High house prices are leading to increased domestic demand for rental properties as young families are forced to rent for longer.
Based on decreasing home ownership levels, around 352,000 people nationwide have been thrown in to the rental market since 1991. That’s about the population of Christchurch!
Migration has also picked up since 2006, adding to already high domestic demand. In the year ended January 2007 there were 14,120 migrants to New Zealand.
This high demand for rental accommodation suggests rents may keep climbing. In March the average Auckland 2-bedroom property increased from $304 to $314 per week and the average 3-bedroom property increased from $398 to $412 per week.
Investors remain confident. The ASB Bank’s Investor Confidence Report showed an increase in confidence to a net 25% in the first quarter of January 2007, fuelled by 36% of respondents who expected their investment returns to be better in 2007 than 2006. Despite rising interest rates, residential rental property remained the highest ranked asset class for returns among the survey’s 720 respondents.
A DTZ New Zealand report The Future of Home Ownership and the Role of the Private Rental Market in the Auckland Region looks at the fall in ownership rates combined with underlying population growth in Auckland. The report suggests that an additional 5,600 rental properties will be required every year for the next ten years in the Auckland region to meet demand. The majority of these will need to be provided by the private rental market.
If these market predictions are correct, investors are right to be confident. Rental demand is likely to remain strong and the future is bright for those investors who can leverage against their existing properties and continue to expand their portfolio of rental properties.
The short answer is none, providing you’re taking a long term view of property investment. History shows us that growth in property prices continues irrespective of social and demographic infl uences. There will be flat years and corrections but there will be years where prices zoom ahead or catch up. While predicting future property market trends is not possible, the rule of thumb is that property values will double over a ten year period.
Some examples between March 1997 and March 2007 confirm this theory.
Waitakere City house prices increased from a median sale price of $225,000 in 1997 to $510,000, an increase of 126%. Similarly Franklin rose 135% from $151,500 to $356,500 and Upper Harbour rose from $220,000 to $551,000, an increase of 150% (Source: REINZ).
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