The housing shortage in Wellington has been well advertised over the past few years. Yet, Trade Me data shows that demand for rentals in March 2021 was down 25% when compared with the same month the year prior. A quick look on Trade Me also shows there are still over 600 properties available to rent in the Wellington district. So, what is the state of the rental market in Wellington and how should investors be responding? We spoke to Stephen Dacombe-Bird, Director of Quinovic and Principal of Quinovic Vivian Street to find out what his firsthand observations have been.
While demand has been quieter this year than in 2020, as seen on Trade Me's Rental Price Index for April 2021, the rental market across the country is quite cyclic so this drop is to be expected. Every year, there tends to be significantly higher interest in January with demand then typically reducing each month until September, when it starts to pick up again. In the slower winter months, people generally don’t want to think about moving unless they have to. Another influential factor is simply the cost of moving. Our information suggests that tenants stay longer in a property due to the lack of choice and cost of moving around, two added pressures that tenants don’t want to deal with when it’s cold and wet. We refer to this as the ‘hibernation’ period and see it year after year.
Property investors that are having difficulty renting their properties likely own rentals that are not mainstream or in the price range renters are looking for. Stephen has already seen rents reduce this year to fill some properties, so price is a factor that should be considered for vacant space. When deciding on the rent for your property, ask yourself the following questions:
Despite frequent reports in the media of a housing shortage, popular rental listing sites show a magnitude of properties available in the Wellington district. Several apartment developments around the city have also completed construction, putting more properties on the market. If you look at supply and demand on paper, Wellington has properties available. However, there are many more factors to consider than simply vacant spaces.
Prospective tenants often look for specific types of rental properties, and particular price ranges that they’ve become familiar with or believe to be market standard. In Wellington, Stephen has noticed a growing distancing between available rental housing stock and tenant price expectations. With low rental stocks, increased demand, and legislative changes creating additional costs for rental property owners, rent prices are significantly higher than they were five years ago.
Over the next twelve months, Stephen expects to see the pool of available rental properties diminish. This, he believes, is due in part to current rental owners being forced out of the market by a challenging landlord environment, together with the increased value of properties, which makes selling (rather than tenanting) a rental property more attractive. The market will continue to tighten and as a result, rents will continue to increase in line with reduced stock levels. For those looking to invest in rental property in Wellington, Stephen notes that properties that are not mainstream, or are in a higher price range are harder to rent.
While demand in Wellington remains stable for this time of the year, there has been a noticeable increase in investors selling their rental properties. Stephen’s observation is that a large portion of these sales come off the back of legislative changes like the Healthy Homes Standards and the Residential Tenancies Amendment Act 2020 (RTAA) with investors finding the new laws difficult to navigate. The Healthy Homes Standards in particular have felt like a massive burden for some Wellington investors over the past few years and Stephen expects that some property owners will struggle to meet compliance dates with a lack of product, supply and resources available. In these instances, along with the high sales prices in Wellington, many investors can be tempted to get out of the game. However, it’s important to remember that property investment is a long-term commitment.
Property is an asset that has historically consistently increased in value and most investors consider selling as a last resort. If investors don’t want to deal with legislative changes, Stephen recommends getting a Property Manager to do that for them. For prospective investors looking to purchase their first rental property, it’s essential that you have a long-term plan. To avoid paying income tax on the sale of an investment property, new investors should be prepared to give the property at least five years if they are new builds or ten years on existing stock, in accordance with the revised bright-line property rule. Stephen also suggests building a team of professionals, getting good advice from trusted sources and joining a property investors association. Surrounding yourself with good, accurate information and advice is the best way to succeed in any field.
If you currently own a rental property or are considering investing and want professional property management advice, get in touch with your local Quinovic office. We’re a nationwide team of property management experts and have managed over 100,000 tenancies since 1988. When it comes to legislative matters, we have a professional understanding of all new and existing rental property laws, as well as local contacts to assist with any practical matters for the Healthy Homes Standards. No matter how big or small your question is, we’ll be happy to help. Ask Quinovic today.
