Rental price statistics for 2019 came out recently and were very interesting to go through.
The median rent for all areas and all property sizes and types hit an all time high of $468 per week, which is 4% higher than December 2018.
Napier, Dunedin, Palmerston North and Invercargill had the highest increases of between 10.1% and 11.7%. You can view a more detailed history of rental prices for 103 different areas around New Zealand at the NZPIF resources page www.nzpif.org.nz. These stats go from Jan 2006 to Dec 2019 and you can graph the data for your specific properties.
At 4%, the increase in rental prices for last year was actually less than the previous year, when rents increased by 5.1%. Even though it was less of an increase than the year before, the average rental price increase was $18 a week or $996 a year. This is a lot of money to many tenants. The general rate of inflation last year was 1.5%, so rental price increases were more than two and a half times the increase of other goods and services.
These points made me think about how tenants could afford such an increase, so I looked at the what had happened to wages over the last year.
This was a pleasant surprise, as hourly earnings had gone up at a faster rate than general inflation for the past two years.
During 2018, general inflation was 1.9%, while hourly rates increased by 3.1%. Last year general inflation was 1.5% while earnings went up by 3.1%. This means that, on average, people should either have more money in their back pockets or can spend more than they used to.
While rent increases in 2018 took up a significant 58% of income increases, this wasn’t the case last year. Percentage increases in incomes and rents were the same for tenants last year, so rent rises only accounted for 36% of tenants income rises. In dollar terms, (assuming a 40-hour week) incomes increased by $2,558 a year in 2019, while rents only increased by $936.
However, these income increases are the average and I wondered how tenants in lower paying jobs were getting on with rental price increases. Last year the minimum hourly rate was increased from $16.50 to $17.70, a healthy increase of 7.3%, higher than average hourly incomes.
Of course, this higher percentage increase is on a lower amount, so I calculated the annual effect for low income tenants. Again, assuming a 40-hour working week, those on the lowest income received an extra $2,496 last year, just $62 less than those on an average income.
It appears to me that most people providing rental property in New Zealand care about their tenants and don’t want to see them under financial pressure. I think this care is one of the great aspects of the rental market in New Zealand. It is an aspect that is unlikely to be replicated by institutional providers of rental property.
However, we need more rental properties for tenants and the only way this can be achieved is if people are attracted into the rental industry. We all know that it is becoming more difficult and expensive to provide rental property in New Zealand, so higher rental prices are probably the only factor that will encourage an adequate supply of homes for tenants.
It is good to know that most tenants will have the funds to meet these rental price increases. It is a shame that ill conceived new laws make these increases necessary.