Sunday February 03, 2008 By Michelle Coursey
Gone are the days when renters would put up with peeling paper, cracked windows and faded carpets.
There’s a new type of tenant in town. They earn big incomes, like their home comforts and don’t mind paying for the privilege.
“They are people who can’t afford to buy their own home, or choose to rent for their own lifestyle, and might be earning $100,000,” said New Zealand Property Investors Federation president Martin Evans. Such tenants wanted “quality houses, tidy, with new carpets, and if it’s a nice house, nicely decorated. They aren’t too worried if it’s $30 more [a week]”.
That’s one reason Auckland rents reached records levels in December.
A report by the Crockers Property Group, based on figures from the Real Estate Institute of New Zealand and the Department of Building and Housing, put average weekly rents at $438 for a three-bedroom home and $328 for a two-bedroom property.
The 2006 census recorded almost 300,000 rental properties in New Zealand, up from around 264,000 in 2001.
But rising rents don’t necessarily mean bigger incomes for the country’s many landlords.
An ANZ Property Investment Survey from last year showed investors owned more than five properties on average, but 47 per cent reported a negative net yield.
A further 48 per cent claimed they had been put off buying more properties in the next 12 months because the cost outstripped what the market allowed them to charge tenants.
Evans said many investors who had bought property over the past four years had been forced to subsidise rents because of high house prices and increased interest rates.
“People kept buying rental properties even while yields were down. The only way they can get returns now is to put their rents up.”
Sue Tierney, a landlord and president of the Auckland Property Investors Association, said rents were “dirt cheap” in relation to property prices and some landlords were considering renting out their own home and becoming tenants themselves.
Her views were backed by figures from Massey University professor of property studies Bob Hargreaves, who said that in December, renting was typically less than half as expensive as owning a home. That will be cold comfort to Auckland renters.
The Crockers report said rents for three-bedroom homes in the City of Sails were about a third higher than the national average in December, and significantly higher than in any other major city.
Experts agreed that trend would continue because Auckland’s larger population would maintain demand.
Experts are divided on the rent rises tenants could expect this year.
But Hargreaves didn’t think they would leap by 10 per cent, as some landlords were predicting.
Migration, which usually fuels demand for rental accommodation, has “levelled off”, forcing landlords to cap rent rises.
Late last year Westpac Bank economists tipped rises of 6 per cent a year for the next five years, a rate which would bring them back into line with house prices.
But property investor and Suburbwatch website director Kieran Trass said landlords would pay the price if they increased rents too much.
Trass said the average number of people per household began to increase in the middle of last year, meaning “the rent affordability issue must be starting to bite”.
If tenants find rents too steep they would be forced to move into smaller properties or share with more people, creating more vacancies and halting rent rises.
“Landlords are puzzled at the moment,” Hargreaves said. “They are all searching for the answer, that pot of gold at the end of the rainbow.”
