Private Property issue #147 - How fast do rents increase?

The rental market is having a tough time. 

Rents are flat across most of the country. 

Some landlords are increasing their rents. Others are decreasing them. 

Most are keeping the rent the same. 

That’s why a lot of investors ask me: “Andrew, what’s going on with rents? When will they start going up again?”

Let’s take a look.

How much do rents usually go up?

Over the last 12 months, the median rent in New Zealand went up just 2.6% (12 months to November 2024). 

That’s low compared to the long-term average of around 4.5% to 5.5% per year (on average).

But that doesn’t mean rents go up by that exact amount every year. 

Half the time, it’s higher than average. 

The other half, it’s lower than average. 

That’s what an average is.

51% of the time, rents go up between 2.5 – 6% per year. 

But, 12.7% of the time rents don’t increase at all in a year. 

But it all averages out to around 4.5 – 5% per year. 

Take a look at this – 

Right now, we’re at the bottom end of that graph. Rents aren’t going up that fast. 

But hopefully, this gives you some comfort and can say: “Ok, today’s market probably isn’t the new normal. This year probably isn’t the new long-term average.”

Do rents go up faster in some cities than in others?

Most of the time, rents in the main cities go up at roughly the same rate. 

But they don’t always move at exactly the same time. 

And it’s not like rents always increase. Every. Single. Year.

After an initial earthquake-fuelled boom, Christchurch rents fell 13% between 2015 and 2017. (They’ve since climbed almost 50%).

During the GFC, rents flatlined for 1.5 years in Auckland. (They’ve since climbed 80%).

So, some levelling off in rents is normal in the hard economic times we find ourselves in. 

Tenants are price-sensitive. 

They’re still dealing with the high cost of living. That’s come from the recent bout of inflation.

So keep in mind that rents don’t move in a straight line. The market is sluggish right now. But it won’t stay this way forever.

How hard is it to find a tenant?

A net 20% of property investors say it’s hard to find a good tenant. 

But, I got an email pop into my inbox earlier this week. It’s from an investor talking about her experience in Wellington.

(Ok, she sent it to Ed, but we’re basically the same person).

Hi Ed

Interesting rental event from Wellington here – we listed a 2-bed house for rent.

It was previously rented at $625 a week. We dropped it to $600 based on volume of trademe listings and all around sitting around the $600 mark.

We had 75 enquiries in the first week, accepted 20 groups for viewings and had 9 applications after the first viewing.

Now, this house is 51m2 in total, with a stand-alone home office. No off-street parking, and is walk up.

I think what this shows (well, to me) is that there actually still rental demand. It is all just very price-driven here at the moment.

Tenants are feeling in control and will move purely for a rent decrease. Even if it means they have to carry all their furniture up the stairs and hills of Wellington.

[Investor Name]”

There are a couple of lessons from this. 

First, the rental market … well, it’s a market. 

If you want to find a tenant fast, you need to meet the market with price. 

The second lesson is that sometimes it’s better to drop the rent (a bit) to find a tenant quickly.

This investor dropped her rent by $25 a week. That’s $1,300 over a year. 

If dropping the rent helps her find a tenant 2-3 weeks faster … she’s ahead. 

Because if she has more than 2 weeks of vacancy (with no tenant), it’ll cost her $1,300 (or more) anyway.

I’m not saying we should all drop our rents. But, we should be prepared to meet the market when the market moves. 

That’s true when rents go up. It’s also true when rents go down.