In 2020, as New Zealand moved into lockdown due to COVID-19, the Government passed emergency legislation that froze rent increases for six months, and prohibited landlords from evicting tenants for three months. With data on rental price changes for the full year of 2020 now available, we can look back and examine what impact COVID-19 and these laws had on rental prices.
As shown in the figure below, while the national rental index fell in April, May and August 2020, rental prices were 2.6 percent higher in January 2021, than in January 2020. At their lowest point in 2020, in August, rental prices were 1.8 percent down from January 2020. With rental prices able to increase in the last few months of 2020, once the rental freeze legislation finished, we have seen rental prices shoot up to finish the year higher than the start of the year.
Continuing to examine the national rental price index, we can see that, since January 2019, rental prices have increased at a rate of 3.2 percent per annum. While over the last five years between January 2016 and January 2021, national rental prices have increased by 3.6 percent per annum. This indicates that COVID-19 and the rental price freeze that occurred in 2020, has left rental prices slightly below where they otherwise would have been, as growth over the last 12 months has been below three percent.
Drilling down below national level rental price movements, we can examine the rents for our three largest centres, Auckland, Wellington and Canterbury. As shown in the figure below, all three centres saw a decrease in rents across New Zealand’s lockdown period of April, May and June 2020, before rising again in the second half of the year. Overall when looking at rental prices in January 2021, compared to January 2020, Auckland was up 0.6 percent, Wellington was up 6.6 percent and Canterbury was up 2.4 percent.
If we look at the longer term for these three regions, we can see that Wellington has been growing over the last five years much quicker than Auckland and Canterbury. This is shown in the fact that Wellington grew by 5.7 percent per annum over the last five years, while Auckland grew at 2.1 percent per annum, and Canterbury grew by 1.3 percent per annum. This indicates that rents in Auckland and Canterbury are much more stable than in Wellington, which is seeing a surge in rental prices. In addition, we can see that over the last two years, Auckland’s rental price index has really been hardly growing. In total Auckland has seen only a 0.5 percent per annum growth in rents between January 2019 and January 2021.
Given that rental prices are a reflection of the demand and supply for rental properties we can get a potential idea of future changes by looking at recent residential building consent numbers. For Auckland, consents over the last two years have averaged 1,300 a month, which is higher than the 800 a month average achieved over the last 10 years. For Canterbury, consents over the last two years have averaged 460 a month, which is up slightly from the 440 a month average seen over the last 10 years. Lastly, for Wellington, consents over the last two years have averaged 250 a month, up from the 170 consents a month averaged over the last 10 years.
From this data, it seems that Auckland rents will continue growing slowly, as residential building is increasing. Canterbury, with a third of the Auckland population, is currently building around a third of the number of residential buildings as Auckland, and therefore, like Auckland, should continue to see a slow increase in rents. Wellington though is building almost half as many residential buildings as Canterbury, despite having a roughly similar population.
This does indicate that Wellington rents may continue to increase faster than the other two regions. This does mean that people who are looking to escape renting by buying a house are caught between a rock and a hard place. While servicing a mortgage is relatively easier, and in some cases cheaper than renting due to historically low interest rates, the problem for renters is now accumulating the 20 percent deposit often required to buy a house. Accumulating a deposit is of course made harder with rents continuing to increase, meaning less money is available to put aside for the deposit.