Seven straight months of rent hikes: Prices rising at double the speed

1. Rents are still rising quickly

The latest Stats NZ figures showed that rents on new tenancies were up by 6% in the year to February, basically the seventh month in a row that growth has been in the 6-7% range – at least double the long-term average of closer to 3%. Rising wages have driven some of this growth, but strong demand for rental property (from high net migration) and a slightly restricted supply of stock have been factors too. Looking ahead, the pace of rental growth is sure to slow at some stage – given that rents are already very high in relation to household incomes – but in the near-term there’s probably still some momentum left.

2. Net migration may have peaked, but it’s still high

Last week’s figures showed a 12-month net migration total of 133,836, with a figure of 5259 for January alone. These numbers are a bit lower than previously seen, as arrivals stabilise but departures continue to rise, especially NZ citizens heading overseas. In a nutshell, then, the net new inflows of people to NZ have probably passed the peak, but they’re still very high (and prone to upward revisions) – pushing up overall demand for property, especially in the rental sector.

3. Have first-home buyers peaked?

It’s worth keeping a very close eye on first home buyers this year, and whether or not their record high market share can continue in 2024. CoreLogic’s latest figures for February show that first-home buyer activity has eased – with their share of property purchases dropping from just over 26% in the third and fourth quarters of last year to 25.5% in the first two months this year. On the other hand, cashed-up multiple property owners (including investors) are having a perkier start to the year. Overall, it’s nothing major yet, but perhaps some early signs here that first-home buyers are starting to see a little more competition from other groups.

CoreLogic chief economist Kelvin Davidson: "Some early signs here that first-home buyers are starting to see a little more competition from other groups." Photo / Peter Meecham

It’s still too early to be expecting any impact in these figures from the confirmed reinstatement of mortgage interest deductibility for investors, although some could well have made purchases on the safe assumption that the Government was always going to make the move at some stage. But deductibility arguably isn’t the major swing factor anyway. Indeed, simple calculations suggest that falls in mortgage rates could potentially be a bigger impetus for property investors.

4. The recovery is spreading, but slowly

Another set of CoreLogic figures, our monthly looking at median property values, shows that the recovery is spreading. Nearly 60% of suburbs have seen values rise since December. Parts of Auckland and Wellington feature, with the previously large downturn evidently creating a bit more headroom for faster growth in the upturn too. Queenstown’s suburbs have generally remained pretty resilient as well, while parts of the West Coast are in the top risers too, perhaps reflecting lower starting prices and better affordability.

5. Looking in the rear-view mirror at GDP

The key data release this week will be Q4 GDP on Thursday, although its importance probably shouldn’t be overplayed, given it’s ‘old news’. For what it’s worth, I reckon GDP might have edged up a bit (say 0.2%) in the final three months of 2023, meaning we’ve avoided a technical recession, after Q3’s 0.3% drop. But for many people in the real world it will have still felt recessionary.

- Kelvin Davidson is chief economist at property insights firm CoreLogic