NZ residential rental market news, March 24

Legislation is causing rent rises, House sales at a 40-year low, and Auckland CBD is looking up

The bullet points from this week:

Survey of 700 landlords points to Govt. legislation causing rent raises

A Kantar survey commissioned by the HUD Ministry shows that 47% of landlords have raised rents by more than $20 a week to the end of November. 
23% of landlords who had not raised rent in the past six months are considering increasing rent in the next three months. 
41% of landlords considering a rent increase want to cover increased costs, 51% want to match market rates, and 57% want to raise rents after a year of no increases. 
39% of landlords are specifically looking to cover costs resulting from regulatory changes. 
42% of landlords took the opportunity to increase rent when their tenants changed, and 61% of these landlords increased rent by more than $20 a week. 
93% of landlords invest in existing property, with 8% investing in new builds and 2% investing in build-to-rent property. 
Low maintenance of new builds and build-to-rent properties are the biggest reasons for 69% of investors buying new and 64% of investors buying build-to-rent. 
60% of landlords personally manage their rental property/properties, and just over 2 out of 5 use a property management or real estate company. 
65% of landlords self-manage to save costs, while 64% of landlords who use property managers do so for regulatory/compliance expertise. 
Fewer landlords have bought a rental property in the past six months - a drop of three points since May 2022. 
46% of landlords who have sold property did so to improve their own financial situation. 
Falling house prices are now the main reason why 50% of landlords who had previously considered selling property are most likely to say they are holding on to their property. 
23% of landlords are concerned about their ability to pay their mortgage, up seven points from the May 2022 survey.
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House sales hit 40-year low

Interest rate hikes and tighter lending rules have led to the biggest property sales slump in nearly 40 years. 
The number of homes sold on a 12-month basis is at a 40-year low, with 60,859 properties sold in the year to February 2023. 
For the month of February, about 4,100 deals were done, the lowest for that month of the year since at least 1981. 
Few vendors are in a hurry to sell, given that unemployment remains low, and buyers who have secured finance know they can take their time too. 
First-home buyers may be beginning to retreat from the market, possibly due to their interest rate limits being reached or actively waiting for prices to fall further. 
Property values are down 1% in February, -1.5% in the past three months, and -8.9% over the year. 
Wellington is the weakest of the main centers, with values down 19.7% from the peak, while Christchurch is only 4.7% down since its peak. 
Cash multiple property owners make up 15% of purchases, a record share for this type of buyer. 
Rents are falling in Auckland and Wellington. 
An economic recession may now be close as the property market faces multiple challenges, including existing borrowers rolling onto higher mortgage rates.  
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Trade Me and Core Logic data telling different stories

According to Trade Me, the rent landlords are asking for in New Zealand hit a record national average high of $600 per week in February 2023. 
Trade Me reported that Wellington City landlords were asking for the most expensive median weekly rent at $695 and Auckland CBD's landlords were asking for a median weekly rent of $620. 
However, CoreLogic reports that landlords have lost the upper hand and that rents are flat or even falling. 
CoreLogic found rents were falling in Auckland, where they sat at $583 a week, down 0.8% annually, and falling in Wellington, where they sat at $595 a week, down 3.7% annually. 
Core Logic reported that, in Hamilton, rents had risen 4% annually to hit $466 a week, in Tauranga they had risen nearly 8% to hit $614, and in Christchurch they had risen to $493. 
CoreLogic noted mortgaged investors were not very active in the market currently due to 40% deposits, low rental yields, the removal of interest deductibility, and higher compliance costs. 
According to Trade Me’s data, rental listings across New Zealand dropped by 9% in February 2023, the first year-on-year drop since March 2022 and demand for rentals increased by 22% compared to February 2022. 
Trade Me originally released its data claiming rental prices had hit record highs, before clarifying the insights actually related to the amounts landlords were asking for. 
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Auckland CBD in recovery mode

Auckland's CBD apartment market has rapidly recovered due to the resumption of overseas students being allowed into New Zealand. 
CBD apartments are mostly owned by investors, and most tenants are students. 
The vacancy rate for CBD apartments shot up from just over 7% in 2019 before pandemic restrictions were introduced, to 15% to 20% in 2020. 
Investors have been buoyed by the fact that not only have vacancy rates fallen, but rents have been rising. 
The selling prices of apartments are yet to reflect those changes, with most of the apartments selling still fetching prices that are significantly below their rating valuations. 
Some investors are jumping in now to buy at a higher yield and make a capital gain further down the track. 
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Latest figures: Homes are selling for $100,000 less than their asking price

Residential properties in New Zealand are being sold for approximately $100,000 less than their asking prices. 
This is due to vendors being slow to accept the falling value of properties, and buyers pushing for lower prices. 
The average asking price on Trade Me Property in February was $870,550, while the national median selling price recorded by the REINZ in the same month was $762,000, a difference of $108,550. 
This phenomenon is consistent across all regions in the country, with selling prices consistently lower than asking prices. 
The difference between asking and selling prices suggests vendors have not fully accepted the changes in the housing market and have unrealistic price expectations. 
Selling prices have been falling faster than asking prices, indicating that vendors have been slower to adjust their expectations to the changing market than buyers. 
This has resulted in slow residential sales, down 31% in February compared to the same month last year. 
The chart provided shows the difference between asking and selling prices throughout the country, giving a reasonable idea of the current market situation. 
As the peak summer season ends, vendors will have to adjust their expectations and lower their prices, leading to a painful exercise for many. 
Economic uncertainties are not showing any signs of abating, further complicating the current housing market situation. 
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