A study released today on the drivers of rents in the New Zealand housing market indicates that wage growth, as well as housing supply and demand, are key drivers of rental prices. Increasing the supply of housing is an important part of the solution to creating affordable rents.
This is the second study conducted by the Technical Working Group on Housing. The group includes representatives from the Treasury Te Tai Ōhanga, the Ministry of Housing and Urban Development Te Tūāpapa Kura Kāinga, and the Reserve Bank of New Zealand Te Pūtea Matua. Today they published a paper titled What’s driving rents in New Zealand/national and regional analysis.
The group has undertaken work to better understand the drivers of rents, improve the accuracy of rental prices and house price forecasts, and identify regional hotspots. This work is expected to influence future policy development.
The study identified the following as the main causes of rent inflation:
- Supply and demand for housing – a 1 percent increase in the average number of people in each house leads to a 1.5 percent increase in rents at the national level;
- Wages – increase in nominal wage rates – a 1 percent increase in nominal wages leads to a 1 percent increase in rents;
- Mortgage interest rates and employment have an impact, but much smaller.
The study also shows that local factors also play a role, leading to proportional rent increases in some regions.