How to get cheap rent in New Zealand
New Zealand’s housing market is in the grip of a housing bubble and the government needs to act fast to stem the tide of evictions, a senior official has warned.
The government’s decision to slash rents and restrict access to new homes, coupled with low interest rates and the country’s strong recovery, means that Auckland, Wellington and Christchurch are already selling their properties for less than they were five years ago, the Reserve Bank’s chief economist, Tim Wilson, said on Friday.
New Zealand is now in a housing market in which the average rental price is below $1,000 per week, the highest in the world, Wilson said.
But the housing bubble has burst, forcing the government to cut rents by up to 40 per cent to keep up with demand.
In the Auckland region, rents have dropped from $1.5 million a week in January to $1 million a year later, Wilson’s office said.
It said prices were still at record highs for the region, but now it expected rents to fall further in the coming years.
Wilson said he expected the price of a one-bedroom apartment to drop below $700 a week by 2020.
He said the Reserve’s forecast for rents fell from $2,200 a week to $2.60 by 2020, and $2 by 2021.
“It is clear that a lot of people are looking for somewhere to live.
But it is also clear that the affordability issue is a real issue,” he said.
“A lot of houses are being sold off in Auckland.
And in Wellington, that’s going to change.”
In Wellington, a recent surge in demand from new homes has pushed prices to record highs, Wilson noted.
Rents have dropped significantly in the past year, to $3,500 a week from $3.5, the government said.
The average rental in Wellington is $2 million, down from $5.5 in the first quarter of this year.
Banks and other lenders have been slow to lend to new owners, he said, and have been reluctant to extend credit.
For many years, the Auckland housing market has been in the throes of a huge house price bubble.
But the collapse of the bubble in August 2017 has sent prices spiralling out of control, with the city’s market value dropping to $5 billion in January.
According to the latest census data, the number of Auckland households in 2016 was 5.9 million, with almost 1.5 per cent of households living below the poverty line.
Most people in the city are renters, but Wilson said Auckland’s rents were out of line with its rest of the country.
People in Auckland can buy homes for $1m or more, he noted.
Wilson said it was not just people renting in Auckland that were being squeezed out of the market, but the supply of homes for sale.
There were currently 3,300 vacancies for houses in Auckland, up from 1,500 in the year before, he added.
While the Auckland property market had already experienced an influx of foreign buyers, the impact was still felt in Christchurch.
Christchurch’s median house price is now at $2m, up nearly 60 per cent on the previous year, Wilson pointed out.
It had sold almost 1,000 properties between December 2017 and December 2018, up almost 30 per cent, while the number available was down to just 500 in January 2019.
It is also the only Auckland region where the median rent for a one bedroom is now $1 per week.
On Friday, Wilson also warned that the country was facing an “emerging housing shortage”.
The Reserve Bank has lowered its growth forecast for Auckland and Wellington for the next two years, with Wellington expected to be the biggest beneficiary of the lower interest rates.
That is because New Zealand has seen a record low interest rate environment in recent years.
The central bank has cut its forecast for the value of the Reserve currency from 1.4 per cent per annum to 1.2 per cent.
With inflation at an all-time low of 2.4pc, the country is still well above the Bank of England’s inflation target of 1.3 per cent and is also expected to hit its 2pc target by early 2020.