Housing pressures change the face of rental market

The black clouds of widening house affordability look like having a silver lining for landlords as a whole new demographic, priced out of home ownership, moves into private rental accommodation.

Friday, February 4th 2011, 12:00AM 1 Comment

by Benn Bathgate

According to the Department of Building and Housing's (DBH) inaugural New Zealand Housing Report, the first document to pull together all available research on housing demand and supply, there has been a growth in importance in what it describes as the ‘intermediate rental housing market.'

The report characterises this market as "households who would normally be expected to achieve stable housing through home ownership but who are unable to bridge the deposit or mortgage servicing gaps, or both, given current price levels."

As well as worsening house affordability the report highlights a reduction in residential construction and population growth - particularly in Auckland - for the changes in the types of households now in private rental accommodation.

The report said there had been a shift from the previously younger, mobile ‘flatters' to "older and more stable households including households with children and older people now renting."

This demographic change has also been highlighted by Crockers Property in its December market report.

The company cited tightening home ownership, high interest rates and a growth in mortgagee sales for a 5% increase in rents for three-bedroom properties for the year to December 2010.

Crockers said as a result of these pressures, "a whole new group of renters have left home ownership behind."

Using Census figures the DBH found that between 1996 and 2001, the size of the private rental market increased by 15% and the proportion of intermediate renters more than doubled to 58%, an upward trend the DBH believes will continue.

"There were 187,300 [intermediate renters] in 2006, and this number is projected to grow to 200,880 in 2011 and to 261,160 in 2031."

While the reports findings suggest an increased demand for rental property, particularly in Auckland where immigration boosts demand, it suggests the same affordability issues that have lessened home ownership may also affect the ability of landlords to increase rents.

 "The extent to which the property tax changes will lead to rising rental values and lower property values is uncertain. The ability for investors to increase rents will be constrained by resistance from tenants, who may have seen only marginal improvement in their income."

Benn Bathgate is a business reporter for ASSET and Good Returns, email story ideas to benn@goodreturns.co.nz

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Comments from our readers

On 9 February 2011 at 10:44 am Jerry said:
Hooray! Its harder to buy a home!
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