Rents, rates, insurance and power: the costs households can't control

Monday, 27 May 2024

Rents, rates and insurance are the costs households can't control and are keeping mortgage rates high.

And some cities are getting it worse than others on some of those fronts, with Wellington residents paying the most for house and contents cover and Aucklanders, with their flasher cars and higher crime rates, paying the most for car cover.

The Reserve Bank said a fall in inflation in the price of imports to the country had been welcome, and rising unemployment and slowing wage growth had also helped bring down inflation.

But price rises remained in parts of the economy where households had little control – council rates, rents, insurance premiums and power.

As a result, the Reserve Bank did not expect to see inflation drop below 3% later this year, which is disappointing for people with large home loans needing to refix part of their mortgages in the next few months hoping the central bank will soon begin to reduce the official cash rate.

Insurance burden for home and car-owners increases

“Insurance costs have jumped up massively in the past year to the point where Kiwis are feeling it and acting on it,” said Justin Lim, co-founder of the Quashed insurance comparison service.

Quashed provides quotes from insurers. The number of people seeking quotes has tripled in a year and, based on the quotes generated, insurers have been asking for around 30% more in total from households insuring a home, its contents and two cars.

Canterbury had the biggest percentage increases in house and car insurance, quotes generated by Quashed users indicated, while Wellington had the highest increase in contents cover premiums.

But as people in Wellington paid most for their house and contents cover in simple dollar terms, the percentage rises hit them hardest.

The average house insurance quote for Wellington homeowners was just over $4000 in the first quarter of this year, compared to just over $2000 in Auckland, and just under $2900 in Canterbury.

But while the average premium quoted in Auckland and Wellington was 18% higher than a year ago, that represented a $599 increase in Wellington, and a $299 increase in Auckland.

Some of the regional variations are not explained by simple increases imposed by insurers. Wellington households, for example, increased the sum they insured their contents for by 11% in a year, taking the average contents cover sought to just over $87,400 compared to an average of $61,342 in Canterbury and $62,317 in Auckland.

However, across the country, the general premium wash-up, indicated by quotes generated through Quashed, shows stark cost increases for the owners of houses, their contents and cars.

Two years ago someone paying $600 for their contents cover could now be paying more than $1300, and someone paying $1900 for their house cover could be now paying around $2800.

Banks have reported a worrying trend of some people even cancelling their house insurance.

What our councils are doing to us

“Council rates have increased steeply over the past year and are likely to rise significantly this year,” the Reserve Bank said.

Councils were playing catch-up after having spent too long spending too little on infrastructure. Like households, high inflation has swelled the cost for councils to do anything.

In time, rates rises will slow, but the Reserve Bank warned councils may continue to consume more and more of people’s incomes, if their expenditure requirements continued.

In March, a survey of 48 councils’ planned rates rises in draft long-term plans by Local Government NZ, the lobbying body for councils, said homeowners were facing average rates rises of 15%.

These were cost increases that fell unevenly across households, depending on the valuations of people’s homes, and where they had their homes.

Wellington residents, already facing large cuts in the public sector workforce, are facing a rates increase for the 2025 financial year of 16.4%, but that does not include the Moa Point Sludge Minimisation Facility levy which will add a further 1.6%.

Economist Brad Olsen said between 2002 and 2022, the average rates rise was 5.7% a year, far higher than inflation, but in 2023, the average had been 9.8%.

Rent pain for those who don’t own homes

Trade Me Property’s latest Rental Price Index showed the national median weekly rent climbed to a record $650 in March, up 8.3% from $600 at the same time last year.

Trade Me Property sales director Gavin Lloyd said that while it was not the biggest annual increase seen, “it is unusual to see it this high in March”.

“We would normally expect to see the market cool slightly as we start heading into the colder months,” Lloyd said.

The Reserve Bank said a surge in immigration had added 2.2% to the working-age population in the year to March 2024.

That meant more competition for existing rentals at a time when building new ones had slowed.

“Migration is adding to demand in the economy, and increasing rents. Annual rent inflation is currently 4.7%, well above its 20-year average of 2.6%,” the Reserve Bank said.

Cost of heating homes on the increase

Power companies have also been hiking their prices at a rate far higher than general inflation as a result of rising costs, and investment in greener power generation.

Contact (a 9% increase for electricity) and Genesis (a 12.7% increase for gas) were first to move. Meridian Energy followed (a 6% increase for electricity), and Mercury is lifting its prices by between 5% and 8% for most of its customers.