31 October 2008

More people than ever are renting homes and they’re doing so for longer periods at different stages of their lives, says Jeff Montgomery of the Department of Building & Housing (DBH).
For this reason, there will always be a need in the private sector for private landlords, he says. “There will continue to be demand for rental properties. Demand has increased and no-one is suggesting it won’t continue.”

The biggest growth in rental properties has come, not from the public sector, but “from Ma and Pa investors, those who own one or two or three properties”.

Montgomery says these private investors play an important role in offering homes. And there’s a need to put effort into ensuring landlords, especially accidental landlords, brought about by the current economic circumstances, understand the obligations that tenancy brings.

However, Montgomery says the increase in demand for rentals is less about the economic environment than part of an international trend.

“For various reasons, there has been an increase over a number of years in the proportion of people renting. Around one in three live in a rented home.” This has been gradually increasing for the last 10 years due to:

• desire for more flexible arrangements for work
• the affordability issue – it takes longer to be able to afford to buy
• immigration – people come to New Zealand and move into a rental environment then later move into their own homes

Montgomery says people are renting for longer and more people are renting in their 30s, 40s and 50s. He says, when many people think of renters they have [student-like] flats in mind. “But the growth has been in ‘older’ people choosing to rent. They may own a home but they’re just not living in it. There’s a need for quality rental properties for these people.”

Thursday 6 December 2007
Rents are set to rise 6% per annum driven mainly by three economic fundamentals, Westpac Bank economists are predicting.

Rents have been rising at an average annual rate of just 2.2% over the past four years, but Westpac chief economist Brendan O’Donovan predict that rent inflation will accelerate rapidly to 6% per annum, and will stay that high for five years.

O’Donovan estimates that rents need to rise by 34% to bring them back into line with current house prices – “a process that could take five years”.

High interest rates are a factor that will drive rent increases as it becomes more difficult for landlords to build new properties. Simultaneously, home ownership is looking unaffordable to an increasing number, which means an increase in demand for rental properties. To rent costs around 4% of a house’s value per annum, whereas a mortgage costs over 9%.

The next economic factor supporting the projection for higher rents is that the average wage is forecast to increase by 5% per annum according to O’Donovan. “Currently affordability is good, suggesting rents do have room to rise. Rents are cheaper than normal as a proportion of the average wage. And the average wage itself is set to increase strongly.”

Thirdly, Housing New Zealand (HNZ) rents are rising, says O’Donovan, and rising faster than private rents. HNZ owns almost 17% of the rental accommodation in New Zealand. HNZ rents rose 17.8% between June 2003 and June 2007, while private rents rose just 10.4%, he says.

The Department of Building and Housing’s bond lodgement data shows that median new rentals are already on the rise.