NZ rents up 83 percent in 20 years, but interest rates not the biggest contributor - Treasury, Reserve Bank

A new report by multiple agencies has found supply and demand and wage inflation are the two biggest contributing factors to rising rents in New Zealand.

Research by agencies including the Treasury, Reserve Bank and Housing and Urban Development Ministry said average rents rose 83 percent between 2003 and 2022. 

In that time, the average income rose 87 percent, the report released on Monday said. However, the general cost of living had only risen 54 percent.

Economist Shamubeel Eaqub, who wasn't involved in the research, said there was a supply and demand mismatch for rental accommodation in New Zealand.

"New Zealand simply does not build enough houses and, when those houses are built, they don't turn into rental properties fast enough," he told AM.

"If there's a shortage, of course, you can raise prices and you can raise prices until people can't afford to pay any more."

He doesn't think new Government rental regulations and rising interest rates were major contributors to rent increases.  

According to the report, interest rates and unemployment impacted rent inflation but "their contributions are smaller and less significant than wages and the physical supply and demand of dwellings".

"In terms of relative supply and demand, a 1 percent increase in people per dwelling leads to a 1.5 percent increase in rents," the report said. "There is some limited evidence suggesting that the higher the increase in the supply/demand gap, the stronger the wage-rent relationship, due to competition for rental properties allowing landlords to capitalise on renters' wage gains."

Eaqub said renting was becoming more prevalent across all New Zealand age groups and the outlook for prices in the next couple of years was "quite grim" due to population growth and interest rate hikes resulting in fewer houses being built. 

"There's only one big solution to fix rental in New Zealand and that is, we've got to build a lot more houses over a long period of time."

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