Here’s where biggest rent price rises might be

The pace of rent increases has picked up and that is likely to continue, particularly in places where supply is stretched, BNZ chief economist Mike Jones says.

He said, since the Covid-19 rent freeze in 2020, annual rent inflation, as measured by the stock of tenancies, which includes existing agreements, had climbed to 4%.

But the flow measure, which captures new agreements and Jones said more accurately reflected the current conditions of the market, had lifted to about 5.5% year-on-year.

That concealed regional differences – Wellington rents had fallen over the past year while Southland experienced a 17.2% increase and Taranaki 13.2%.

Compared to pre-Covid, Auckland’s new rents had lifted 10% while Gisborne and Taranaki’s rents were up 40%.

Jones said, in February 2020, average new rents in Taranaki were 24% lower than Auckland. Now they are 16% lower.

He said, while rental affordability in Auckland had improved over the past few years, Bay of Plenty, Otago, Gisborne and Hawke’s Bay had moved significantly in the other direction.

Jones said it was likely that rental price rises would increase over the coming 12 months.

“Such an outlook is broadly in keeping with our expectations of the same for house prices, for which we continue to forecast a 3% lift over the second half of 2023 and 7% over 2024.”

Migration would drive rental price strength, he said.

“If our assumption that annual net inflows settle around 50,000 to 70,000 is anywhere near correct, it implies some ongoing upward pressure on rents.”

He said the supply of rental properties also looked increasingly tight.

Auckland’s vacancy rate had halved from 4.5% over a year and rent prices had picked up.

But it was still about the New Zealand average vacancy rate – Gisborne, Hawke’s Bay and Bay of Plenty vacancies were hovering around 1% and had fallen over the year.

“Amid a general upswing in rents, we might expect these regions – those that have the biggest supply deficit – to be most susceptible to strong increases in rents.”

Jones said it was striking how different things were across regions.

The erosion of housing shortage over the pandemic period had been recorded at a national level but Auckland and Wellington accounted for much of the closing. There were still shortages in Gisborne and Hawke’s Bay.

Jones said, as rents increased supply would respond. But it was not clear how quickly or forcefully that would happen.

He said some regions were stretched in terms of rents compared to incomes and that was likely to increase. “That will naturally limit how far rents can run as well.”