National rents record first annual drop in 15 years

New Zealand’s rental market is easing, with conditions shifting gradually in favour of tenants.

Data from the Ministry of Business, Innovation and Employment shows that the national median rent in the three months to May slipped by 0.3% compared with the previous year – the first decline since late 2009.

This shift is most noticeable in major centres. In Auckland, the median weekly rent fell by 2.0%, while Wellington City saw rents fall by 0.8%. Other main centres such as Tauranga and Christchurch are also seeing softer rental conditions.

Cotality Chief Property Economist Kelvin Davidson said the change in the rental market had been driven by several interrelated factors.

“There was a sharp rise in rents post-COVID as borders reopened and net migration spiked. Many new migrants tend to rent, especially given the foreign buyer ban, and that demand placed pressure on key centres such as Auckland,” he said.

“At the same time, rental supply was tighter. Investor activity had dipped due to rising mortgage rates and tax rule changes, which arguably meant fewer rental properties were added to the available pool than otherwise might have been the case.”

Mr Davidson said these dynamics had sharply increased rents, both in dollar terms and relative to household incomes, placing strain on tenant affordability.

“This affordability ceiling is now acting as a natural brake on further rent increases. And while it’s still expensive to be a tenant, the balance of power has shifted slightly. It’s not suddenly easy to rent, but it is nevertheless a friendlier market for tenants than it has been in recent years,” he said.

Furthermore, recent falls in net migration had reduced marginal rental demand growth, while the supply of available listings had risen, according to Mr Davidson.

“Supply has risen as investors are starting to return to the market, and at the same time we’re seeing the completion of many new-build properties,” he said.

“Overall, this has contributed to a softening in the rental market, with conditions gradually shifting in favour of tenants.”

If you know sellers or buyers who are wondering how changing rental conditions might affect their finance options – whether that’s saving a deposit, assessing borrowing power or comparing the cost of renting versus buying – I’d be grateful if you could refer them to me.