Slow Auckland rent growth unlikely to go on

Tuesday 22 January 2019

Auckland is seeing the slowest rate of rent increases in years, the city’s biggest property manager has revealed – but don’t expect it to continue.

By Miriam Bell

The latest quarterly rental update from Barfoot & Thompson is out now and it has Auckland’s average weekly rent increasing by 3.28% to $567 in the fourth quarter of 2018.

A typical* three-bedroom rental in Auckland cost $564 a week in December 2018, which equates to an increase of just 3.12%, or around $17, as compared to December 2017.

Barfoot & Thompson director Kiri Barfoot says rent increases trended down for most property sizes and areas throughout 2018, and this persisted in the final months of the year with the lowest rates of change yet.

Slowing rent growth often indicates a softening in tenant demand or a potential oversupply of the type of property involved.

But Barfoot says it remains to be seen how the rental market will accommodate the various regulatory changes, like the letting fees ban, bedding in now, along with the proposed tenancy law changes.

“While rents are still going up, it is unlikely the current rates of increase are keeping pace with landlords’ rising operating and compliance costs.

“Nor are we seeing the same level of capital gains which were appeasing many landlord’s calculations. We would expect that, eventually, something will have to give.”

Landlord advocates have long been saying that rents will rise in response to tax policy and tenancy law changes, as well as the Healthy Homes minimum standards.

Auckland Property Investors Association president Andrew Bruce says the reality is that if you invest in something you want to get a decent return from that investment – but all the changes are making that increasingly difficult.

To address this, experienced investors will revamp and upgrade their rentals and then put up their rents to market value in order to get a better return on their investment, he says.

“At the same time, less people will get into the rental market so there will be less rentals coming on to the market at a time when there is already a shortage of rental accommodation. That too will push up rents.”

Meanwhile, Barfoot & Thompson’s fourth quarter data does show some increases in rents.

In terms of property types, two-bedroom properties went against the slower growth trend, increasing by 4.3% across all areas to an average $475 a week.

Additionally, central Auckland rents rose by 7.24%, to an average of $507 a week, due mainly to the number of large, luxury apartments pulling in higher weekly rents.

*Three-bedroom properties make up the bulk of Barfoot & Thompson’s 16,500 strong portfolio and so are used as a standard example.

Comments from our readers

On 22 January 2019 at 10:05 am John Butt said:
I keep hammering on about this, but here it is again: There are two rental markets in New Zealand, Private and Social. Auckland is the only region where there is a surplus of Private rentals, inventory is at an historic high. There is no data on Social rentals, so there may well be a severe shortage after the MBIE removed so many from stock, but this article is not about that, it only covers the Private market. So: "Slowing rent growth often indicates a softening in tenant demand or a potential oversupply of the type of property involved." Yes there is likely to be a softening in demand due to oversupply, just as there was in the last 3 years in Christchurch. See my stats here listings.jonette.co.nz

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