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.

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

A Strange Kink

Updating the monthly stats hereI found a common Kink in the data starting last week. I am not sure what caused this but it is very evident in Wellington, where I know many properties never made it to Trademe due to “listings” on Facebook. We tried that and it works, sort of, if the demand is high.

The chart below shows the point on a national scale, listings did not reach the highs of the peak last late January, then suddenly in March they are matching. I suspect demand/supply is the same as last year, i.e. suppliers advantage in WN, HN and TG, while AK and CH are about even.

BTW, if you like my stats, register via Mailchimp on the panel to the right and I’ll send you updates - about monthly at best.

Wellington Market Racing Ahead

I decided that my recording of listings only was potentially misleading if the turnover accelerated to a point that my monthly listings was being updated faster than monthly. I suspected this was so recently when Trademe stated they had fewer listings this year than last. So I sought some data on the number of properties let each month and of course MBIE publishes bonds data back to 1993.

However there are two caveats:

  1. Not all bonds are registered with MBIE, but lets assume most are.
  2. Not all properties are advertised on Trademe, but after trialling advertising on Facebook last month, I expect most to be.

So the difference between these two numbers will represent those properties advertised, and bond registered within a month and so not adding to my level of inventory - i.e. a turnover measurement. I calculate the ration of the two and add that line as an Index (in Black) to show the relative turnover - notice where bonds=listings it shows 1000 - i.e. 100%, Datawrapper does not let me have two axes.

This shows up quite well and fits the news of two things, the difficulty of getting a rental in Wellington AND Trademe’s comments on demand, which I initially thought were spurious, but they measure turnover direct, not current listings like me. i.e. their numbers are like the MBIE Bonds, but equally do not measure the left over inventory.

here is the chart with Bonds & Listings averaged over 12 months and moved forward by 6 months to correspond to actual timings:

The thick black line is running at 2000, i.e. twice the size of the listings, so that suggests there are twice as many listed and rented within the month as listed at any time. This speed has been consistent since mid 2016!

Anecdotally, this is exactly what is happening. Our latest rental not only included an excellent range of tenants in the first week, but also a long list of people pleading special cases to get a tenancy. This is on properties well into the suburbs that back in 2010 to 2014 took up to 5 weeks to tenant.

Please leave comments, that may help me think about more options for research

Updated to clarify the chart using more moving averaging - i.e. getting rid of monthly variations

Rents Rising quickly

While Eastbourne is not a major part of Wellington, it has been a good indicator of price changes in the past. No surprise, it is difficult to get tenants if your price is not set in relation to the rest of Wellington, especially Petone and central Wellington (those who are prepared to catch the ferry).

The rise in prices over the last year is similar to one in 2006-2008 but this time probably caused by a shortage of rentals in Wellington - being 45% below normal levels. The last increase was probably due to catch-up after long stagnation during higher inflation. Last time there was a lot of movement because there were plenty of rentals on the market (almost 50 at that time), this time bonds are at the lowest ever levels (20), even failing to reach the minimum for publishing one month recently.

Rents rising normally

I watch Eastbourne rental prices closely due to our investment, and recently applicable rents have risen quickly from an average of about $510pw in March to about $550 now. I wondered if this was abnormal or a sampling issue due to the small size of the suburb. It turns out to be normal, rents in Wellington have sat still for a few years and are just in catchup mode

Too get the following chart, I downloaded the Geometric mean rents from MBIE (link on the chart). Then I simply indexed the weekly rents to Feb 2011, because most of my indexes are to that period due to internal migration starting after the earthquake.

The indexes show that all three major regions are following the same course, with Auckland usually leading the way. Christchurch of course is suffering due to Government intervention with too many properties built. Wellington is in catchup mode.

Jonette 2011