Average rent prices raised 5% from 2015 while inflation (CPI Index) was well control by RBNZ around 2%, bank interest on savings was around 2% and mortgage interest rates around 3%!
This week we look at how much the rent will increase in near future. This is the third part of the Interest Rates, Property Price & Rent series. If you are interested you can find more about interest rates here and property prices here. While nobody has a crystal ball but here is my own baseline when planning:
There is a rule of thumb whoever pay rent is paying the property owner mortgage. This is a true statement while rent prices are more dependent on demand & supply. As you can see in the above picture rent prices increased on average 5% around New Zealand from 2015. In Auckland, it was around 6% 2015 to 2017 and then 3% from 2017. What cause this to happen:
Potentially people renting if they could not buy houses. If you see in property prices post here, property prices increase (especially in Auckland) from 2014 and almost slow down in 2017. When property prices are out of reach then people force to rent and rent increase 6% annually (2015~2017). In Auckland in early 2017 people who renting (First Home Buyers – FHB) realise while interest rates reducing and property prices are stable then good idea to buy property and then demand for renting reduce and rent increase stabilised by 3% in Auckland. New Zealand-wide as property price increase follows with some delay from Auckland and also there was property shortage then keep rent increase almost 5%. till 2021.
What would influence rent in the next couple of years:
- Recent property price increase for sure push rent up.
- Government new rules like health home standard (HHS) & interest deductibility cause the extra cost to the landlord which results in them increase rent to compensate it.
- Inflation (CPI index) are increasing then rent will increase as same as other prices.
- And interest rates are increasing, government reducing people with a low deposit then again another demand to renting market.
I expected a sharp increase in rents but need to consider rents can not increase more than people income then potentially people have to move smaller places, 2~3 family rent together or move out of main cities. I think rent increase would 7~10 % in next 2~3 years.
What is next? Why renting? If you think you have a small potential to buy property (even out of Auckland) contact me. If you don’t know how to start, contact me and I help you start your journey and plan a workaround.