property Investors Association president Andrew Bruce said he did not believe the increase in rates would lead to an overnight increase in rents.

In his view, landlords should aim to keep their rental prices at the market price.

“If you raise your rent to above market rent, your tenant is likely to simply move down the street to a property which is priced at market level and you will be hit by a vacancy.

“As a landlord, covering the costs of vacancies are what really gets you – so you should be trying to avoid them, not prompt them.”

However, contrary to popular opinion, the costs of owning a rental property can often outweigh the returns, Bruce said.

“If additional cost barriers – like rate increases or Reserve Bank prompted higher interest rates [for investors] – keep getting put in the way, then you will see rental increases.”

NZ Property Investors Federation executive officer Andrew King agreed.

He said that, ultimately, when running costs go up any business is going to pass on some of those costs to consumers – and the same applies to the business of owning a rental property.

“Given rental properties are not a great cashflow business anyway, someone has to absorb increased costs.

“If that continues to be landlords, the end result will simply be less people investing in rental properties due to the costs.”

When the question was posed on the NZ Property Investor Facebook page, a number of people said they had great tenants and would absorb the increases themselves to keep their tenants. 

*We would be interested in hearing more of our readers' views on this topic, so if you have something to say please head to our Facebook page and share it with us.