Auckland renters thousands of dollars better off than homeowners

It is cheaper to rent than buy a house across New Zealand but the disparity is most pronounced in Auckland.

A Trade Me Property’s comparison of asking rents and asking prices in October shows that paying off an 80% interest-only mortgage* rather than the median weekly rent, a borrower could be paying up to $2000 a year more outside Auckland, and significantly more than that in the country’s biggest city.

“In Auckland house buyers will be stumping $12,000 more a year on their mortgages so, if people are making a cold-hearted decision based purely on mathematics, it is food for thought,” Trade Me Property head Nigel Jeffries says.

“Of course, there’s so much more to weigh up in reality, such as interest rate changes, potential capital gains and all the other personal circumstances and psychological aspects involved in any property purchase.”

He says there is strong interest from Auckland buyers looking to invest elsewhere in the country, with some making the decision to rent in the supercity but buy a home in another region to rent out. Interest from Aucklanders has been particularly strong in the Bay of Plenty.

Potential Wellington homeowners can expect to pay about 8% more than renters, while in Christchurch the gap is just 1%.

Last year the data showed Christchurch was an exception in that paying the interest on a mortgage was cheaper than renting.

Mr Jeffries attributed that to the “tight supply” of rental properties last year.

The median rent in Auckland breaking through $500 a week in October looked like a certainty, after it had risen to $499 per week in August and September. However, it eased back slightly to $495 per week.

“This is still a rise of almost 8% over the past year, adding $1820 a year to the annual cost of renting an Auckland property and we expect there will be further growth to come,” Mr Jeffries says.

“I think we might see another significant jump early next year as many houses come on the market in the New Year and landlords reevaluate the market rent of their property.”

Over the past five years the median rent in Auckland has risen by $105 per week, or $5460 a year, an increase of 27%.

Mr Jeffries says despite this very healthy growth “it paled in comparison” to the five-year trend around average asking prices in the city which rose by $305,200 or almost 63% over the same period.

The median weekly rent for Christchurch property slipped again in October, down from its $495 per week peak in March to $420 per week – a 7%  drop over the past 12 months. The last time it was at $420 a week was back in September 2013 after the Canterbury earthquakes.

Excluding Auckland, median rents around the country remained static at $360 per week, the sixth consecutive month at this level and a modest increase of 3% year-on-year.

*The premise of the calculation is the annual rental cost as compared to the ‘sunk cost’ of paying the interest only component of a 80% mortgage based on the current floating mortgage rate (Reserve Bank of New Zealand reported variable rate data.

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