January tradition continued... Rent increases again

Maybe journalists have a recurring annual diary note to write about rent increases in January. Both last January, and the January before that, there have been complaints in the media about rising rents in Auckland. This January is no exception. Here's the New Zealand Herald today:

Auckland rents are set to increase this month with landlords blaming housing shortages and an unprecedented interest in their properties.

The Auckland Property Investors Association warns that rent hikes could be more dramatic than in previous years as landlords look to pass on the cost of rising interest rates to their tenants.

The association acknowledged landlords could be the target of scorn if they increase rents...

Auckland University Students' Association president Will Matthers said renting had become unaffordable for students in the city.

"In 2014, we found the average rent for a student was $218 which is already a higher amount than what full-time students are entitled to receive. And that figure has certainly increased," Matthers said.

He said students were also faced with increased competition in the rental market with fewer houses available.

As I said last year (and the year before), this is simply a story of increasing costs for landlords (decreasing supply) and increasing demand for housing (from immigrants, students, etc.). The predictable outcome is an increase in the rental price. The diagram below outlines this change, with the supply curve shifting up and to the left from S0 to S1, and the demand increasing from D0 to D1. The market moves from the equilibrium E0 to the new equilibrium E1, where the equilibrium rent is higher (R1 rather than R0). 

The media need some new stories. Maybe something about Donald Trump?