Inflation is back in the headlines, but don’t let the noise fool you. The September quarter print came in at 3.0% which is technically the top of the Reserve Bank’s band but hardly a new crisis. As Kiwibank economists put it, this is “up, up, but not away”, a temporary blip rather than a lasting wave. For residential investors, the story is not the headline inflation rate but the shifting balance between financing costs, rental demand, and operating expenses.
What’s really driving the numbers
- Council rates and electricity were the big offenders, both posting eye-watering annual rises. Power costs in particular are at their sharpest increase since the 1980s.
- Rents and construction costs usually the bread and butter for housing investors are softening. Rental growth has flattened across most of the country, and Stats NZ shows construction cost inflation is at its weakest pace since 2009.
- Imported (tradable) inflation ticked up on food, but strip that out and the pulse is already easing. Non-tradables are drifting lower once you exclude one-off administered charges.
So the real villain in your portfolio right now is not inflation itself. It is the operating costs chewing away at net yield.
Signals investors can trade around
Kiwibank’s central take is that the policy path is still lower. They have signalled an OCR track that could see the cash rate at 2.25% by November with a glide toward 2% inflation by 2026. Translation: the direction of travel for mortgage rates is down. Slowly, unevenly, but down.
- Refinancing relief is coming. Wholesale curves are drifting lower, and the 1–2 year part of the fixed curve now makes sense for most rollover strategies.
- Expense lines need a fight plan. With council rates and electricity surging, cashflow management is now as important as acquisition strategy.
- Value-add math is improving. Lower construction cost pressure makes renovations and upgrades more predictable. Heating, layout fixes, and cosmetic modernisations have a better payback horizon than they did even 18 months ago.
- Rent growth is sluggish. HUD’s rental index shows flat to negative changes for new tenancies in key centres. This is not the moment to bank on 5% annual rent growth to carry your portfolio. Discipline in tenant selection and retention matters more.
Signposts worth watching
- Reserve Bank statements. If the Monetary Policy Statement in November still projects an OCR track south of 2.5% by 2026, the easing bias is intact.
- Two-year swap rates. They are the early warning system for fixed mortgage pricing. Sustained drift lower points to cheaper retail fixes ahead.
- Council rates and utility costs. If these stay hot well into next year, they will keep pressure on yields even as mortgage servicing costs fall.
- HUD’s rental data. A flip back into positive growth in Auckland rents will be the first green shoot for stronger investor cashflow.
Practical plays right now
- Refix with intent. Avoid over-committing to long fixes. A 12–24 month horizon maximises optionality in a falling-rate environment.
- Audit your OPEX. Challenge electricity plans, insurance specs, and rate assessments. Margins are made in the small print, not just the big deals.
- Lock in capex quotes. With softer construction inflation, this is a window to book in renovations that will lift rentability and reduce vacancy.
- Screen harder, not greedier. In a flat rental market, better tenants beat higher advertised rents. Lower arrears and fewer turnovers compound into stronger long-term returns.
- Buy on vendor pressure, not asset distress. With costs stabilising, the most attractive deals will come from sellers under time pressure rather than properties with hidden maintenance bombs.
To put it bluntly
This is not 2022. We are not heading into a wage-price spiral or an inflationary doom loop. It is a mid-cycle reset where financing costs ease, rents stabilise, and the battlefield is your expense line. Investors who focus on cost control, short mortgage fixes, and value-add opportunities will come out stronger.
Inflation may be “up” for now, but it is not “away.” The real contest for investors is to keep yields healthy while the economy drifts back toward normal. And that, finally, is a fight you can win.
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