What’s up in the central Auckland and Hamilton rental market?

It's been hard to miss the headlines focused on the New Zealand rental sector, from 'Wake up landlords, the rental market has changed’, to 'Record rental supply and dwindling demand see rental prices drop'. Despite reported rental oversupply in other cities, Hamilton's rental property market continues to be strong, whilst Auckland City has some catching up to do. Jason Waugh (Hamilton) and Phil Porteous (Auckland) explain.

Hamilton rental market bucks nationwide oversupply trend

Jason Waugh General Manager, Lodge City Rentals

In July, we finished the month with just 40 empty properties on our books available for rent. After a slight dip in June (usual for the winter months), the statistics we record and share — such as the number of tenant viewings, signed leases, enquiries and applications — all showed considerable increases for July.

It's still challenging for potential tenants to secure a one, two or three-bedroom property. Of those 40 empty properties in our books, 51% were studio rooms, many of them one bedroom. With only small numbers of international students returning to New Zealand so far, these are the types of properties that remain available.

Adding to the strong market outlook, over the last 12 months rents across our portfolio have increased by 6%. With the current balance of supply versus demand out of kilter, I believe rents will continue to feel upward pressure, likely increasing another 3 to 5% in the next 12 months.

From this, there's no evidence the Hamilton market has swung to a tenant's market, and I see the outlook for property owners as still extremely positive.

Growth in Hamilton City creating demand

A significant reason for the steady demand is Hamilton's growth as a city, attracting talent through increased economic opportunities. The Hamilton City Council's economic data shows Hamilton is outstripping New Zealand's other metro cities in terms of economic and population growth rate, with the city's GDP increasing by 4.3% since 2019.

In addition, the Hamilton Central Business Association has released figures that show business ranks have swelled by around 30 in the city's CBD, including new start-ups, the expansion of existing businesses and people moving into Hamilton from elsewhere.

This growth is reflected in our data, as July saw over one-third (35%) of all tenants leasing Lodge-managed properties moving to Hamilton from out of town. This was up from 31% in June, 24% in May and 27% in April.

It shows growing numbers of people are relocating to Hamilton City for jobs or a lifestyle change, and many are choosing to rent in the first instance rather than buy. But as I noted earlier, there are currently not enough larger houses to go around for those looking to rent.

I liken the current situation to a perfect storm; I can't see demand for rental properties in Hamilton easing anytime soon, but supply isn't keeping up just yet. Whilst Hamilton City Council says consents lodged this year are up 7% on the same period last year, I believe this figure needs to significantly increase to start satisfying current and future demand.

Auckland City rentals — history repeating

Phil Porteous Managing Director, One Place for Property

The Auckland City rental market provides several low-entry investments for property investors and first home buyers to get a foot on the property ladder. In the past 15 years, Auckland city has transformed with conversions and new builds, giving a home to some 25,000 city residents.

Apartment property investments are subject to the cyclic nature of property, and when considering an apartment investment, it is important to understand the past, present, and future cycles.

In 2009, a burgeoning Auckland City apartment market was hit by the Global Financial Crisis. What was headlined as a bright new property class had the wind taken out of its sails by the tightening of finance along with a reluctance by Aucklanders to embrace a low-cost, low-maintenance lifestyle that had worked for numerous generations overseas. Low-entry costs were met with prolonged vacancies, limited tenant selection, and a Unit Titles Act that was foreign to most, and not equipped to deal with an apartment sector that had sprung to life. It was a tough foray into the unknown, with many challenges that increased the opportunities for the market savvy.

A new lease of life

A decade on, Auckland apartments experienced a tailwind of prolonged growth in rents, high demand, a settled and stable market, and an inner-city housing shortage. In 2019 the future looked bright for the Auckland City apartment market. Thousands of international students flowed in and out; they valued apartments and their simplicity. Auckland opened itself to an international stage and was an attractive, affordable place to live, work and play.

Annual rent increases would lead to a doubling of rents over the 10 years, vacancy rates were held to a day or two more for convenience rather than due to the market, interest rates were favourable and values up. All indicators pointed to confidence in the now tried and tested asset class, and new developments were completed that doubled the size of the market to service what appeared to be ever-increasing demand.

However, 2019 would prove to be a turning point that hadn't been anticipated. As COVID-19 took hold, lockdowns and working from home turned the apartment market lights off, and the distant memories of long vacancy rates resulted in a lack of quality tenants and oversupply. This resulted in Auckland City rents decreasing by 35% almost overnight. In addition, the property investor environment had changed, interest rate deductions were removed, and a string of legislation changes added costs to property investment ownership. It was a perfect storm for all the wrong reasons.

Like any triage event, recovery is subject to rehabilitation. The opening of ports, the return of the international school community and immigration will all aid recovery. The Auckland City apartment market is resilient and will bounce back — how high, is anyone's guess, but as history dictates, we must expect the unexpected.

Rental reality is megatrend 4 in REINZ’s Megatrends report. Falling homeownership rates are leading to a greater propensity to rent rather than own, with rental housing a major beneficiary.

To learn more about the rental reality megatrend and its implications for the New Zealand rental/property management sector, head to the report section of www.blog.reinz.co.nz/reports-1/megatrends-report-2022.