Rental growth is now roughly double long-term average growth
New Zealand’s rental market has experienced a significant surge, hitting 6.1% in the year to October, roughly double the long-term average growth rate of 3.2%, according to CoreLogic NZ's Monthly Housing Chart Pack.
Kelvin Davidson (pictured above), CoreLogic NZ chief property economist, attributed the rental growth to various factors, including wage increases and an imbalance between supply and demand.
“The recent quiet patch in purchasing activity by investor groups will have dampened rental supply at a time when soaring net migration is placing upwards pressure on demand,” Davidson said.
“Our latest Buyer Classification data shows mortgaged investors are responsible for just one in every five purchases, as higher deposit requirements, low rental yields, and lack of mortgage interest deductibility reduce some appeal.”
Nationally, the rental yield has rebounded to 3.2% from a low of 2.6% observed for most of 2022, marking the highest level since late 2020.
Davidson said that despite the increase, yields remained relatively low by historical standards, falling short of the income returns offered by some other asset classes like term deposits.
“With rising rents and yields, and some more investor-friendly tax policies on the horizon, we may see investor participation begin to rise, albeit slowly,” Davidson said.
Among the main centers, Auckland exhibited the lowest yields, and Wellington remained below 3%.
“The Reserve Bank has also taken a bit more time recently to ponder debt-to-income ratios and how they might impact the market,” Davidson said. “However, even if they're not imposed for another year or so, this property recovery still looks likely slow and patchy, given the challenges of high mortgage rates.”
Other highlights from the November Housing Chart Pack include:
- The residential real estate is valued at $1.59 trillion.
- National property values have seen their first rise in 19 months, indicating the end of the downturn.
- Property sales in October increased by 13% compared to the previous year.
- New listings totaled 9,012, down from 10,753 the same period last year.
- Total stock on the market is around 12% below last year's levels.
- First-home buyers maintained a strong market share of 27%, reaching a record high.
- Nationally, around 54% of existing mortgages by value are set to reprice onto new, generally higher, mortgage rates over the next 12 months.
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