Are we about to hit a rental market tipping point? We analyse the signs

14 Jun 2023 The Lodge Real Estate Team

Market Updates

At Lodge City Rentals, we were pleased to see every statistic we track on the ‘up’ last month, with our team enjoying the process of matching up so many tenants with their new homes.

On that note about our team; a little later than usual, at the end of May the Lodge community gathered for our latest Quarterly Awards, celebrating our team’s achievements from January to March. A big congratulations goes to our top three property managers for the quarter:

  1. Zack Cathcart
  2. Jordan Slight
  3. Lisa Brown

Whether you work with Zack, Jordan or Lisa, or any other of our talented property management team, you can feel secure in knowing that your property is in capable hands. Speaking of, we’re excited to welcome Jo McCurdy back into the Lodge City Rentals fold this month as a relief property manager. Many of our landlords will remember Jo – she brings over 21 years’ experience in property management to the table, and will be invaluable in ensuring continuity of service.

Thinking back to our stats, one that stood out this month (and is in fact consistently around this level) is that 35% of new tenants moved into Hamilton from out-of-town. According to the Hamilton City Council’s latest Annual Economic Report, this shouldn’t be surprising given Hamilton’s population has grown at a faster pace than New Zealand for more than 20 years, and since 2013 our city has outpaced every other major city except Tauranga.

Numbers like these, and other headlines I’ve seen lately around mortgage rates hitting their peak, more buyers entering the property market, and net migration flows, make me think we’re currently at a tipping point, both within the Hamilton property market and the wider economy. For the rest of this blog, I’ll cover why I think this, and why you should take note.

Finance: Borrowers fixing for the short-term, interest rates and LVRs

Any (savvy) homeowner will have been paying attention to the clear consensus that mortgage rates have reached their peak, following the Reserve Bank’s most recent announcement signalling the end of their current cycle of OCR hikes. ANZ’s economists agree, noting in their May edition that they’ve upgraded their house price forecast and believe it’s likely the market has hit its floor, and will be looking to rebound later in the year.

With loan-to-value ratios also slightly eased as of 1 June, while households may remain under some pressure as mortgage rates will likely remain stable rather than immediately start dropping, it seems the economic outlook is looking more positive than it did six months ago. Borrowers seem to think the same, with the proportion of lending going out on fixed terms of up to two years hitting 75% over March and April.

Home buyers re-emerging, pressure starting to build

In Lodge Real Estate managing director Jeremy O’Rourke’s latest market update, he observes that with the number of available listings dropping, buyers are starting to show increased urgency in securing a property; fear-of-missing-out or FOMO is re-emerging.

First home buyers in particular are showing confidence, wanting to act before the market gets competitive once again. This lines up with the overall buyer market share, with first home buyers the most solid presence, accounting for 24-25% nationally. According to CoreLogic NZ, of all the main centres, Hamilton’s first home buyers’ market share has been the strongest at 33% for Q1 2023.

Before people become first home buyers, they are generally tenants first, particularly when they first move to a city or out of the parental home. And with Hamilton’s youthful population (we are the youngest NZ city with a median age of 33 years), I see it as another reason for the rental pressure we consistently see continuing unabated.

Net migration flows, countered by slowing construction

Net migration continues to be a wild card, but with Stats NZ’s latest data out this week we’re starting to get a better picture, with the annual net migration gain hitting 72,300 (past the peak of last decade’s boom). However, experts believe it may start to fall back as pent up demand following Covid-19 eases. With migrants typically going into rental accommodation at least initially, there’s another pressure to add to the list that could potentially tip off stronger rental growth.

With all this talk of the population rising, what doesn’t help is the slowing construction activity, with the 2022 number of new dwelling consents in Hamilton City down 17% on 2021. All I can see this equalling is a rapidly widening housing deficit.

Bucking the residential consent trends, the City Council notes that Hamilton experienced significant industrial growth in 2022, with a record 128,000m2 of industrial development consented, despite business confidence being at a record low last year. And this isn’t all down to the Ruakura Inland Port; 43% of new commercial consents were for central city developments. But in my eyes, more industry means more workers needing homes = rental pressure.

Trend: Increase in shorter term leases sought by companies

It’s no secret that there are challenges out there for mortgaged investors, from higher interest rates to the removal of interest deductibility. And as Jeremy noted in regards to the lack of properties for sale, both owner-occupiers and investors are sitting in wait to see where the market goes in the second half of 2023.

As they stand by, within our business we’re finding more current and ‘accidental’ landlords approaching us with shorter term lease opportunities. These suit companies looking to secure properties to house their employees, as they often only want to sign up for six months. Often tenanted partially or fully furnished, shorter term leases are handy for those looking to move overseas themselves for a fixed period. They are also considerably better than leaving a property empty, and go some way to easing rental demand. I’d be happy to chat if you would like to join this group; we like to assess these on a case-by-case basis.

So, with buyer urgency, migration, slowing construction and stable interest rates all putting pressure on the Hamilton rental market, I think we could definitely be close to hitting a tipping point where we see the property market (including rental growth) accelerate. With the city’s GDP surpassing $13 billion for the first time last year, the sky is the limit, and it’s about identifying and seizing the moment.

Get the latest listings, market stats, and insights, straight from Jeremy O'Rourke.