The unrecoverable costs of buying a million dollar house now equate to around $1730 in rent a week

[woodpecker]

@thestarside Rent will never stop going up, because rates and insurance plus the cost of doing maintenance will never stop going up. Plus don't count on the fact that house prices will somehow hit a ceiling because average joes can't buy anymore. Corporate investors have bought up a lot of rental stock in the United States, and who's to say that won't happen here as well?

We think house prices are insane (as well as rent) but there is infinite money in the world and they could reach unfathomable heights still to come.

I never thought my neighbor's house would sell for $4 million when I moved in 10 years ago.

 

[thestarside]

@woodpecker Rent is not set by rates and insurance or the cost of maintenance. Rent is set by the market rate. Contrary to popular belief, the market rate has very little to do with landlord costs and is almost entirely set by demand for dwellings and wage inflation, as shown in this reserve bank report:

https://www.rbnz.govt.nz/hub/news/2023/08/what-drives-rents-in-new-zealand#findings

 

[fola]

@thestarside Rents are indirectly set by rising outgoings. When it isn’t profitable for a residential rental to operate it generally gets converted to some other purpose such as redevelopment or short-stay accommodation. The resulting reduction in supply places upwards pressure on the rents for the remaining rentals.

 

[fadi215]

@fola What about when the landlord owns the rental freehold? Do you really think they're going to charge tenants less because their outgoings are minimal?

 

[fola]

@fadi215 I suspect that you didn’t read what I wrote.

Rising outgoings indirectly put upward pressure on rents because those rising outgoings have the effect of reducing the supply of rentals remaining in the market. That reduced supply - with no matching change in demand - is what creates the upward pressure.

 

[thestarside]

@fola Or it gets sold to a first home buyer, reducing the demand for rental property, which then lowers market rent.

Again, look at the comprehensive reserve bank report that is backed up with a lot of data.

 

[fola]

@thestarside

Or it gets sold to a first home buyer, reducing the demand for rental property, which then lowers market rent.

The effect of FHBs in the housing market has little to no impact on rents. When an FHB buys a house the supply of rentals is exactly matched by the decrease in demand. This produces no net effect on the relative levels of supply and demand.

Again, look at the comprehensive reserve bank report that is backed up with a lot of data.

The report that you linked restates my observation that rents are set by the relative supply of rentals to demand.

Rents are indirectly set by rising outgoings because they cause a decrease in the relative supply of residential rentals. The conclusion follows.

 

[thestarside]

@fola Do you have evidence that rising outgoings decrease the relative supply of residential rentals?

You've stated that a owner may either sell, redevelop or put up for short term rental. However, that does not necessarily mean a decrease in relative supply, as often the land will be repurposed via subdivision or sold to developers with higher density developments, increasing overall supplies.

 

[woodpecker]

@thestarside I should clarify my intent. Landlords like me will always raise rent because our costs will always go up, and we are motivated to keep our profit margin. It seems that most markets will absorb rent increases in pace with inflation at the very least.

 

[manne]

@thestarside Prices will slowly fall to meet the cost of borrowing. Might take 5 years.