Invercargill Rental Market Update - November 2023
Escalating costs all round, such as a 40% increase in building expenses and a 30% surge in grocery prices, have put significant pressure on the rental market.
Speaking from a rental management company's perspective, we tend to be the meat in the sandwich. At Propertyscouts Invercargill we work with amazing landlords and lovely tenants and we know first hand how difficult it is to maintain a balance between keeping the rents affordable for our tenants whilst doing our best by our landlords at the same time.
Fortunately, we’re very lucky to have considerate Southland landlords who consider their tenants and their needs, and with our support, find a way to make rising costs work within a manageable rental range. Our experience strongly suggests that, if tenants have the impression they pay at or just below market rent, rather than above, they are happy to remain in their current accommodation unless their circumstances change dramatically. This is a win-win for both parties as it minimises vacancy rates and moving costs.
Having said that, this is of course easier to do when you have a smaller debt to pay back. Southland has the most affordable housing stock nationwide with the medium price sitting around $400K compared with Auckland which sits at around $1-$1.1Million
Rent increases in Southland averaged 0% in May and 4.8% in September, year on year. We also have the lowest rental ranges at $385-$430 per week depending on seasonal changes. Just like any other market, the rental market is subject to supply and demand. Peak seasons tend to run from November to March - with the intake of new project staff, students and registrar doctors as an example.
Another element to take into consideration has been high inflation, averaging 8.2% in 2022.
Great employers have kept up with inflation in their wage increases, this is pretty common down here in Southland.
With rent increases limited to one in every 12 months, logic tells us that this will be evident in rent increases the year following high inflation.
Putting all of this in perspective, everything is relative to the investment at stake. A higher leveraged mortgage to pay in Auckland, rising interest rates and decreased interest deductibility, (as it currently stands for the next couple of years), will have a much more severe impact on rental increases. What landlords could deduct as an expense, in the past, has now become a liability for many. A $65 increase a week may not be as bad as it sounds, all things considered.
Let me ask you, what other businesses in NZ pay tax on gross turnover, I can't think of any, can you? This is certainly a growing concern and has impacted many landlords with their 2022 tax return liabilities. On a $400K asset, on average your tax bill would now be around an extra $6.5K as a rough guess, depending on your financial position.
From the horse's mouth, things are tough out there and not just for our tenants.
On a more positive note - council housing: At Propertyscouts Invercargill we have been impressed with the ICC's stance on future social housing and council housing.
With the new government's housing growth policy plans, they will be asking councils to make land available to build houses on. They will financially reward pro-active councils by funding $25K for every house delivered above the 5 year average. The ICC have already approached central government to build 100x2 bedroom units on land gifted by the council. Provided they can reach an agreement on how much government assistance is made available, they will reduce the current state housing waitlist by almost half.