Price Myths vs Reality

Trademe prices are asking only

Trademe press coverage when they “announce” price rises each month is extensive, informed reporters are rare and expensive for media, but Trademe’s release is free so so gets used. Trademe publishes this nonsense simply so they can drive the market to profit from advertising. MBIE publish a true measure of actual rents. This old article, provides more context “Both series of rental data are valid, but they measure different things.”. However, it is out of date, MBIE now publishes both “flow” and “stock” prices allowing comparisons between new and existing rents. Trademe publishes “Flow” data at the pre-rental stage and cannot show “stock” prices for advertised properties because of course existing rentals are not advertised.

The reality of pricing is that there are two drivers:

1. Flow - New rentals, which are not listed prices but actual bond data as published by MBIE

2. Stock - Existing rentals which tend to increase prices later, ie when managers get around to it, and owners often delay price rises to keep good tenants.

I take the data from MBIE and ONLY use the Geometric Mean alongside Active Bonds (Stock), note not New Bonds (Flow). This shows the reality, I will put these charts into a new dropdown menu so they can be updated regularly. Trademe’s data is NOT a geometric mean, which means it is influenced by extreme prices, eg large homes.

Actual Rent Prices

Actual prices show each region has different characteristics. The differences are easily explained by simple supply and demand. Prices and the growth rate of prices are key indicators of the market equilibrium in each region, the next chart covers growth, showing a lot of recent variation.

1. Auckland oversupply of homes for rent in the last few years drove prices down, immigration is reversing the trend now and prices are rising quickly.

2. Waikato has been underpriced compared to national prices dominated by Auckland, undersupply is long standing yet prices are also low.

3. BoP has been increasingly unable to supply houses, bringing prices up considerably to equal or beat Auckland prices. The market here seems similar to Waikato yet prices are responding to the severe shortage of homes.

4. Wellington had a shortage until apartments in the central city got underway 5 years ago. Oversupply drove prices down but the latest data suggests that growth in prices to match incomes has returned.

5. Canterbury Earthquake impact is very clear. Equilibrium has raised prices to those of Auckland.

6. Otago prices have followed the nation average but at a lower value, probably due to fewer extreme high priced properties.

Rental Growth Rates

Rental price growth rates in each city demonstrate demand. This is no surprise to those of us with long experience in the market, owners can only match the market so cannot drive prices higher than competitors without finding tyheir property empty.

Some will claim that the reduction in price growth in Auckland since 2017 is due to relaxation of development rules. this is not my specialty, so I cannot comment. Wellington is my specialty however, and both reductions below the national line are in periods of oversupply, one of which is right now. However that oversupply is temporary and we are near the end in Wellington so now is a great time to buy.

The big lesson here is that the growth reported in any month is of little value without context, but very useful for clicks. Context means understanding whether supply and demand are in or out of balance in the longer term, maybe months or years.

This data provides a background to prices but unfortunately you need to do local research about actual prices before updating your rental. The best place to start is the TenancyServices for the local suburb and Trademe ads for direct comparisons, maybe even visit some advertised properties as a prospective tenant to get a better fix on prices.