Can you rely on rent increasing?
A standard response to interest deductibility changes I see on property forums all the time is "We will just increase rent".
Obviously neither you or I have a crystal ball, and there is a lot of factors influencing rent, but it is worth considering some recent supply vs demand factors:
- Net Migration for the year ending 31 March 2021 was very low at 6,600, compared to around 90,000 for the year before. In the past March 2015 to March 2020 we had net migration of around 340,000 in 6 year, which was obviously one of the large reasons for property prices and rentals to have increased.
- Arrivals vs departures - We have had 72,252 more departures than arrivals since 1 April 2020. This means around 79,000 (72,252 +6,600) shorter term visitors have left NZ since 1/4/20. And every month we seem to be losing more departures than we have come in as arrivals.
- Natural increase 26,500 for 31 March 2019 year.
- Airbnb - some of these properties have become long term rentals, providing more long term rentals.
- Healthy home and Residential Tenancy Act (RTA) changes have meant some houses are not being rented.
- Emergency housing - The numbers in emergency and community housing has increased significantly over the last 15 months. Effectively meaning there are less looking for normal rental accommodation.
- Building consents at all time records , 41,028 to March 2021. Not all these houses will be built, but gives an indication that there will be a lot of new houses in the next 12 months, and there has also been a lot in the past 12 months.
Overall - So what does this mean?
The number of people requiring homes in NZ has dropped by around 45,000.
NZ average number of people per household is 2.7, so these people would have been occupying around 17,000 houses. So we need 17,000 less houses.
But we have built around 40,000! So an excess of around 23,000 houses.
If this continues for another year, to 31 March 2021, we might find that there is a lot of extra houses available, with a possible outcome being less tenants, lower tenant demand and therefore no rent increases.
Be careful relying on rent increases, and relying on higher rent to solve your cashflow issues. Rents might well increase over the next few years, but just be a little careful!
Ross Barnett | Property Accountant
Disclaimer: This article has been prepared for the purpose of providing general information, without taking into consideration any particular person's objectives, financial situation or needs. Any opinions contained in it are held by the author as at the report date and are subject to change without notice.
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