Renters caught between a rock and a hard place
New Zealand’s current housing crisis, combined with inflation and constantly increasing rental prices are not making life easy for some New Zealanders.
Low-income and young New Zealander’s are stuck in a very tricky situation. The majority of low-income or young people want to save and buy a home, but with the current housing crisis, that dream is becoming more and more unlikely. So they are left to rent and face the constantly increasing rental prices. This leaves them in a tough place – unable to buy a home and continuing to have to pay for increasing rental prices.
Rental prices have continued to increase annually for the past fourteen years.
The above figure presents the annual change to national rental price indexes in New Zealand, for both the stock and flow measures between 2008 and 2021. The stock measure of rental price changes is a less volatile measure which accounts for changes in prices for all renters. The flow measure only accounts for dwellings that have a new tenancy started in the reference month.
Both the stock and flow measures of rental price indexes have increased annually in June for the past fourteen years. Annual changes to the stock measure of rental price indexes has been relatively consistent at around three percent since 2012. While annual changes to the flow measure of rental price indexes has fluctuated more in previous years, reaching a low of 0.2 percent in 2020, and a high of five percent in 2021. However, they have both remained positive each year, with no sign of this changing.
These continuous increases to rental prices has placed considerable pressure on low-income New Zealanders, or young New Zealanders just entering the rental market. Additionally, low-income New Zealanders have less ability than the average household to handle increased rental prices as a proportion of their income.
Low income New Zealander’s spend above the average on rent as a proportion of their weekly income.
Not only are low-income New Zealander’s disproportionately impacted by inflation and rental price increases, but they also spend more on rent as a proportion of their weekly household spend compared to the average household income group, as depicted in the below figure.
New Zealand’s lowest income group spent on average 14 percent of their weekly spend each week on rent between 2007 and 2019. In comparison to the average household income group, who spent eight percent of their weekly spend on rent.
With rental prices accounting for more of low-income New Zealanders weekly spend than other income groups, the dream of saving to buy a house seems near impossible for them. Particularly when considering the added pressure that inflation will bring in the coming months.
The North Island has experienced the highest annual changes to rental prices.
Different regions in New Zealand experienced smaller or larger annual changes to rental prices, and with no surprises Wellington has experienced some of the highest annual changes to rental prices. In 2017, annual changes to rental price indexes in Wellington was ten percent, followed by eight percent in 2019, and six percent in 2021. Which means on average, in nominal terms, if your rental price was $250 in 2016, you would now be paying $328 in 2021 for the same home.
However, the rest of the North Island outside of Auckland and Wellington, has had the largest increase in its rental price indexes between 2007 and 2021. This was driven by the significant annual changes to rental price indexes over the past five years, with an average annual change of six percent.
The South Island is slightly better off, but very marginally. Canterbury and the remainder of the South Island’s rental price indexes has increased by slightly less than the North Island. But, in the past year annual changes to rental price indexes has increased by seven percent for Canterbury, and twelve percent for the rest of the South Island, leaving worrying signs for the future.
Rents paid would often be sufficient to service a mortgage.
Pain caused by high rents is that the rents paid would often be sufficient to service a mortgage. But many renters are trapped because they can’t afford a deposit to buy a home.
Low-income and young New Zealander’s are truly stuck in an awful position. Are they able to save enough money to buy their own home while facing constantly increasing rental prices, soaring house prices, and inflation? Or are they going to be stuck at the will of landlords renting for the remainder of their lives constantly spending more on rent, as the dream of a house gets further and further away?