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.

Jonette 2011