Household Incomes and Rents

Stats Dept released new data this week

Stats department releases new data regularly, but sometimes it’s not only hard to find you actually have to know it is coming. So I start checking from the end of June for the annual update of Household Income. I now have 2024 data.

This post is about exploring that data. I was surprised about the size of median household income increases in a so-called recession. What is really happening to household incomes? I don’t know the reasons, they are most likely related to events or issues associated with each region. However, I understand the main implication of increased Household Incomes - more income leads to people choosing to move to homes with higher rents.

Household Incomes

Household incomes continue to grow with only 2 regions showing a reduction in annual income. Some smaller regions surprise due to catchups (Northland 26% increase to catch up to other regions) so I have focussed on the major regions only

This chart shows actual Household Incomes, so growth is more obvious. I use Caps for Household Income to remind readers this is NOT wages or salaries, it includes any wage or salary in a household, but also Benefits (say Working for Families) plus Self employed, (eg a side hustle of selling lamps on Trademe). Using the median ensures small numbers of very high incomes do not impact the result.

Who would have thought Wellington would grow let alone by $10,000pa? I wonder if public service redundancies are compensated by public service hires. eg the new Anti-Regulation ministry hired 92 people with average salaries of $150k. Maybe their previous salary was much less?

I included a couple of smaller regions to show why I do not need to comment, the changes are simply catchup.

OK so how does that compare in growth pa over a few years? I charted that too for my understanding. Not a lot of help but I can share the charts:

The only surprise I can see here is that the major regions follow the national trend very closely with minor variations. I expected more randomness. Note Wellington and Auckland follow the trend but sit a little higher - thats why their incomes grew so much higher over the period since 2015.

Rents

The June Rent prices were also published by MBIE, so the following chart is fully up to date June 2024:

This shows Geometric Mean rents increased from June 2024 at $545pw to June 2024 at $576 or $31pw. Inventory (supply) is high to extremely high in every region at present, so tenants are not competing to get a rental. Rent increases at this time are driven by tenants wanting to upgrade to better properties, despite the recession.

The only outlier is Wellington where supply is also very high but incomes have risen so much that the same drive to upgrade has moved the mean from $562 to $574pw. A lot less than previous years growth but still growing despite record inventory levels. Note this chart is in the menu for rents above for other regions

Wellington inventory is a record 1700 homes, compared to 1160 at the same time last year or the more extreme 800 in earlier years.

BTW, I understand the high inventory levels may be associated with expectations of higher house prices. From a senior PM; “many owners are deciding to place their house on the rental market when they are unable to get the price they expect”. Oversupply will change suddenly once the sales market recovers as interest rate reductions roll out.

Rents to Household Incomes

My data has been very reliable, rents rise with Household Incomes and have since the data was made available by Stats and MBIE in 1998. However I have also warned that this steady state is upset by significant supply and demand imbalance. We have that now in most regions, loads of supply, but high incomes are resulting in different outcomes by region:

• Auckland - finally prices are a better match to incomes, mainly due to construction activity. (ie the blue line is in the middle of the green shaded area in the chart below)

• BoP - supply is very constrained, so demand continues to push up prices and the purple line is well above the green area

• Canterbury - Supply and demand seem to be close despite more supply

• Otago - Almost perfect supply = demand

• Waikato - Supply was short, but rents remain low, the orange line has just centered suggesting supply=demand

• Wellington - as above over supply and high incomes leads to very low Rent/HH Income. Expect rents to rise as tenants with much more income chase better properties.

My personal investment style was to chase the best tenants in the better properties in Wellington, so this is why I would be an investor if I was well and able.

This post is related to the last post and is to demonstrate the surprises I had about the data as above. The investment opportunity appears to be really good, but do your homework about any purchase, this data is regional, not for your specific property. I believe I have more market detail to come once I look at the latest QV house price index which may show prices are still languishing, let me see, QV etc have incentives to comment one way or another.

Thank you to a lot of people wishing me well last week it was enormously appreciated. I seem to have a lot of luck going my way. Treatment appears to be just keeping up with my body which is working extremely well to keep me fit & strong.