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Contents Introduction ............................................................... 2 Northland ................................................................... 4 Auckland .................................................................... 6 Waikato ...................................................................... 8 Bay of Plenty ............................................................ 10 Gisborne .................................................................. 12 Hawkes Bay .............................................................. 14 Manawatu-Wanganui .............................................. 16 Taranaki ................................................................... 18 Wellington ............................................................... 20 Nelson & Tasman ..................................................... 22 Marlborough ............................................................ 24 West Coast ............................................................... 26 Canterbury ............................................................... 28 Dunedin City ............................................................ 30 Queenstown Lakes .................................................. 32 Southland ................................................................. 34 REGIONAL PROPERTY INSIGHTS – Issue December 2020 Page 1 Regional Property Insights Introduction house builders over the coming year – though it is impossible to put an exact figure on the activity gain. Welcome to the second issue of Regional Property Insights, prepared by Tony Alexander with the support In particular, across regions there can be big variations of First Mortgage Trust. In last month’s issue we looked in the relationship between section sales and at trends in two of the headline numbers for residential subsequent building consents/construction. The next real estate activity which traditionally attract the most graph shows that over the past five years the number attention – prices and listings. of consents issued for new dwellings to be constructed in Auckland was about 8.8. But in Southland it was just This month we cover an area which traditionally 1.3. The difference is that in Auckland and the larger attracts almost no media comment month to month centres generally, a higher proportion of dwellings but about which the issue of housing affordability being built are not standalone. They are apartments, swirls - price and availability of land to build on. We townhouses, and retirement homes. Auckland is have monthly data from REINZ showing sales of densifying, so too is Wellington and Bay of Plenty sections for each region along with prices achieved and (Tauranga). the number of days taken to sell a section on average. We look at trends in each region’s section prices as well as strength of sales. Then, as promised last month, for each region we take a quick look at which other region or regions its price movements tend to be most closely related. One reason for looking at changes in the number of sections sold around the country is that this can give an early indication of changes in consents and then house building. Our first graph shows annual average changes in section sales as the green line, and consents as the blue line. There is a tendency for changes in the rate of growth of section sales to give an early indication of changes in consents which we know are highly One way to look at things is to compare average correlated with actual house construction. section prices in a region with average household incomes. We do this in the graph below, though because of data limitations have had to group Queenstown and Dunedin, West Coast plus the three top of the South Island regions, and Gisborne with Hawkes Bay. The relationship is by no means exact. But we can see that recently, section sales have picked up. This suggests it is valid to expect increasing activity for REGIONAL PROPERTY INSIGHTS – Issue December 2020 Page 2 Regional Property Insights Further extensive discussion of house price movements and factors affecting prices can be found in the weekly Tony’s View publication available from www.tonyalexander.nz. The average household income delivers greatest affordability of a section of residential land in Southland with a multiple of 1.4. Next cheapest is Manawatu-Wanganui at 1.9. The most expensive is Auckland at 4.6, followed by Northland at 3.5. Do we see the same relationships between regions when it comes to a comparison of dwelling prices (which include sections) with incomes? Yes – except for two regions. In Wellington and in Manawatu-Wanganui final dwelling sale prices are unusually high versus incomes when compared with section prices versus incomes. We show this by working out the ratio between each region’s average section price and income in proportion to the NZ average, and the same for dwelling prices which appear as the blue vertical bars. It is not clear why in the middle of New Zealand this unusual difference should exist whereby section prices are lowish versus incomes but final dwelling sale prices high. Otago is the same, but because of the blending we have had to undertake of high-priced Queenstown with the rest of Otago these results can be distorted. REGIONAL PROPERTY INSIGHTS – Issue December 2020 Page 3 Regional Property Insights Northland While one might be tempted to say that there seems to be a cycle of price gain surges about every two years, On average over the past year, sections in the such a cycle was not present before 2014 and is clearly Northland region have sold for a price of $256,000. This not in operation now either. One important thing to is 13% below the average for all New Zealand of happen regarding section prices in Northland recently $292,000, but 47% below the price for the is that as a ratio to average household income for the neighbouring region of Auckland at $475,000. region there has been a strong rise since 2015. The Up until the global financial crisis, average section ratio has gone from 2.4 to 3.6 last year. prices in Northland tracked closely with the NZ average. But since then, as the following graph shows, a gap has opened up to the advantage of those purchasing land to build on in the region. One factor behind this surge, which is far greater than for the country overall, may be the growing tendency for aging Aucklanders to relocate to Northland, noted in last month’s Regional Property Insights report. Their That gap has been shrinking since about 2016 when movements are likely to be adding to upward pressure Auckland’s housing market paused after an extensive on section and property prices overall. run up, and the regions generally embarked upon a Given the strong growth in Auckland’s retirement age period of catch-up activity and price gains which population in coming years, this particular source of persisted through to the very end of 2019. But upward pressure on house and section prices in shrinkage of the gap has not been smooth, and the Northland is likely to persist for many years. If one next graph showing annual changes in section prices accepts that, then perhaps the recent pausing of the reveals some distinctly strong periods of occasional average pace of section price inflation in the Northland rapid price gain for land in the Northland region. region shown in this section’s second graph, might be of interest to those contemplating a move in the next few years. With regard to the fluctuating strength of section sales in Northland, we can see from the following graph that from 2003 into 2007 there was a very strong level of sales activity in the Northland region. The GFC then caused a substantial decline in activity. Recovery started in 2011, peaked in 2017 and then fell away until a new rise in sales over recent months. REGIONAL PROPERTY INSIGHTS – Issue December 2020 Page 4 Regional Property Insights The recent lift in section sales is important for In terms of the best contemporaneous correlation, businesses operating in the residential construction Waikato comes out tops. The two markets move very, sector. This is because section sales (purchases) tend very closely together. This suggests that the bit in- strongly to immediately proceed house construction – between – Auckland – is the key driver of both these especially in regions where infill building is a relatively markets as opposed to each operating independently small activity. The following graph strongly shows this to a substantial degree. If that were the case, we would established relationship and suggests that those people not expect such extremely close correlation as shown looking to get a dwelling built in Northland in the near here. future, best act quickly to secure their preferred builder. Changes in Northland’s average house prices seem to be least correlated with changes at the other end of House Price Movements the country – Southland. With which region or regions do house prices in Northland tend to move? The strongest correlation of importance for those looking for insight into where Northland’s prices may be headed is Auckland. There is a very strong tendency for house prices in Northland to change after changes have happened in Auckland. The relationship is not exact, and often the two markets move together. REGIONAL PROPERTY INSIGHTS – Issue December 2020 Page 5 Regional Property Insights Auckland apartments in the CBD. In another issue of Regional Property Insights we will look at these dwelling type There are some special characteristics regarding