Blog

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.


Wellington Cycle Ending?

The market cycle in Auckland ended about 2 years ago, but that just seemed to kick off the rest of the country. The Wellington market is finally running out of steam and I suspect the rest of the country is into the last stages of the market before prices stabilise and rentals try to catch up.

Why do I say this?

WellingtonSales listingsare now on the rise after 3 years of a shortage of listings:


Demand for rentalsis now seriously tight:

Rents are not all growing at the same rates, some regions are short of rentals and in some there is developing a glut. A simple comparison of growth rates in rentals across the main regions shows a dramatic increase for Wellington while the growth rates have slumped in Auckland and Otago. There are logical reasons for this - that do not included greedy landlords - mostly demand/supply.


Rents rally for multiple reasons, not only can a shortage drive up rents, but Household income is the main driver of rents. As can be seen below, Wellington is in catchup mode, not only with a shortage of rentals but also from a low of 18% of incomes to the typical historic upper level of 20% of incomes, with a bit of overshoot. I personally expect rents to come back a bit in Wellington as apartment blocks open shortly.

However with interest rates dropping, competition for the housing dollar at the top end may now come from lower priced and more affordable house purchases. I have not thought of a way to show data for this possibility, unless you take the upward trend in the chart below from 2002 to 2008, when interest rates were increasing.


Contrast Auckland which was high during a shortage in 2012-2015, but now has more rentals available driving the rent as a proportion of income from 25% down to 22%.

Please comment below, I have avoided too muchcommenton this analysis and would appreciate feedback.


CGT & Landlords Selling?

Discover how much Active Bonds are growing and what influences the level of supply

National

Charting the YoY growth in number of active bonds from the published data of MBIE, it is obvious that apart from some short periods of dips in the past, the growth rate is a relatively constant rate of ~12,000pa. All the previous dips in supply have been during public discussions about CGT.

At no stage has the growth become a loss, ie dipped below zero. The worst period was in August 2013 when only 724 active bonds were added to the national rental pool.


Regions not impacted by CGT

The discussions about CGT do not appear to have had any influence in Auckland, Waikato and Canterbury. It is not obvious why, but there is a large dip in Auckland in late 2011, the only discussion at that time I can see on Landlords.co.nzis about dwelling purchase price growth starting again, I suspect this may be the reason but do not know.

Notice Auckland stock increases about 4000pa, with a short oversupply in 2008-2010, followed by a severe dip 2012 to 2014, then another rise in 2014-2018. A linear trend model shows the Auckland line being almost flat about 4500pa, rising from 4250 to 4750 over the 20 years, ie with 150,000 rentals in Auckland, that is about 3%.


CGT Sensitive Regions

Wellington and Bay of Plenty appear to be very sensitive to public discussions about CGT, because both regions slowed in growth during these discussions, even to the point where there is a clear loss of rental homes during short periods:

  • Wellington in 2007 and 2017
  • Bay of Plenty in 2013 and 2016

Has Wellington bounced back in the latest data as people believe CGT looks less likely to fly?

However if Wellington had continued to grow at 1400pa, there would be more than 4000 higher today - possibly hinting at why there is a shortage of about 800 rental properties now showing in weekly stats?


There are many calling out CGT for potentially causing a loss of rental homes on the market, this data suggests that the market is sensitive to discussion in some regions, but the lack of sensitivity in other regions suggests it will just not happen.

Unfortunately debate about CGT is usually coupled with debate about housing health regulations, which may also be a factor in reduced additions to the rental housing stock.

Overall there has not been a reduction in rental stock, however a reduction in rental stock growth in Wellington and Bay of Plenty has definitely led to increases in prices. Current rental listings (inventory of vacant houses) inWellington and Bay of Plentyis severe.


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


Jonette 2011