The housing market became less attractive for property investors over the six months to the end of March, and not just because of planned changes to the tax treatment of residential investment property announced by the Government in late March.
According to interest.co.nz’s Rental Yield Indicator, prices at the bottom end of the housing market have been increasing at a faster rate than rents, pushing down rental yields significantly and reducing the earning potential of properties, making them a relatively less attractive investment option.
The Indicator tracks the Real Estate Institute of New Zealand’s lower quartile selling price for three bedroom houses in 56 locations around the country where there is a high level of rental activity.
These are then matched with median rents for three bedroom houses in the same locations to produce an indicative gross rental yield for each area.
The figures for three bedroom houses are used because this is still the predominant type of rental housing in most parts of the country.
The latest figures, based on selling prices and rents over the six months from October 2020 to March 2021, show that indicative yields declined in 51 of the 56 locations monitored when compared with figures from the six months ended December last year, while they increased in just two locations (Silverstream in Upper Hutt and Te Awamutu), and were unchanged in three locations (Te Puke, Timaru and St Kilda in Dunedin).
The number of locations with indicative rental yields of 5% or more had reduced from 23 over the six months to the end of December 2020, to 14 in the six months to the end of March 2021. Meanwhile, the number of locations with yields under 4% increased from six to 13 over the same period.
The main drivers of those trends were substantial rises in lower quartile prices compared to modest growth in rents.
Of the 56 locations monitored, 42 had double digit percentage increases in their lower quartile selling prices in the six months to March this year compared to the six months to December last year. Of those, 16 had price increases of 20% or more.
The lowest price increase over that period was in Timaru at 1.3%, and the highest was in the Wellington suburb of Newtown at 38.4%.
None of the locations monitored posted a price decline.
Compared to the substantial rises in selling prices that occurred in the six months to March, rental growth was much more modest.
Of the 56 locations monitored, only 16 posted rental growth of 4% or more in the six months to March compared to the six months to December last year, while 31 had rental growth of 2% or less.
That included eight locations where the median rent declined and seven where it was unchanged.
The combined impacts of a substantial rise in prices and more sluggish rental growth has driven down gross rental yields, suggesting the income generating capacity of residential rental properties purchased at current prices was significantly diminished over the six months to the end of March.
The table below shows how the indicative yields in all 56 locations monitored have changed since March 2016.
A fuller version of the table, showing the quarterly movements since September 2014, is available here.
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Indicative gross rental yields for three bedroom houses in 56 selected areas with high rental activity during the previous six months. Based on REINZ lower quartile selling prices and median rents recorded by Tenancy Services' Bonds Centre in each area over the previous six months.
| Indicative gross residential rental yields for the six months ending: | |||||||||||
|
Town/region
|
Yield % Mar 2021 |
Yield % Dec 2020 |
Series break* | Yield % Sep 2020 |
Yield % Jun 2020 |
Yield % Mar 2020 |
Yield % Dec 2019 |
Yield % Mar 2019 |
Yield % Mar 018 |
Yield % Mar 2017 |
Yield % Mar 2016 |
| Whangarei: | |||||||||||
| Kamo | 5.2 | 5.6 | --- | 5.4 | 5.2 | 5.3 | 5.4 | 5.3 | 5.4 | 5.4 | 6.0 |
| Rodney - Orewa | 4.1 | 4.4 | --- | 4.1 | 4.1 | 4.0 | 4.1 | 4.2 | 4.0 | 4.0 | 4.1 |
| North Shore: | |||||||||||
| Beach Haven | 3.4 | 3.9 | --- | 3.8 | 3.8 | 3.9 | 4.1 | 3.8 | 3.8 | 3.7 | 3.9 |
| Torbay | 3.4 | 3.8 | --- | 3.7 | 3.8 | 3.9 | 3.9 | 3.8 | 3.7 | 3.7 | 3.8 |
| Waitakere: | |||||||||||
| Glen Eden | 3.7 | 4.1 | --- | 4.1 | 4.1 | 4.0 | 4.2 | 4.0 | 3.8 | 4.0 | 4.0 |
| Massey | 3.7 | 4.1 | --- | 4.1 | 4.1 | 4.2 | 4.3 | 4.0 | 4.2 | 4.0 | 4.1 |
| Henderson | 3.8 | 3.9 | --- | 3.9 | 4.0 | 4.3 | 4.4 | 4.1 | 4.2 | 3.9 | 4.1 |
| Central Auckland: | |||||||||||
| Avondale | 3.4 | 3.8 | --- | 3.8 | 3.5 | 3.7 | 4.2 | 3.9 | 3.7 | 3.6 | 3.7 |
| Manukau: | |||||||||||
| Highland Park | 2.8 | 3.6 | --- | 3.6 | 3.6 | 3.4 | 3.4 | 3.4 | 3.7 | 3.5 | 3.3 |
| Papakura | 4.4 | 4.6 | --- | 4.5 | 4.6 | 4.6 | 4.7 | 5.1 | 4.6 | 4.3 | 4.8 |
| Franklin - Pukekohe | 4.4 | 4.7 | --- | 4.6 | 4.6 | 4.5 | 4.4 | 4.7 | 4.7 | 4.6 | 4.9 |
| Hamilton: | |||||||||||
| Deanwell | 4.1 | 4.7 | --- | 4.9 | 4.6 | 4.7 | 4.9 | 4.9 | 5.1 | 4.8 | 5.3 |
| Fairfield | 4.2 | 5.1 | --- | 4.9 | 4.9 | 4.9 | 4.8 | 4.4 | 4.6 | 4.9 | 5.4 |
| St Andrews | 3.8 | 4.2 | --- | 4.2 | 4.3 | 4.2 | 4.3 | 4.6 | 4.7 | 4.4 | 4.7 |
| Cambridge - Leamington | 4.0 | 4.5 | --- | 4.4 | 4.3 | 4.4 | 4.3 | 4.4 | 4.3 | 4.6 | 5.2 |
| Te Awamutu | 5.2 | 4.8 | --- | 4.7 | 4.3 | 4.9 | 5.1 | 4.9 | 4.9 | 5.0 | 5.7 |
| Tauranga: | |||||||||||
| Greerton | 4.3 | 4.7 | --- | 4.4 | 4.7 | 4.6 | 4.6 | 5.5 | 4.7 | 4.6 | 5.2 |
| Bethlehem | 4.0 | 4.4 | --- | 4.1 | 4.4 | 4.2 | 4.1 | 3.7 | 4.3 | 4.1 | 4.6 |
| Mt Maunganui | 3.8 | 4.1 | --- | 4.1 | 4.3 | 4.3 | 4.1 | 4.6 | 4.4 | 4.4 | 4.8 |
| Pyes Pa | 4.4 | 4.9 | --- | 4.6 | 4.5 | 4.5 | 4.7 | 4.8 | 4.4 | 4.8 | 5.4 |
| Te Puke | 4.7 | 4.7 | --- | 4.6 | 4.8 | 5.1 | 5.3 | 5.0 | 4.9 | 5.3 | 5.8 |
| Whakatane | 4.3 | 5.3 | --- | 5.2 | 5.3 | 5.2 | 5.5 | 5.7 | 6.3 | 6.1 | 6.4 |
| Rotorua: | |||||||||||
| Owhata | 5.8 | 7.0 | --- | 6.7 | 6.7 | 6.8 | 6.3 | 6.1 | 7.8 | 8.0 | 8.7 |
| Glenholm | 5.0 | 5.1 | --- | 5.1 | 5.8 | 4.9 | 4.9 | 4.9 | 5.8 | 4.9 | 5.9 |
| Ngongotaha | 5.8 | 6.9 | --- | 6.6 | 6.2 | 6.0 | 5.9 | 6.1 | 6.7 | 8.6 | 7.7 |
| Hastings - Flaxmere | 5.2 | 6.1 | --- | 6.0 | 5.9 | 6.1 | 6.3 | 8.2 | 9.6 | 8.9 | 10.9 |
| Napier - Taradale | 3.7 | 4.6 | --- | 4.5 | 4.3 | 4.3 | 4.7 | 5.0 | 4.6 | 5.0 | 5.4 |
| Taranaki: | |||||||||||
| New Plymouth | 4.6 | 4.9 | --- | 4.6 | 5.0 | 4.6 | 5.4 | 5.3 | 4.6 | 4.7 | 5.8 |
| Waitara | 5.5 | 5.7 | --- | 6.0 | 7.0 | 6.3 | 6.3 | 7.6 | 6.4 | 8.1 | 8.8 |
| Whanganui | 5.7 | 6.6 | --- | 6.2 | 6.8 | 7.0 | 7.4 | 8.1 | 9.0 | 9.1 | 9.6 |
| Palmerston North: | |||||||||||
| Kelvin Grove | 4.3 | 5.5 | --- | 5.3 | 5.3 | 5.4 | 5.2 | 5.6 | 6.3 | 6.6 | 7.4 |
| Palmerston North Central | 4.3 | 5.1 | --- | 4.7 | 4.4 | 4.9 | 4.7 | 5.3 | 5.0 | 5.9 | 5.6 |
| Takaro | 4.5 | 5.2 | --- | 5.1 | 5.1 | 5.1 | 5.2 | 5.6 | 6.0 | 6.1 | 7.2 |
| Kapiti Coast: | |||||||||||
| Paraparaumu | 3.7 | 4.3 | --- | 4.3 | 4.6 | 4.5 | 4.5 | 4.5 | 4.9 | 4.8 | 5.9 |
| Waikanae | 4.0 | 4.9 | --- | 4.3 | 4.2 | 4.3 | 4.5 | 4.5 | 5.4 | 5.2 | 5.9 |
| Upper Hutt: | |||||||||||
| Silverstream | 4.2 | 4.1 | --- | 4.3 | 4,7 | 4.7 | 5.2 | 4.9 | 4.8 | 4.7 | 5.8 |
| Totara Park | 4.2 | 4.8 | --- | 4.6 | 5.0 | 5.3 | 5.0 | 5.2 | 5.6 | 5.8 | 6.3 |
| Lower Hutt: | |||||||||||
| Avalon | 3.8 | 4.6 | --- | 4.6 | 4.7 | 4.4 | 4.7 | 5.2 | 5.0 | 5.1 | 5.8 |
| Naenae | 4.3 | 5.0 | --- | 4.9 | 4.9 | 4.9 | 5.3 | 5.4 | 5.7 | 5.8 | 6.8 |
| Wainuiomata | 4.2 | 5.1 | --- | 5.0 | 5.0 | 5.0 | 5.1 | 5.5 | 5.6 | 5.9 | 7.7 |
| Wellington: | |||||||||||
| Johnsonville | 4.1 | 4.4 | --- | 4.4 | 4.7 | 5.0 | 4.7 | 4.9 | 4.9 | 4.9 | 5.5 |
| Newtown | 4.1 | 5.7 | --- | 5.3 | 4.4 | 4.3 | 5.0 | 4.6 | 4.9 | 4.2 | 5.4 |
| Tasman: | |||||||||||
| Motueka | 4.0 | 4.6 | --- | 4.0 | 3.9 | 4.3 | 4.0 | 4.3 | 4.2 | 4.0 | 5.2 |
| Richmond | 4.1 | 4.3 | --- | 4.2 | 4.3 | 4.3 | 4.3 | 4.4 | 4.5 | 4.7 | 5.3 |
| Nelson - Stoke | 4.3 | 4.6 | --- | 4.5 | 4,6 | 4.5 | 4.7 | 4.6 | 4.9 | 5.1 | 5.5 |
| Blenheim | 5.1 | 5.8 | --- | 5.5 | 5.2 | 5.1 | 5.6 | 5.3 | 5.6 | 5.8 | 7.0 |
| Christchurch: | |||||||||||
| Hornby | 5.1 | 5.6 | --- | 5.7 | 5.8 | 5.9 | 5.8 | 5.9 | 5.7 | 5.6 | 6.0 |
| Riccarton | 3.7 | 4.7 | --- | 4.9 | 5.2 | 4.4 | 4.3 | 5.2 | 5.2 | 5.0 | 5.7 |
| Woolston | 5.5 | 5.7 | --- | 5.8 | 6.1 | 6.3 | 6.6 | 6.5 | 7.8 | 6.2 | 6.3 |
| Ashburton | 4.7 | 6.3 | --- | 5.8 | 5.5 | 7.3 | 7.5 | 5.8 | 5.3 | 8.3 | 6.2 |
| Timaru | 5.4 | 5.4 | --- | 5.5 | 5.6 | 5.6 | 5.7 | 6.1 | 5.8 | 6.0 | 6.5 |
| Queenstown | 3.2 | 3.3 | --- | 3.6 | 4.0 | 4.0 | 3.7 | 4.0 | 4.2 | 4.3 | 4.6 |
| Dunedin: | |||||||||||
| Mornington | 4.6 | 5.6 | --- | 5.3 | 4.8 | 4.6 | 4.7 | 5.1 | 5.9 | 7.5 | 7.9 |
| Mosgiel | 4.3 | 4.6 | --- | 4.6 | 4.7 | 4.8 | 5.0 | 5.2 | 5.6 | 5.5 | 6.4 |
| St Kilda | 6.3 | 6.3 | --- | 6.1 | 5.5 | 5.4 | 5.7 | 6.9 | 7.6 | 7.9 | 7.2 |
| Invercargill | 5.6 | 6.6 | --- | 6.7 | 6.6 | 6.6 | 6.7 | 7.2 | 7.9 | 8.3 | 8.7 |
|
Source: Base data from REINZ / MBIE *Yield is a property's annual rent expressed as a percentage of its purchase price. The indicative yield figures in this table are gross, and are calculated from the REINZ's lower quartile selling price for three bedroom houses in each area during the previous 6 months, and the median rent for three bedroom houses calculated from new tenancy bonds received by the Ministry of Business Innovation and Employment for the same areas/period. This gives an indication of the gross rental yield that would have been achieved in each area if a three bedroom house was purchased at the lower quarter price and rented at the median rent for that that type of property in that area. *Series break note: In November 2020 Tenancy Services changed the geographical boundaries of many of the suburb groupings it uses to collate the bond data from which it calculates median rents. This is likely to have affected the median rent figures used in the indicative yield calculations displayed in the above table. For this reason, the indicative yield figures from December 2020 onwards should not be compared with those prior to December 2020, because any comparison may not be on an apples-with-apples basis. |
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