A study on the drivers of rent in the New Zealand housing market released today indicates that wage growth and the supply and demand for housing stock are the key drivers of rental prices. Boosting housing supply is a significantly important part of the solution to creating affordable rentals.

This is the second study completed by the Housing Technical Working Group. The Group comprises representatives from Te Tai Ōhanga The Treasury, Te Tūāpapa Kura Kāinga – Ministry of Housing and Urban Development and Te Pūtea Matua, Reserve Bank of New Zealand. They have today released the paper titled What drives Rents in New Zealand/ National and Regional Analysis.

Work was undertaken by the Group to provide a better understanding of rent drivers, improve the accuracy of rent prices and house price forecasts and identify regional hot spots. It is expected this work will inform policy development in the future.

Through the study the major contributors to rent inflation were identified as:

  • Supply and demand of dwellings – a 1 percent increase in the average number of people in each home, leads to a 1.5 percent increase in rents at the national level.
  • Wages – increases in nominal wage rates – a 1 per cent increase in nominal wages leads to a 1 per cent increase in rentals.
  • Mortgage interest rates and employment have an impact but much less so.

From the study there is also an indication that local factors play a role as well, leading to proportionately higher rents in some regions.

Future work is likely including studies on land supply restrictions in New Zealand and the implications of the tax system on New Zealand’s housing market.

You can read the report on the Treasury website. (external link)

You read a full media release about the report on the Reserve Bank website.(external link)