The average cost of renting a home in Auckland during 2017 grew at a slightly lower rate year-on-year than in the past and was comparable quarter-on-quarter.
Fourth quarter figures (October to December 2017) released today by Barfoot & Thompson show the average weekly rent for a three-bedroom* home in Auckland was $547, up 4.3% since the same period in 2016 and 0.9% over the previous quarter.
“In recent years we’ve seen quarterly year-on-year increases closer to 5%, even 6%, compared to increases of between 4.2% and 4.3% during 2017,” says Barfoot & Thompson Director Kiri Barfoot, who oversees the company’s property management division.
“For a typical three-bedroom home in Auckland, a 4.3% increase represents a rise in weekly rent of around $23 since last year, or around $1,200 more per year.”
Ms Barfoot says such increases are due primarily to the need for property owners to continue to keep pace with the mounting costs and risks of being an Auckland landlord.
“A good rental property is one that is compliant, well-resourced and well-maintained, and the cost to landlords to provide this is growing, often beyond what is able to be recouped through regular rent increases.
“For many property owners, their recent annual outlay on maintenance, insulation and smoke alarms, higher insurance premiums, higher rates and so on, will have outstripped the increased rental income.”
Ms Barfoot says that, balanced against low interest rate projections, she anticipates the current trend in weekly rent prices to continue in 2018 and possibly edge back towards 5% due to cost and supply pressure.
Demand for one-bedroom rentals properties continues
One-bedroom properties in Howick and Pakuranga experienced the highest quarterly year-on-year increase of any segmentation at 8.7%, now costing an average of $343 per week. At other end of the scale however, a five-bedroom home in the same area costs around $2 less this quarter than a year ago at $765 per week.
Ms Barfoot said while rental prices across suburbs were often cyclical, experiencing a period of growth and then levelling off, one-bedroom properties were maintaining strong rental price growth across most of the city.
“While the average weekly rent for Auckland properties with two or more bedrooms were largely in step with a 4.4% increase or less, one-bedroom properties continued to buck the trend, rising 6.2% in quarter four compared to 2016. This follows similar strong growth in quarter three.”
The areas of Central Auckland, the Central suburbs, Eastern Auckland, Howick and Pakuranga, and West Auckland all showed higher than average growth in weekly rents for one-bedroom properties of between 5.5% and 8.7%.
Meanwhile, suburbs experiencing higher than average rental increases included the ever-popular Central Suburbs as well as Rodney and West Auckland.
“The Central suburbs are convenient and popular and therefore draw higher prices. There are also more new, high-spec properties on offer at the top end of the rental market. West Auckland and Rodney are areas that are on the up and attracting more residents with improved amenities.”
Rental yields continue to regain ground**
Measured increases in weekly rents compared to more restrained price growth in residential sales has seen a continued, albeit slight, increase in rental yields for landlords compared to previous years.
“In the final month of this quarter, the rental yield for a three-bedroom property in Auckland was 3.09%, up from 2.93% in December 2016. This brings figures back in line with December 2015.”
“While there is a lot of talk of landlords exiting the market, this turnaround in yield figures shows it is actually a good time to consider a rental property investment.”
Ms Barfoot expects to see future yield increases driven by rents rather than property prices, as landlords are no longer able to trade-off the drawbacks of a flat yield with the benefits of high capital gain.
“Many landlords top-up their mortgages every week and are happy to do so when capital gains are as healthy as they have been over the last five or so years. However, as property values rise more modestly, many will need to improve yield by increasing rental income.”