New data reveals rental growth is running at historically high levels, hitting 6.1% in the year to October, roughly double the long-term average growth rate, CoreLogic NZ Chief Property Economist Kelvin Davidson says
A number of factors are contributing to the surge in rents, including wages growth 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.
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. It’ll be intriguing to see how they perform in the coming months after a change of government and ‘property friendly’ policies.
Nationally, rental yield edged back up to 3.2% from a trough of 2.6% for much of 2022 and the highest level since late 2020.
Despite the increase, yields are still relatively low by past standards, and less than the income returns on some other asset classes such as 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.
Across the main centres, Auckland yields remain the lowest and Wellington is also sub-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. 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.
