This blog is intended to provide some comment on current issues, especially those that either include commentary on statistics or those that relate to statistics I gather for my own purposes. I am experimenting with new Govt data published by Stats and MBIE, there is a lot of useful information, especially related to what I call affordability - this data could be used carefully to justify prices, I plan to develop a few charts to show how.

Auckland Rents will Rise to Match Higher Incomes

Rents appear to rise in line with incomes, most likely due to tenants making choices to move to a better rental as their income rises. Auckland City 3BR rents, as well as the Geometric mean rents for the Auckland Region, have fallen behind expected rents given the rise in Household incomes, so we should expect rents to rise to restore balance.

Household income increased by a surprising 8.2% for the whole of NZ between June 2017 and June 2018. These stats were updated last month - very quietly - by Stats depthere. I guess they are concerned people may misunderstand HH income growth as inflationary.

It is important to distinguish household income from wages, the two are not necessarily related. An increase in HH income may be due to increasing household earners, ie increasing density. So a flat of 4 professionals is going to earn a lot more than a flat of 4 lower paid workers or a couple raising kids while both working, with maybe most single income households coming up the rear. HH income equal to the average, $1,600pw, is roughly 80,000pa.

I have found that household income is a good predictor of rental prices, since for most regions and cities the average rent stays in a tight range as a percentage of total household income.

The Rent/HH Income charts span over 20 years from 1998 to 2018 in monthly or quarterly steps. Notice how flat the trends are, with a bit of variation.

This leads to the obvious question, have rents matched the new incomes? Well there looks like some catching up still to do in Auckland City and Wellington City, but no other main city:


Notice the drop in the two major city lines, Auckland has fallen below 35%, a previous low, maybe due to increasing incomes. Wellington is in severe shortage and rents are rising quickly, but not as quick as HH incomes, maybe density is increasing. Christchurch has also dropped to a new low, possibly due to loweringrents after a glut of properties in the region which has now settled. Despite a severe shortage of properties in Hamilton and Tauranga, rents have remained at about 25% of incomes, the long term average.

When we compare Geometric Mean rents by Regions the data shows different percentages, but a similar story. This chart includes all houses (not just 3BR) and all parts of the region (eg Wellington includes Lower Hutt and Porirua) and is monthly. Notice the earthquake has not impacted the Canterbury Region as much as Christchurch City above.

Remember you can see one line by hovering over it and clicking.

Sudden changes such as shown in BoP for 2018 are due to the nature of Household Income reporting, which is annual, so BoP rents went up significantly last year in line with incomes, but the comparison is only reported in Jan 2018.

Income changes by Region

I produced this chart to show how much change has occurred this year, not only has the average increased 8.2%, but some regions have large increases, especially BoP at 18%.

Other examples include: Auckland households which almost caught Wellington households (maybe density of people per HH?), Otago overcame Canterbury and Waikato (maybe more students per house?) and BoP almost caught Waikato.

This leads to the obvious question, how have rents met the new incomes? Well there looks like some catching up driven by tenants moving house to better quality:

  • Auckland, expect a 5-10% increase, rents have not risen much this year.
  • Wellington, may or may not increase, but to catch up it would take 5%
  • Christchurch has overshot after the overbuild, so expect a 5% increase or a continued overshoot - a difficult market.
  • Tauranga, Lower Hutt & Hamilton look to be increasing at a consistent rate so I do not expect catchup. Note Tauranga income grew by 18%, but so did rents.

Travelling & New Regions

I am currently travelling in France so have not found a lot of time to post, but today it is raining lots in Brittany so I have time to post.

I updated the site with a few more regions,

The interesting detail is in both Taranaki and Nelson. Taranaki is changing quickly, with fewer listings each week. Nelson looks like it is slowly recovering from a shortage and may soon be equal to the past.

I have also a longitudinal chart for these regions here

Adding Otago

I have collected all regions for 10 years so I have the detail.

This month I am publishing the first Otago listings or inventory chart, with details back to 2009. This will be updated regularly here

Otago, where student numbers outnumber all other renters. This enables landlords to ensure the following year tenants secure their home and pay over the university holidays.

You can see this change in advertised listings between June and August below

Every year at the mid-year point, students organise their flat for the following year. This means landlods advertise at a common time to ensure they get a tenant and enable choice of tenants.

Back in 2009 when there was plenty of students and a little before the Christchurch earthquake, the rush to advertise started at the beginning of August (green little dots). Landlords started advertising earlier each year until 2012 as more properties came on the market - likely the increase in supply was driving earlier advertising.

The last two years has seen the trend reverse as flat numbers no longer meet demand, enabling landlords to be more relaxed about advertising times

Rents and Ownership by Region (Updated)

My friend atrentersblogasked if I could create a map of rental prices by region, that’s easy so here it is, however look further down for some more information that helps to see the comparison between regions as opportunties for both renters and landlords.

There are obvious differences between regions witha two to one difference between say Auckland and Manawatu-Whanganui. The chart is interactive so you can explore the results by clicking on each region.

So if rents are high or low in a region, what do sales prices look like:

And for renters this is the key chart if you are thinking of buying. Remember it is not the price you pay, but the interest you pay that counts

Of course it would not be complete without a yield calculation for Landlords. This is a simple rents divided by sales price, I have not included expected other costs such as maintenance and insurance as I have in the past, but they are also relative to interest cost, effectively adding 2-5% depending on your methodology. There appear to be no surprises here, comments welcome below.

There are suprises here - take a close look at Taranaki and Manawatu-Whanganui

After publishing this I got to thinking about the results and came up with a new way of viewing the data

This says stay away from Auckland, but review the posibility of investing in Taranaki or Manawatu-Whanganui.

Earthquake Compare

Excluding Auckland and Canterbury, NZ is short of properties for rent. This must be an opportunity for investors, and a problem for renters. The market will deliver, but building investment rentals in some cities is likely to pay at present.

After Earthquake we saw a lot of movement around the country as people relocated for multiple reasons. The massive rebuild in Christchurch was of course over-built and took time to recover. Immigration has not impacted Auckland as much as predicted, pointing to internal migration or Auckland building as the resolution. I bet on internal migration, but we will see in the census data shortly.

This chart shows the growth of inventory, so I would expect more homes being advertised overall and the net gain of Canterbury and Auckland of 10% seems about right, supported by this year’s steady state.

Note the boom in inventory during 2013-2014 was partly artificial due to Trademe offering property managers multiple listings in many poorly defined suburbs for the same price. They ceased that rort in 2014.

The shortage in the rest of the country is evident, now down 60% from 2011.

Higher rents in Central Auckland

Lots of new subscribers this week, many from Auckland, as expected, but a good number from Hawkes Bay, so expect an update about HB soon.

Having looked at quarterlyNZ wide rents as a proportion of weekly household income I decided to take a compare at the Territorial Authority (TA) level of Auckland. Unfortunately Stats do not supply incomes split to this level - yet, so I have to use all-of-Auckland incomes.

People tend to be limited in their choice of the rental they pay based on the income they have, so the percentages have stayed relatively constant over the last 20 years. There may be some recent reductions, maybe as transport costs have reduced, but only after increases in the mids 2000s. The TAs can be divided into three groups based on the distance out from the central city - although North Shore is clearly seen as part of the central city for rents now.

Rents based on MBIE Quarterly Detailed Mean Rents by TA (from active bonds) and Average household income from Stats Dept, including income from wages and salaries, self-employment and government transfers.

Note that there are some sudden changes, which I think are a direct result of “interesting" data from Stats on HH incomes, see especially the 2015-2016 change, that is really due to a big increase in incomes over that period, which may have occurred but I suspect one of the data points was out a bit.

However the trend is now down.

Listings by Bonds

MBIE publish the number of Active Bonds, this is the number of rentals with a bond registered by MBIE at any one time. The data is monthly.

I have taken the first measure of listings each month and compared them to the number of bonds in that month. this provides a simple line chart that compares the state of the market in each region in a helpful way. (This can be extended to more regions if required)

International research on the state of equilibrium, ie when demand is equal to supply is normally reached at 3%. This will depend on turnover in any area, so is not necessarily the best comparison.

It is quite clear that Auckland is very much in a state of equilibrium and has been since 2014/15, a point frequently obvious in many other charts I produce. Canterbury has come to the end of the earthquake effect by all appearances, but stability is yet to show. On the other hand Wellington, Waikato and Bay of Plenty are very short of rentals at 2% or less, we also know that from other data.

Opportunity in Wellington (again)

Building consents by Region

In my last post I compared building consents with a past average. I thought that comparison could be improved so here is one based on the number of households in the 2013 census. ie for most regions, there were less than 1.5% consents per household. That was clearly low compared to the last 20 years which seems to sit about 2% for most regions - recall that in 2000 I am comparing to households in 2013, so this number is slightly depressed, making the 2013 number look even smaller. I was able to do this for all of NZ, so that also gave me a usefull total NZ line.

BTW, I had to remove Queenstown from this chart to bring the scale down - it sits at close to 10% and follows an independent pattern.

Wellington is different

The standout is still Wellington. Recall that this is consents, so Tauranga and Hamilton are showing a recent large increase, but the construction has not yet finished so the increase in supply to match demand has not yet happened. Christchurch on the other hand is winding down and so are prices as supply starts exceeding demand.

Wellington Urban Areas

This led me to wonder where in Wellington, since I am local and could expect to know about any changes - and am only aware of increasing apartments in Petone (part of Lower Hutt). Apartment building in Wellington appears to be running at about the same level as in the past and the chart supports this.

Wellington Urban AreasThe chart below shows the city compared with urban areas. - there is no outstanding area, lack of growth seems to be consistent across the board. However, there is a sudden change in Lower Hutt, but that is after a long period of almost no growth - a feature locals are very aware of due to a council intent on doing nothing to save money.

These charts strongly suggest, along with the charts on rental listings here, that there is an excellent opportunity for development in Wellington right now

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Wellington Building Boom Yet to Start

Building consents published by MBIE show some interesting numbers. It would appear to be a great time to invest in Wellington.

The post earthquake Christchurch building boom is obvious, and is well over the top now but remains well above the building levels prior to the earthquake - despite rentals falling!

Hamilton & Tauranga are well into a building boom, and considering the real shortage of rental properties in these areas it is about time, but is the boom overblown? Actual housing coming on to the market could change the situation dramatically in the near future

Auckland on the other hand is just ticking along, pretty much matching construction in the past, hinting that the market is not calling for more private housing. It’s not that clear the the index base is good for Auckland, maybe it needed to be higher. Maybe the Housing Corporation will be able to build enough low rent housing in this lull.

Wellington on the other hand is at least as short of private housing as Hamilton and Tauranga, but consents are only 90% of the long term average prior to 2007. That suggests to me that the market is not being met with new housing.

Why use 2000-2007? I don’t have enough data yet for a better index. Once the 2018 census data comes out we will be able to see where all these immigrants have gone, but I suspect they have followed the available accomodation, the work may also follow them. I will re-index then to find out where the Auckland average should be.

Rental Yields

An article on NBR that claimed the current simple yield has dropped to 3.5% caught my interest. The writer said that he read the figure from MBIE in the past but no better reference. So I investigated

He was right, but the devil is in the detail. I pulled data from the five main cities and there is a clear difference between the northern cities and southern. in the north the current rate is 3 to 3.5%, but Wellington and Christchurch are sitting at 4.1%. The total is a weighted average of these cities.

Wellington has been different in the past, but the beginning of the last boom resulted in a bit of a merger. Tauranga has usually had a very low yield, but is about the same as Hamilton now. Since the earthquake property prices appear to have impacted yields in opposite directions for Auckland and Christchurch.

Comments below please

Jonette 2011