ANALYSIS: Later this week I will release the results of my October survey of existing property investors undertaken with sponsorship from Crockers Property Management. From the responses we can gain some insight into what is happening in the rental market and in particular get a feel for whether conditions are shifting in favour of tenants or landlords.
Results since early this year have shown a decided shift in power towards tenants. For instance, whereas at the end of last year, a net 26% of rental accommodation providers said that it was easy to find good tenants, now a record net 22% say it is hard.
This measure changed very quickly in the middle of this year and one factor at work is likely to be the rapid decline in net migration flows. The high proportion of property sales going to first-home buyers may also be playing a role in this reduction in landlord bargaining power.
That power change can be seen with rents. At the end of last year, 82% of landlords said they planned to raise their rents in the following 12 months. Now only 64% say that. This measure has been running at record low levels since July and this will be good news eventually for inflation and therefore interest rates.
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The average rent rise landlords think they can achieve now is 4.4%, compared with 5.8% in December 2023 and a peak of 6.3% in July of last year.
Another interesting finding from the survey is that landlords increasingly are finding their bank willing to lend. When asked how they are finding their bank’s attitude, a net 22% said it was positive in regards to the provision of finance. At the end of last year, the result was a net 7% saying the banks were instead becoming more difficult to deal with.
Independent Tony Alexander: "The average rent rise landlords think they can achieve now is 4.4%, compared with 5.8% in December 2023 and a peak of 6.3% in July of last year." Photo / Fiona Goodall
Banks can see the cyclical turning of the residential real estate market which is underway, the increasing interest in property purchases coming from new investors, the continuing strong demand from first-home buyers which has been evident since early 2023, and of course falling interest rates.
As yet this increased willingness of banks to advance finance is not manifesting itself in much discounting of mortgage rates by lenders – not above the board at least. Having seen their lending margins fall to unusually low levels from 2021-23 the banks are probably trying to avoid a price war in order to keep margins at levels more reflecting the situation from 2013-20.
One final result from my monthly survey of landlords which is worth noting is that whereas late last year only 2% of landlords said that one of their concerns is easing net immigration flows, now 7% say this concerns them.
This is still relatively low so we cannot say that the falling annual net migration gain is causing widespread concern. But it is something that accommodation providers are keeping an eye on as they continue their deep worries about rising council rates, insurance premiums, and maintenance costs.
If interest rates were not falling and providing some cash flow relief, it is likely that the coming year would have seen quite a number of landlords looking to offload their properties.
- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz
