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Economy News – What drives rents in New Zealand? A housing technical working group research paper – Reserve Bank
7 August 2023 – Today Te Tai Ōhanga, Te Tūāpapa Kura Kāinga and Te Pūtea Matua are publishing a joint paper that provides an assessment of the key drivers of rents in New Zealand.
The analysis in this paper was carried out by Alan Bentley, Enzo Cassino and Nam Ngo through the Housing Technical Working Group (HTWG). The HTWG includes staff from the 3 agencies.
Over the last 20 years, wage rises and the relative supply and demand of homes were the 2 key drivers of rents at both the national and regional level, the paper shows.
Research paper — What drives rents in New Zealand? National and regional analysis
Read the research paper on the Treasury website
“When the effect of other factors is excluded, a 1% increase in nominal wages leads directly to a 1% increase in new tenancy rents,” the paper’s authors say. New tenancy rents respond more quickly to market changes than rents paid by sitting tenants.
“A 1% increase in the average number of people in each home, an indicator of relative supply and demand, leads to a 1.5% increase in rents at the national level.” This link between rents and the number of people in each home could occur for several reasons, such as, that rents tend to rise when there are not enough houses to go around, or that renters tend to share accommodation more when rents rise.
The study found rents increase when mortgage interest rates rise, but the impact is quite small. “This is consistent with previous analysis done by the Housing Technical Working Group on the impact of land supply restrictions.” This is because when land supply is highly constrained, we would expect financial factors, such as interest rates, to have a greater impact on house prices than rents.
Understanding these key drivers of rents is important to monitor and assess the balance of supply and demand in the housing market, enhance government policy for renters, improve the accuracy of house price forecasts, and identify potential hot spots at the regional level.
The share of New Zealand households who pay rent has increased significantly during the past 3 decades, rising from about 23% in 1991 to 32% in 2018. The number of rented homes rose from about 290,000 in 1996 to 530,000 in 2018.
“Rents matter since low-income households have little discretion over how much they must spend to put a roof over their heads,” the authors say. “Renters typically earn less than homeowners, spend a greater share of their pay on housing, and are less wealthy.”
More information
Between 2003 Q3 and 2022 Q2, rents increased broadly in line with wages, but faster than inflation.
New tenancy rents increased a cumulative 83%
Average hourly earnings up 87%
Consumer prices (CPI) rose 54% and,
House prices 267%
The HTWG identified these differing growth rates, amongst other things, as evidence to support their conclusions presented in the Assessment of the housing system with insights from the Hamilton-Waikato area on the Treasury’s website. (HTWG, 2022).
Key findings from the paper
Understanding the key drivers of rents is important to monitor and assess the balance of supply and demand in the housing market, improve the accuracy of house price forecasts, and identify potential hot spots at the regional level.
Wage inflation and relative supply and demand of dwellings (measured by people per dwelling) are the 2 key drivers of rental inflation for new tenancies at the national level.
The impact of mortgage interest rates on rents is positive but quite small. This is consistent with previous analysis done by the Housing Technical Working Group on the impact of land supply restrictions.
The identified key drivers are robust to local circumstances, although unobserved region-specific factors can dampen or magnify the effects in particular regions.
Why we did this research
New Zealand rental prices have received growing attention as the proportion of people who rent has been increasing since the early 1990s. This paper aims to provide an initial framework to improve our understanding of the factors that impact housing rentals in New Zealand.
This analysis is useful for several reasons. Firstly, rents provide a better signal of the balance of supply and demand for dwellings than house prices do. This is because rent prices do not reflect expectations for future gains as house prices do.
Secondly, providing a better understanding of rent drivers can lead to better government policy as renters typically pay a larger proportion of their incomes on housing costs than owner occupiers and so they are more vulnerable to large movements in housing costs.
Thirdly, forecasting rents can also improve the accuracy of house price forecasts, as they are one of the factors that influence house prices.
Finally, the research helps us to test theories of how land and housing markets operate.
Business News – Plenty of opportunities for growth as five established offices in the Bay of Plenty and Hauraki region join Raine & Horne
Highlights
- Raine & Horne, an Australasian real estate super brand, is expanding its presence in New Zealand during its 140th year.
- Five well-established offices in the Bay of Plenty and Hauraki region, led by experienced principals Neville Ruske and Paul Billinghurst, have joined Raine & Horne.
- According to CoreLogic data, the expansion comes at a time of increased buyer activity in the Bay of Plenty real estate market. The addition of these offices strategically located in Tauranga, Mount Maunganui, Katikati, Waihi, and Waihi Beach further strengthens Raine & Horne’s position on New Zealand’s North Island.
Led by experienced principals Neville Ruske and Paul Billinghurst, the latest Raine & Horne group additions are strategically located in Tauranga, Mount Maunganui, Katikati, Waihi, and Waihi Beach.
According to the latest data from CoreLogic[i], the expansion coincides with a resurgence in buyer activity in the Bay of Plenty’s real estate markets. The super brand, established on 23 May 1883 and remains 100% family-owned, is taking advantage of this opportunity.
Plenty of real estate experience
Mr Ruske’s journey in real estate commenced in 1988, and brings extensive experience in residential, commercial, industrial, lifestyle, and property management. In 2011, he and his wife, Gill Ruske, founded NRG Realty with the acquisition of an office from another company in Tauranga. The business has since expanded to include offices in Mount/Papamoa, Katikati, Waihi, and Waihi Beach.
Mr Billinghurst, with a background in engineering, IT, and management, transitioned into real estate in 2014. After achieving the NZ Rookie of the Year award in his first year with a previous real estate group, he became a co-owner of NRG Realty Ltd. alongside his wife, Bronwen Billinghurst, in 2021.
As a principal of the business, Mr Billingshurst now oversees the five Raine & Horne offices in Tauranga, Mount Maunganui, Katikati, Waihi Beach, and Waihi, relishing the opportunity to support his team and immerse himself in the exciting world of real estate.
Angus Raine, Executive Chairman of Raine & Horne, who is the fourth generation of his family to lead the Australasian super brand, expressed his confidence in the new principals, stating, “I can see Paul takes pleasure in assisting his salespeople in their growth and development which ensures they provide excellent outcomes for their sellers and buyers.
“His responsibilities involve running the day-to-day operations of and exploring new technologies and approaches to real estate to keep the team up to date,” Mr Raine added.
“Neville’s passion for property shines through not only from establishing five successful real estate offices in the Bay of Plenty and Hauraki region but also from his ownership of rental and commercial properties and his current involvement in building projects.
“Neville and Paul are excellent operators who are sure to embrace our ecosystem of digital marketing firsts,” he said.
“Digital marketing is redefining how properties are promoted and sold in New Zealand, and with our ecosystem of technology-first, headed by the cutting-edge social media marketing platform, Amplify, Raine & Horne proudly stands as a formidable leader in this rapidly evolving space.”
Embracing a legacy of technology success and unparalleled support
Mr Billinghurst agreed that Raine & Horne’s cutting-edge technology, its unique value proposition, and unwavering support were too good to ignore.
“Raine & Horne offers us something different from other brands in that it adds value to our vendors, team and business,” he said.
“This is not only from its leading-edge technology, such as Amplify but also in the support they give us. It means our current and future salespeople have a real point of difference to offer potential vendors, and we can add even more value to our team as a company.”
Mr Billinghurst added, “Our five offices have been established in the marketplace for many years. We want to take them all to the next level and rapidly grow our regional market share.
Mr Ruske said his dealings with Raine & Horne have been positive from the outset.
“From our interactions, it feels there is a real loyalty to the brand, and there are genuine people behind it,” he said.
“We’re on a growth projection within the Bay of Plenty and Hauraki region, which aligns well with Raine & Horne’s New Zealand growth goals.
“Having 140 years of real estate heritage shows Raine & Horne have weathered all markets and run an exceptional operation.”
“There are many brand alternatives for business owners to choose from, but we believe that with Raine & Horne’s history coupled with their forward-thinking, dynamic approach to real estate, they will shortly be a driving force in New Zealand real estate.”
The business spirit of the 100% family-owned and operated Raine & Horne also struck a chord with Mr Ruske and his fellow directors.
“NRG Realty is an acronym of Neville, Ruske and Gill, and Gill has been an integral force since we began the business, contributing to management decisions and overseeing finances since day one,” Mr Ruske said.
“Her expertise in residential developments adds a significant dimension to the business.
“As Paul and Bronwen became part of the team, this legacy of family involvement persisted, with Bronwen focusing on our company marketing.
“Still having the same company owners but now operating under the Raine & Horne brand is great for both organisations.”