Student rents on the rise in Dunedin image 1

Student rents on the rise in Dunedin

Monday 21 Jun 2021

The 2022 student letting season is underway with more gusto and demand than previously experienced. Students seem desperate not to get caught short by missing out on a flat in their favoured location.

While the letting season has been starting earlier each year for the past few years, it seems to be slightly earlier again in 2021. The number of students proactively enquiring for flats in March has been reportedly higher too, and the burden students endure to act quickly with high competition meant they have been willing to pay more to secure a flat. 

This often sets the playing field for rent levels for the remainder of the year, which by early reports looks to be one of the largest increases in recent times. Most central campus flats have increased by $10 per room per week, with anecdotal reports of some increasing by up to $20-25. There seem to be several factors at play here.

Firstly, the student enrolment numbers at both the University of Otago and the Otago Polytechnic this year are substantially higher than the intake at the beginning of last year. While both have lost international enrolments for obvious Covid reasons, the domestic enrolments at both institutions have increased substantially off the back of perceived labour and economic uncertainties across the country.

The Otago Polytechnic lost 193 international equivalent full-time students (EFTS) but gained 760 domestic EFTS resulting in a net gain of 567 enrolments; a 13.6% increase on 2020 enrolments1. The University of Otago similarly reduced international EFTS by 389 students, but gained 1,341 domestic EFTS, for a net gain of 952 enrolments2. That is a combined total increase of 1,519 equivalent full-time students between both institutions in one year.

Now, not all of these enrolments will be directly attributed to Dunedin and not all of these students are heading to central campus for their accommodation, but it will be fuelling the huge increase in students seeking out flats. And as we have said before, demand vs supply is one of the fundamentals of price fluctuations.

Secondly, the student allowance and student loan for living costs increasing by $25 from April 20223 is something some students may have considered when agreeing to rent increases. At the end of the day, no one can afford to pay rent if they don’t have the actual money for it, but if the government has handed out more money, and the flat they want is priced higher, then they use it to secure what they want.

Rightly or wrongly, the money is available. Even the Otago University Students’ Association president Michaela Waite-Harvey said “the extra support was unlikely to do much more than mitigate expected rent rises”4.

Thirdly, landlords have been sent a warning shot by the government. In March rent controls were being talked about in the media and it came to light that the Minister of Finance supported them in 2013 when he was campaigning for Labour5. The Minister later stated that the government would not introduce rent controls at this time and didn’t think they would be needed. However, he refused to completely rule them out, stating they are "not on our agenda at the moment, but we will keep an eye on what happens"6.

This suggests that if rents are to rise too much due to the RTA changes and subsequent tax announcements, then rent controls might be considered down the track. No landlord wants to get trapped with comparative low rents while tax obligations incrementally increase year on year against interest deductibility, and so rents are set higher immediately in case rent controls are suddenly introduced.

And so, the very notion that rent controls might be brought in if rents increase, has in fact caused rents to increase. Of course, rents can’t actually increase unless the demand is present and the funds are available. But it appears both are.

 

Matt Morton is a specialist residential investment broker for Colliers in Dunedin.

 

Footnote sources:

1https://www.odt.co.nz/news/dunedin/bumper-enrolments-boost-polytechnic-finances

2https://www.odt.co.nz/news/dunedin/campus/vice-chancellor-leaves-high

3https://www.rnz.co.nz/news/political/442985/budget-2021-what-you-need-to-know

4https://www.odt.co.nz/news/dunedin/campus/fear-extra-25-will-do-little-improve-lot

5https://www.stuff.co.nz/business/opinion-analysis/300266649/heres-why-rental-controls-arent-the-answer

6https://www.nzherald.co.nz/nz/government-has-no-plans-to-implement-rent-control-policy-robertson-says/WZ3NRLYL3KDZBQEOQHQSSCRWFQ/

Article by

Matt

Matt Morton

Investment sales broker

Dunedin Office

Category tags