How high is the rent?

A couple of weeks ago, the worrying issue of high rents in Christchurch came to renewed attention when Trademe reported that rents had risen 14% in Christchurch over the past year. Minister of Housing Nick Smith disputed the figures, and said that according to data from the Tenancy Bond Service and the Consumer Price Index, rents are not rising to this extent.

Is this a fair point? Which data is most useful when it comes to assessing rents? I asked Dr Lucy Telfar-Barnard, a research fellow at the Department of Public Health, at the University of Otago, Wellington, to comment. 

On Radio New Zealand Checkpoint on Wednesday 22 April, Minister of Housing Dr Nick Smith was given the opportunity to respond to Trademe’s press release stating that asking rents had increased.

Dr Smith first said that Trademe rents were the “asking price, not the actual price” as though tenants were somehow managing to convince landlords to let them rent properties for less than advertised. He stated that Tenancy Bond data tells us what the “actual rent paid is”.

In support of this statement, he added that it was “compulsory for every landlord and tenant to register their agreement with the bond service.”

Neither of these statements are correct.

First, it is not compulsory for landlords or tenants to register their tenancy agreement with the bond service. The Residential Tenancies Act 1986 only requires landlords to lodge bonds if a bond is collected. Not all landlords collect bonds. And even though it is compulsory for landlords to lodge collected bonds, not all of them do so. Research by Massey University’s School of Public Health has found that the percentage of landlords either not collecting or not lodging bonds is about 18%.

Second, even if we accept that the 82% of tenancies with a bond lodged are representative of all tenancies, Tenancy Services bond data records what the rent was on a property when the tenancy first started. Landlords may prefer to increase rent between tenancies rather than for existing tenants. If a landlord does put up the rent for an existing tenant, that rent increase only appears in the data if the landlord makes the tenant top up the bond to match, and lodges that top-up with Tenancy Services. But if a landlord increases the rent without increasing the bond (common enough), the rent recorded for a property will be inaccurate. That inaccuracy is probably why there’s a difference between Tenancy Services reported 0% increase over the year to March 2015, and the Statistics CPI data Dr Smith also reports, which shows a 2% increase over that year – again, across all rentals.

On the last point, Dr Smith made one further error, though it’s an error of interpretation rather than fact. He states that the average rent in Christchurch in March 2015 was $418 per week, in contrast to Trademe’s reported $485 per week.

The error in this case comes from comparing apples with pears. Dr Smith’s $418 is the average (recorded) rent for all (bond lodged) Christchurch tenancies. Trademe’s $485 is the average rent being asked for new tenancies. $418 may be more or less (probably a bit less than) the average of what people renting in Christchurch are currently paying in rent, but $485 is the average of what you can expect to pay if you’re looking for a new rental.

There are other finer points, e.g. prices can increase in one sector of the market but stay the same in others; new tenancies are only a shifting proportion of all tenancies so if landlords wait till they’re between tenants to increase rents it can take a while for market pressures to be reflected in overall averages, that also mean that neither the CPI nor Tenancy Services average rent figures accurately represent what anyone looking for a new rental can expect to pay.

EDIT: After we published this piece, MBIE published a piece explaining the difference in figures. Lucy comments: 

MBIE have now published their own explanation of why Trademe and Tenancy Bond rents differ, at http://www.tenancy.govt.nz/rent-bond-and-bills/market-rent/difference-between-mbie-and-trade-me-rental-figures/. They’ve been staring at the data a whole lot more and a whole lot more recently than me, so I’ll take their explanation over mine, but with one remaining question: MBIE note that “A significant volume of rental turnover in the lower price range of $200-$500pw which are not listed on Trade Me”. It would be good to know whether or not MBIE Tenancy Bond figures include rents for social housing?

2 thoughts on “How high is the rent?

  1. Some work should be done on the effects of high rents, on local economies around the country.High rents destroy families,who have less to spend in their local area,it is the wider community that pays the price of increasing rents.

  2. MBIE have now published their own explanation of why Trademe and Tenancy Bond rents differ, at http://www.tenancy.govt.nz/rent-bond-and-bills/market-rent/difference-between-mbie-and-trade-me-rental-figures/. They’ve been staring at the data a whole lot more and a whole lot more recently than me, so I’ll take their explanation over mine, but with one remaining question: MBIE note that “A significant volume of rental turnover in the lower price range of $200-$500pw which are not listed on Trade Me”. It would be good to know whether or not MBIE Tenancy Bond figures include rents for social housing?

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