Home News High rents, rates and building costs keep inflation above target levels

High rents, rates and building costs keep inflation above target levels

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High rents, rates and building costs keep inflation above target levels

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New builds in Selwyn area

The high cost of housing drove the quarterly increase at the end of last year, offsetting cheaper food and fuel. (file image)
Photo: RNZ / Nate McKinnon

Though the rate of inflation is easing, high rents, rates and building costs are keeping it above target levels.

On Wednesday, Stats NZ revealed the annual rate of inflation eased in the final quarter of last year from 5.6 percent to 4.7 percent. But that’s still higher than the Reserve’s Bank’s target band of 1-to-3 percent.

The high cost of housing drove the quarterly increase, offsetting cheaper food and fuel.

On Wellington’s Lambton Quay, tenants said they had noticed rising rents.

“It’s almost like 70 percent of my pay cheque is going towards rent and then the next 30 percent is food and bills and that sort of stuff,” one renter said.

Another said her rent had increased because she had moved into a nicer house: “The rent at my old place was quite stable because it didn’t comply with the Healthy Homes standards”.

A third said her rent took half of her income, and she had nothing left to save by the time all her other bills had come out.

Housing in Mount Victoria, Wellington.

(File image)
Photo: RNZ / Dom Thomas

Homeowners spoken to by RNZ said they were also feeling the pinch from increased rates and insurance.

“We were living in the city,” one man said. “We’ve moved up to Kāpiti Coast for affordability reasons and some of that was the rates and the insurance.”

Another homeowner said her insurance had doubled in the past two years.

“Massive, ridiculous, greedy,” she said. “The rates just creep up, you kind of don’t notice it because they don’t just do it so quickly, but they’ve gone up, yeah definitely.”

Insurance Council chief executive Tim Grafton said there was no doubt insurance premiums had sky-rocketed in the past year. But he said there were good reasons behind the rises.

Severe weather events across the globe had seen international re-insurers increase their rates, while also decreasing the amount of re-insurance available, Grafton said.

“Re-insurance costs have gone up between 25 and 40 percent, and they account for about 20 cents in the dollar for the premium that people pay,” he said.

“The reason that’s gone up is because there have been a significant sharp increase in extreme weather events.”

Yellow stickered house in Ranui, Auckland.

A yellow-stickered house in Ranui, Auckland, after severe weather events in early 2023.
Photo: RNZ Marika Khabazi

Severe weather closer to home – like the Auckland Anniversary floods and Cyclone Gabriellehit local insurer’s pockets, as did continuing building cost inflation. The Earthquake Commission also upped the amount of cover it provided, Grafton said, meaning a one-off increase to its levy last year was imposed on consumers.

Property Investors Federation president Sue Harrison said rates and insurance increases meant landlords had no choice but to pass on costs to their tenants.

“Obviously increased interest rates have an impact on rent, as does mortgages rates and insurance going up,” Harrison said.

“When you’re faced with higher costs, you’ve got no option but to pay your mortgage, so you’ve got to be able to cover those costs and rents are at the end of the line.”

The last government’s move to stop interest deductions on mortgages had also added to rental costs, Harrison said, but the new government has committed to restoring that deduction.

With the latest data showed inflation was slowing, landlords – like everyone else – were hoping cost pressures continued to ease this year, she said.

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