ANALYSIS: Recently we have seen reports of falling housing rents in some parts of the country and tenants having the best range of accommodation options in a long time. The monthly survey of landlords which I run with Crockers Property Management delivers some good statistics which show how much the rental market has turned around.
One year ago a strong net 27% of landlords said that they were finding it easy to secure a good tenant. But now, a record net 24% say that finding such a person is hard. This change will reflect a decrease in demand due to weaker net migration inflows, alongside an increased supply of rental properties as developers with unsold townhouse stock have placed some of their units into the rental market.
The shifting of the rental market in favour of tenants this past year is having an impact on the willingness of existing investors to grow or even maintain their portfolio.
A year ago 30% of the survey respondents said they were thinking about selling one or all of their properties. Now 35% are saying that. A year ago, 22% of landlords said they were thinking about buying another property. Now just 18% say that.
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Less demand yet more supply helps explain the absence of price gains in the housing market so far this cycle. But when will the situation change back again? Probably not until sometime next year. As fewer people become or remain landlords and developers start to sell their excess stock into rising demand from home buyers the supply of rental property will tighten up. This will be accentuated by falling construction of townhouses potentially through to the end of next year.
At the same time, an improving jobs market over 2026 (not really this year) will see more young people moving out of home to commence their independent lives.
At least one thing is, however, moving in favour of property investors – better availability of bank lending. A year ago a net 10% of landlords said that they were finding their bank unwilling to lend. Now, a net 15% say that lending is readily available.
Independent economist Tony Alexander: "Running a rental property business is now a more costly venture than was the case before." Photo / Fiona Goodall
But when it comes to the three things which became a major source of concern over 2023, deep worries persist. Those three things are maintenance costs, insurance and council rates. Running a rental property business is now a more costly venture than was the case before. But with limited ability to raise rents this year into 2026, and reduced scope for long-term capital gains, feelings of happiness because of falling interest rates may have all gone by the end of this year.
That may especially be the case because two-year fixed rates of 4.99% could be almost the low-point for this rates cycle, while we might not even see a return of the 4.99% three-year rate briefly available some weeks ago.
Only if the world economy falls over, perhaps because of beggar-thy-neighbour tariff policies, could we reasonably expect an extra downward movement of any magnitude in New Zealand financing costs. But with President Trump seeming to pull back again on his stronger tariff threats, the chances of such a slump are not high. That is better than the alternative.
Historically, low interest rates in New Zealand have been associated with shockingly weak economic conditions and we are already out of recession and hopefully headed towards growth near 2.5% this calendar year.
- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz
