Ah renting. It’s a double-edged sword. You avoid the expenses of mortgages, rates and house insurance: but on the flip-side you don’t have complete freedom to do what you like to your property, there’s the worry of increasing rent or “What if the landlord sells?” and you also have to put up with questionable flat-mate behaviour every now and then: there’s always some-one who doesn’t obey fridge etiquette.
We’ve all seen reports of sky-high rental prices in the Capital, and have anecdotal reports of 40+ people attending rental viewings with offers of rent nearing bid situations with people desperate to source stable accommodation. Are we seeing a Landlord dream situation? What’s really going on?
It’s an interesting topic. CoreLogics March/April Property Market and Economic Update shows that nationwide rent increases remain hovering at around 5% per annum and in Wellington it’s the same. Increases have not been much higher than this since 2009, even with house values rising at a much faster pace in the last year.
This is likely due to low wage growth, which constrains tenants from paying dramatically higher rent, while low interest rates, high net migration and constrained supply have led to strong value growth.
The slowdown in house prices in recent months has meant that nationwide gross yield has flattened at just over 3%, after falling away from 4% four years ago. All the main centres have lower yields than this time last year as value increases over that time outstripped rent increases.
Ok then, so what’s rental yield? It measures how much income the rental property produces each year as a percentage of its value. For property, the yield is calculated as the percentage of rental income for the purchase price and provides an indication for prospective landlords to gauge the value of buying an investment property.
So: whilst the media headlines may focus on the growth in rental prices, that growth is not out of step with value increase, which means prospective returns for landlords, in the form of rental yields remain very modest.
If you’re interested in what’s actually happening in your neck of the woods, you can access a free rental analysis on QV.co.nz. You’ll find median rent, number of bonds, median E-Valuer, gross yield as well as both annual rent and annual E-Valuer change in your suburb.