Rental Rate Change Over 15 Years

[Perry]

An interesting anecdote for y'all.

My first rental (in Hawke's Bay) was at the rate of $100 a week, in 2000.

The rate for the past 2 years (for the same rental) has been $154 per week.
A tenancy change over will see the new rate advertised at $182 per week.
We all know that the right rental rate is that which a willing LL and tenant
agree on, without significant external forces coercion, so I may not achieve
that figure.

If I do achieve that figure, it will be an 82% increase over 15 years.

The RBNZ Inflation calculator for housing says that housing that cost $100.00
in quarter 1 of 2000 would cost $268.41 in quarter 1 of 2015. That's an in-
crease of $168.41 over 15 years, or 168% (if my maths is right).

The RBNZ Inflation calculator for general (the CPI) says that a 'basket of goods'
that cost $100.00 in quarter 1 of 2000 would cost $141.56 in quarter 1 of 2015.
That's an increase of $41.56 over 15 years, or 42% (if my maths is right).

So . . . ?

[Eugene]

Nice exercise

Building costs have increased faster than CPI?
House prices have increased more than CPI, due to? Lower interest rates? Population growth?
Rents have increased less than house prices because lower interest rates enable renters to afford houses?

Both house prices and rents have increased more than CPI because lower interest rates have resulted in higher house prices, but rents increases drag behind house price increases?

[Perry]

The RBNZ inflation calculator seems well behind the times, now, in 2017.

Their comparator options have quarter one as the only quarter of 2017 to compare backwards from.

I don't recall the RBNZ being that far behind the times, in the past.

[Don't believe the Hype]

My rents on an average unit in 2008 were $180/wk now same unit with only general maintenance rents for $350/wk close to double in a decade.

[cube]

Anyone any figures for wages and benefits inflation over the same period?

[Beano]

An interesting anecdote for y'all.

My first rental (in Hawke's Bay) was at the rate of $100 a week, in 2000.

The rate for the past 2 years (for the same rental) has been $154 per week.
A tenancy change over will see the new rate advertised at $182 per week.
We all know that the right rental rate is that which a willing LL and tenant
agree on, without significant external forces coercion, so I may not achieve
that figure.

If I do achieve that figure, it will be an 82% increase over 15 years.

The RBNZ Inflation calculator for housing says that housing that cost $100.00
in quarter 1 of 2000 would cost $268.41 in quarter 1 of 2015. That's an in-
crease of $168.41 over 15 years, or 168% (if my maths is right).

The RBNZ Inflation calculator for general (the CPI) says that a 'basket of goods'
that cost $100.00 in quarter 1 of 2000 would cost $141.56 in quarter 1 of 2015.
That's an increase of $41.56 over 15 years, or 42% (if my maths is right).

So . . . ?

How have the property values and rentals in Napier changed over say the last 7 years ?

[Perry]

Number Crunching

	Year	Year	Period	Percent
	2002	2017	Years	Increase
Land Value	145,000	375,000	15	159%
Capital Value	230,000	560,000	15	143%
Improvements Value	85,000	185,000	15	118%

I don't necessarily agree with the figures, but those are from the Rate demands for a Hastings rental, rather than Napier.

On the face of it, over a fifteen year period, rent up 82%; RV / CV up 143%.

For a buy-and-holder, I see those figures as largely meaningless, as it's the rental income less expenses that's of paramount importance.

Plus, if the rent figure required to obtain the tenancy had been increased by 143%, I suspect that the rental would be empty.

As other seasoned PIs have oft observed, the 'market rental rate' is driven by tenants ability to afford, not valuation numbers on a piece of paper.

[flyernzl]

My first rental, back in 1992, was let at $200p/wk - house value $125,000
Same house now just gone up to $520p/wk - desktop value $1,125,000

To maintain the same relationship, should be $2000p/wk - I wish!

[Perry]

My first rental, back in 1992, was let at $200p/wk - house value $125,000
Same house now just gone up to $520p/wk - desktop value $1,125,000

To maintain the same relationship, should be $2000p/wk - I wish!

The quirk in all this is what's value and what's numerical illusion and purchasing power, and where inflation and interest rates should be factored in.

[PC]

The compounding interest rate to go from $100 to $182 over 15 years is 4.07%.
A little less impressive than just a straight line 82% but a little more important to know about.

[Perry]

The compounding interest rate to go from $100 to $182 over 15 years is 4.07%.

Maths has never been my strong point, so I ask: is that 4.07% per year compounding?

[PC]

Just put the numbers into an online Compound Annual Growth Rate - CAGR calculator.

https://www.investopedia.com/calculator/cagr.aspx

The compounding would vary depending on frequency of interest payments.
Everyone gets all excited about houses doubling over 10 years but don't seem to realise that it is only a 7% compounding return

[Wayne]

Everyone gets all excited about houses doubling over 10 years but don't seem to realise that it is only a 7% compounding return

While that doesn't seem heaps it is more than double the rate of inflation or subsequent pay rises so houses rapidly get out of reach of the average working class.

[PC]

Yes but the rate of inflation is a "Guvment" number.
Magic & fairy dust - like solving child poverty by redefining the measurement.

[Wayne]

Yes but the rate of inflation is a "Guvment" number.
Magic & fairy dust - like solving child poverty by redefining the measurement.

I think the CPI is a bit more robust than that.
True it does change from time to time but only because the spending habits change - so that it has relevance to the real world.