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
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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
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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.
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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.
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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.
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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 the trends in more detail. interaction between sections and construction in Auckland which set the city apart from all other With regard to section prices, the long-term trend in locations in New Zealand. This can best be seen in the Auckland is understandably upward, but there was a following graph reproduced from the introductory noticeable surge in average prices from 2016-17, then section. It shows that over the past five years, for every retracement back toward a level more consistent with section sold in Auckland almost 9 dwellings were built. the trend over 2018-19. Why did this occur? In contrast, in Southland the ratio is about 1.3.
One reason is likely to be the implementation of This situation arises because of the intensification of Auckland’s Unitary Plan from late-2016 opening up a land use in Auckland made necessary by the size and large portion of Auckland’s urban area for rapid growth of the population in a geographical intensification. This would have prompted somewhat location limited by ocean on two sides. of a surge in buyer demand for developable sections of land. Such surges in any asset market tend not to last We can in fact see the way in which intensification has and perhaps the discovery by many buyers that they grown over recent years by tracking the above ratio for would not be able to secure either bank finance or a Auckland. builder to erect the row of townhouses they were planning helped prompt the correction to this land scramble.
Anecdotal feedback suggests that in response to record low interest rates for mortgages, and record lows also for term deposit rates, people have engaged in a wave of land buying around the country. To the extent this again places short-term upward pressure on section prices, we might once more down the track see a correction as the new buyers discover what the earlier buyers found out. Banks are less willing or able to
finance property development than was the case We can see a burst of intensification from 1999 to the previously. In an environment of new uncertainty Global Financial Crisis which can be attributed to a regarding the local and global economies affected by surge in construction of inner-city apartments. The the Covid-19 pandemic, it is extremely unlikely that more recent surge started in 2014 and is more driven banks will be stepping forward very soon to make by a surge in townhouses and retirement units than
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Regional Property Insights credit more available to what is likely to be a new cohort of inexperienced property developers.
This does however open up the market for property development financing by non-bank lenders and we can expect them to take an increasing share of the total lending pie over coming years.
The recent strong lift in section sales bespeaks of a firm lift also in consents and therefore construction.
House Price Movements Finally, with which region are average house price changes in Auckland most closely correlated? This is a very difficult exercise to undertake for Auckland because it has had a long-term increase in house prices The number of sections being sold in Auckland has exceeding every other region except Queenstown- been oscillating upward since the end of the GFC in Lakes. This means Auckland’s annual price change 2009 and in the year to September sales of 1,668 curve tends to sit above other curves. And we know sections were the highest since late-2007. that Auckland can sometimes lead the rest of the country and then regions can undertake substantial price gains over short periods of time.
Smoothing everything out, we find that the best visual correlation is with Wellington, though the extreme lag of the capital to Auckland from 2012 to 2016 makes for a less pretty picture than one might hope for.
Despite the high and rising ratio of consents issued to section sales in Auckland, there is still a correlation between these two measures of housing market activity – shown here.
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Regional Property Insights
Waikato average in any consistent pattern. In fact, most recently gains elsewhere have been much stronger The average price of a section sold in the Waikato over than in Waikato. the past year was $315,000. This compares with $475,000 in Auckland, $308,000 in the Bay of Plenty, and an average for all the country of $293,000. Over the past year Waikato section prices have risen by just 4% whereas the rise for all the country has been 11% with Auckland flat.
Since 1992 section prices in Waikato have risen by 689% compared with 581% for all New Zealand.
Auckland 647 Bay of Plenty 729 Canterbury 356 Dunedin 964 One particular dynamic of interest for the region may Gisborne 417 Hawkes Bay 547 be the impact of expressway development in recent Manawatu-Wanganui 521 years opening up more areas of country as viable Marlborough 646 residential construction locations for commuters. Such Nelson 633 infrastructure developments can produce volatile price New Zealand 581 movements with periods of land scrambling, over- NZ excl. Auckland 562 supply, then sometimes fundamental shortages. Local Northland 695 Queenstown-Lakes 735 authorities can face an extra challenge handling the Southland 550 pipeline of developable land as compared with other Taranaki 779 parts of the country not experiencing the same Tasman 894 infrastructure impact. Waikato 689 Wellington 438 West Coast 753
Most of this gap in growth above the NZ average has come about since 2017.
But in the following slightly messy graph, we cannot see any particular surge in section sales in Waikato recently which could reflect a bout of expressway- related development. The pace of growth has largely been tracking the rest of the ex-Auckland country.
But this does not reflect any strong tendency for Waikato price gains to outpace those elsewhere on
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Regional Property Insights
Waikato tends to follow Auckland though sometimes moves at the same time.
Are section sales leading to stronger construction? Yes.
In fact, there has been a recent surge in intensification in Waikato with the number of consents issued per But the closest correlation is with Bay of Plenty (slightly section sold rising to around 5, and gaining much more in front) and Northland. than the rest of the ex-Auckland country since 2018.
Just to illustrate how closely Waikato and Bay of Plenty Note that there is a broad tendency for changes in housing markets tend to move with each other we Waikato section price inflation to follow changes in produce the following graph. It shows the ratio of Auckland. Waikato’s House Price Index to that for Bay of Plenty. There is no trend up or down.
House Price Movements With which regions do average house price movements in Waikato tend to be the best correlated?
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Regional Property Insights
Bay of Plenty Over the year to October the average price of a section sold in the Bay of Plenty was $308,000. This was below Auckland at $474,000 but above the average for New Zealand excluding Auckland of $258,000.
A key factor driving strong section price growth in the region has been a surge in population growth since 2014 which could easily have caught local authorities by surprise and left subdivision development lagging behind growth in demand.
Since 2014, while average NZ-wide section prices excluding Auckland have risen by 54%, in the Bay of Plenty they have gone up by 103%. Auckland prices rose just 24%, Canterbury 12%, and Waikato 69%.
Will demand keep growing as it has been? Given the aging of the country’s population and Auckland’s in particular, the tendency for older Aucklanders to shift to the likes of Tauranga, and perhaps some impact of the Covid-19 shock, it seems reasonable to expect This surge of section prices in the Bay of Plenty started above average population growth to continue in the early in 2015, eased off over 2018-19, but recently has near future. re-established itself amidst a generalised scramble for land able to be built on around New Zealand.
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Regional Property Insights
Perhaps it is a lack of supply which has seen no growth In fact, the Bay of Plenty region over the past five years occur in the number of sections sold in the Bay of has seen the second highest rate of intensification of Plenty region over the past year while sales have risen all regions behind only Auckland. by 18% nationwide. There certainly seems to be a fairly large structural disconnect between section sales levels from 1994 to 2007 and what we have seen since the onset of the 2008-09 Global Financial Crisis.
House Price Movements To finish with, looking at the data on average house prices we can see that movements in the Bay of Plenty
region are most closely correlated with Northland and However, just because fewer sections are being Waikato. transacted does not mean fewer dwellings are being erected to house the rapidly rising number of people. This next graph shows very strong growth and high numbers of dwelling consents being issued in the Bay of Plenty since 2015, giving us insight into what has been happening there most recently. Intensification has been occurring to a high degree.
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Regional Property Insights
Gisborne observations. But at least we can still see the general trend over time. The average price of a section sold in Gisborne over the past year was $217,000. Despite what one might think with Gisborne being the fourth smallest region in the country with the third slowest pace of population growth since 1996, this was not the lowest average section price. Five regions are cheaper, as shown here.
As we are seeing with most other parts of New Zealand, the most recent data on section sales have been showing an increased level of activity. For Gisborne the recent upturn follows a period of decline in section sales from late in 2018. But at 44 the number of sales is fairly low and this helps illustrate why we However, since 2014 average section prices have risen need to be careful about making any bold claims by 107% compared with 54% price growth nationwide. regarding changes in section prices. Does this recent price surge reflect a sudden surge in population growth as discussed above for the Bay of Plenty region? No. This next graph shows that population growth in the region continues to track below the NZ average.
We do know however that as for other parts of the country, there is a relationship between section sales and subsequent construction activity. That relationship is not as close as for most other regions, but it is there and this suggests some good activity levels for builders Instead, because Gisborne is such a small region with in the near future, if the recent rise in section sales is just 1% of the country’s population, sometimes for sustained. extended periods there are either no section sales, or not enough sales to allow REINZ to calculate a reliable average price measure. Thus, in the next graph showing average annual section prices for all-NZ in blue and Gisborne in green, there are periods of no
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Regional Property Insights
average house prices are shown as the green line, and Hawkes Bay as the blue line.
Is intensification underway in Gisborne as it is in some other parts of the country? To answer this we compare the number of consents issued for all the past five years with the number of section sales, and get the But there is also a red line and that shows annual green bars shown in the graph below. Plus, we can do changes in average house prices in Dunedin. Why the same exercise for the previous five years ending in exactly there should be such a close relationship 2015 – shown as the blue bars. If the green bar extends between Gisborne and Dunedin City is unclear. The out further than the blue bar – as it does for Auckland populations are quite different, though farming of – then we can say intensification is underway. sheep and beef are activities of importance to both regions. In the year to June 2019 Gisborne held 5% of the country’s sheep and 6.5% of the beef cattle, and Otago 18% and 8% respectively.
Looking at the graph we can say that intensification is not occurring using this bulky type of measure in Gisborne. It is also not occurring in Canterbury, Marlborough, Southland, or on the West Coast.
House Price Movements Turning now to house prices, with which parts of the country can we say movements in Gisborne average house prices are most correlated?
It should come as no great surprise that the closest relationship is with the closest region, which is Hawkes Bay. In the following graph annual changes in Gisborne
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Regional Property Insights
Hawkes Bay Hawkes Bay is a region in which house construction is strong and getting stronger. So, we would expect in the following analysis of section sales and prices to see high activity and price appreciation.
On average over the past year sections have sold in the Hawkes Bay region for $260,000. This was a 9% gain from a year earlier and compares with a nationwide gain of 11% and average sale price of $293,000. So, purchasing land to build a dwelling is slightly cheaper than average in the region. The number of sections sold in the Hawkes Bay region over the past year has fallen about 20% from the year Since 2014 average section prices in Hawkes Bay have before to 150. risen by 61% which is slightly above the NZ rise of 54%. But this would be less than average were we to exclude the country’s two biggest cities of Auckland and Christchurch for which special developments have suppressed land price rises in recent years.
But despite minimal growth in sales in recent years, dwelling construction has risen very strongly, as shown here by the blue line measuring annual dwelling consent numbers.
There is in fact no tendency for Hawkes Bay section prices to rise compared with the NZ average, as shown in the following two graphs.
This represents a fairly strong increase in intensification over a short period of time and one factor helping to explain this could be construction of retirement complexes.
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Regional Property Insights
The average size of a newly consented dwelling in As with Gisborne this may reflect the dominance of Hawkes Bay has fallen to 160 square metres from 210 primary sector activities such as sheep and beef four years ago. farming.
An aging NZ population and the long-established For your guide, and as a primer for some deeper propensity for older people to retire to locations like analysis which will be undertaken in future issues of Hastings and Havelock North, suggests good population Regional Property Insights, the most recent REINZ & growth and activity for home builders over a sustained Tony Alexander Real Estate Survey shows Hawkes Bay period of time. However, the region has a long-running heading into Christmas is a strong seller’s market. A net record of below average population growth and this is 79% of real estate agents in this monthly survey view likely to continue – though we continue to await insight sellers as having the strongest bargaining position. This into this from the subnational population projections is above 74% for the country overall and we can see overdue for release by Statistics NZ. that the region has been a stronger than average seller’s market since August – and perhaps since June if we treat July as an aberration.
House Price Movements
With which regions are price changes in average Hawkes Bay houses most correlated? Visually, the best It is highly likely that the inability of buyers to correlation is with Dunedin. comfortably find what they are looking for is ultimately a strong driver of the high rate of growth in house construction in the Hawkes Bay region.
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Regional Property Insights
Manawatu-Wanganui Over the past year there have been 280 sections sold in the Manawatu-Wanganui region. This was a 10% rise from a year earlier, but below sales of 330 three years back when a surge in sales was near its peak. That most recent surge was however of quite small magnitude in comparison with the high level of sales above 500 per annum for much of the period from 2004 to 2008.
Mainly, the region was due for a period of price catch- up having lagged behind the pace of house price inflation for the country as a whole before 2004.
Was one component of the overall surge in house prices back then a surge in section prices? Not really. The following graph shows the average annual section price in the Manawatu-Wanganui region as a proportion of the average for all New Zealand. There is no obvious relative surge in the region’s prices from That earlier surge in section sales coincided with a 2004-08. But there was before then from 2001-2003. fairly strong rate of increase in house prices on average in the region.
This is interesting as it may suggest one of the earliest indicators of a broad upturn in the region’s pace of That surge in prices and sales followed a slight relative house price increases may be a lift in section prices and improvement in the pace of the region’s population a subsequent surge in section sales. growth compared with the NZ average. But as the following graph shows, that rate of population growth Turning back to more recent times, we can see just was still below average and it would be hard to argue above that the relative price of sections in the that there was a sudden degree of pressure on Manawatu-Wanganui region has lifted very strongly accommodation availability based upon population since the second half of 2019. This suggests two things pressures. first of all. One, that as long as the land is available, sales of sections are likely to strengthen further over the coming year.
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Regional Property Insights
Second, the recent easing of the pace of increase in sales. Some degree of intensification is underway. This average house prices in the Manawatu-Wanganui is shown in the following graph as the green line falling region may not be sustained. That is, past behaviour to the right. suggests a rise in the annual pace of inflation in the region’s house prices from here.
Will house construction also rise? The region has since 2011 established a record of population growth not as far below the national average as used to be the case. This is interesting because often population growth pressures do not manifest in a sudden manner. They build over time.
The region’s occupancy rate was 2.55 (people per household) in the 2013 census, but 2.63 in the 2018 census. It is easy to imagine that population growth will House Price Movements continue at a reasonable pace in the near future as Finally, with which region are average house price people shift to a more affordable location for remote movements in the Manawatu-Wanganui region most working. Plus, continuing enhancement and expansion closely correlated? Gisborne. This is shown in the of the road network north of Wellington makes all following graph as the region’s average price compared locations up the Kapiti Coast, through the Horowhenua with the all-NZ average price. The ratios tend to move into Manawatu-Wanganui generally more attractive. together for the two regions. This is especially so when we consider the surge in house prices in Wellington and decline in availability of listings.
As with other regions, there is a fairly distinct correlation between changes in the number of sections sold in the Manawatu-Wanganui region, and subsequent changes in the number of dwelling consents issued for construction of houses etc.
But the above graph looks very much like the same one for the Hawkes Bay whereby most recently there has been a far greater lift in consent numbers than section
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Regional Property Insights
Taranaki In Taranaki over the past year the average price of sections sold has been $167,000. This is the third lowest price across all regions and is 43% below the NZ average of $293,000 (35% below the $258,000 excluding Auckland.
What is unusual is that whereas section prices nationwide have risen at a pace just above 10% in the past year, they have fallen on average by 9% in Taranaki.
Is this because of a plethora of sections in the region depressing prices?
Have things always been this way for the region? Yes We do not have a measure of sections listed for sale, and no. Yes to the extent that as far back as our section but just sales numbers themselves. We can see that price records from REINZ go, section prices have sales over the past year were appreciably ahead of a averaged below the NZ level. But no in the sense that year earlier at 269 from 180 one year ago. the latest difference of 43% is markedly more than for most of the past two decades.
This is the highest annual number of section sales since
the surge in activity over the 2004-2008 period – The current situation is unusual. The following graph something noted above also for the Manawatu- shows that there is a very good correlation between Wanganui region, but not in Hawkes Bay on the the direction of change in house price inflation opposite coast of the North Island. nationally, and the direction of change in Taranaki, with price movements in the region tending to be more On the face of it, an increase in section supply in volatile than for the country as a whole. This is not Taranaki may have had a depressing impact on prices. necessarily unusual. This depressing impact looks to be somewhat more than what we would expect in other regions. Why might this be?
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Regional Property Insights
One reason could be the recently low rate of population growth in the region following a period of above average growth briefly over 2010-2012.
But such intensification is underway, and the average size of a new dwelling in Taranaki is now back to where it was in 1998, 22 years ago.
It is easy to imagine that some developments may have House Price Movements occurred in anticipation of population growth which To finish with, with which region is Taranaki most closely has not actually occurred. related when it comes to annual changes? There are two candidates – Hawkes Bay and Manawatu-Wanganui. Do we see for Taranaki the same tendency as seen for some regions already discussed, of increasing intensification and falling average dwelling size?
This next graph compares the annual number of section sales with the annual number of dwelling consents issued for the construction of new houses, townhouses, retirement units etc.
It is interesting to note Taranaki’s relatively low pace of house price inflation since 2018 when compared with the regions which it tends to move with.
There is a clear correlation. A quick examination might not suggest necessarily the same trend toward intensification and decreasing average new dwelling size as observed in most other regions.
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Regional Property Insights
Wellington Wellington is known for its wooden houses perched in tiered fashion on bush-covered hills in the likes of Roseneath, Wilton, and Eastbourne, with a spread up the Hutt Valley and increasingly on the western coast towards and beyond Paekakariki and Paraparaumu. There is land available for development, but the region has a history of slow opening up of new locations for development, be they in the city itself or in Lower or Upper Hutt, Porirua, or along the Kapiti Coast.
But development of the extensive motorway and This is not an unusual situation for Wellington given expressway system which will eventually stretch from the unique dynamics of its economy. As the location the bottom of the Brooklyn Hill to north of Levin, for central government of New Zealand, Wellington is presents an opportunity for economic and housing far less affected by the usual economic shocks afflicting development perhaps ranking alongside the spreading other locations such as alterations in export prices for of Christchurch following the earthquake of 2011, or main commodities, or swift changes in migration flows intensification of Auckland following implementation which can be highly relevant to housing market shifts in of the Unitary plan in 2016. Auckland. There is a steadiness to economic activity in Wellington, seen most recently during the Covid-19 Over the past year there have been 611 sections sold in crisis with few (if any) public servants laid off as the Wellington region, a strong rise of 33% from a year compared with employees across many other sectors. earlier when sales added up to 461 sections.
But the region has most recently been facing some The strong rise in section sales from 2016 has been population growth pressure from people finding associated with a pick-up in the rate of inflation in Auckland too expensive and seeking to relocate to section prices in the country’s capital. There is however Wellington where they can easily remain within vibrant a slight tendency for section price changes to lag what sectors such as the arts and technology, or remain on is happening in the rest of the country. corporate ladders – that latter dynamic being one shared to a certain degree with Christchurch.
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House Price Movements Wellington is a region which does not have average house price movements highly correlated with any other region around New Zealand. In that regard it is a bit like Auckland for which we found the best correlation was with Wellington. But for Wellington region itself the best correlation is with Waikato, as shown here.
This pressure has not been enough to propel the regions’ population growth rate above the national average. But it has highlighted a deficiency of housing stock and land availability.
An emerging key challenge for Wellington is maintaining a reputation as a “cool” capital when Auckland’s central city area is undergoing an extensive
(and expensive) upgrade, while Christchurch at some stage will present a degree of attraction to young buyers in particular which could produce an inner-city rejuvenation as yet not achieved despite some extensive commercial and residential construction.
The key risk facing Wellington City is that population growth will increasingly be concentrated up the Kapiti Coast and in the Wairarapa Valley, and given some dysfunction in the city’s council, pushback against a population drift north may be hard to achieve.
As with other regions around New Zealand, Wellington is intensifying.
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Regional Property Insights
Nelson & Tasman The Nelson and Tasman regions almost function as one, so they will be analysed together with data sometimes covering the two sectors jointly, and sometimes separately. The average section price in Tasman over the past year has been $369,000 and in Nelson $419,000. These are both above NZ-average prices perhaps reflecting the firm rate of population growth in Tasman in particular, and the constraints on section availability in Nelson.
With an aging population, some people bringing forward planned lifestyle changes as a result of the various effects of Covid-19, shortages of listings, and high house prices, it would seem reasonable to expect that section prices at the top of the South Island will stay high and rise further in the near future.
Tasman (Richmond, Motueka etc.) is a popular location for people to retire given the excellent weather, access to picturesque outdoors, and nearness to Wellington – but without the same wind and cloud.
In the discussion above for the Manawatu-Wanganui region, we noted a tendency for section price rises to lead to higher section sales then higher house construction associated with more rapid rises in average house prices. In Tasman and Nelson section
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Regional Property Insights prices have recently risen strongly. But the volume of section sales has yet to pick up. In fact, sales over the past year in Tasman were the weakest since 1997.
House Price Movements Unsurprisingly, there is a very close relationship between changes in the pace of average house price inflation across the two regions. Given the fundamentals supporting growth in the Nelson and Tasman regions, unless section supply is boosted fairly soon, not only will section prices rise further, but the pace of average house price inflation will accelerate. We can see from the following graph for Tasman that dwelling intensification is rising. But in the absence of Urban Policy Statement legislation forcing councils to permit buildings up to six storeys in certain areas, and with lifestyle being a key attraction of the two regions to people migrating internally, there is probably a limit near being reached for how much intensification property buyers are really after. The graph for Nelson perhaps indicates such a limit has been reached and pulled back from.
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Regional Property Insights
Marlborough The Marlborough region is one of the smallest in New Zealand, containing just 1.0% of the population, or some 50,000 people. The pace of growth in the population traditionally runs below average, but not by all that much.
Briefly from 2004 through to 2008 section prices in the region were about equal to the all-NZ average including Auckland.
As for other regions, there is a reasonably close relationship in Marlborough between section sales and subsequent construction.
Development and sales of sections have been reasonably firm over the past four years, but not unusual by the standards of the past 28 years for which we have data from REINZ.
But a quick look at our standard graph just above showing this relationship indicates that there is no clear tendency in the region for dwelling intensification as there is for almost all others. The following graph measures the ratio of consents issued to sections sold Section prices have been rising since 2014, at a pace for all NZ excluding Auckland in blue, and for about matching the NZ average, though at a price Marlborough in green. Putting aside what is most below average. That price for the past year was probably a simple blip at the end of the Marlborough $250,000 which is almost the same as the $258,000 line, we cannot definitively say that there is an upward average for all New Zealand excluding Auckland. Of trend in this ratio as there is for the rest of the country interest perhaps for those contemplating relocation to since 2016. the top of the South Island is the low level of this average Marlborough section price when compared with Nelson’s $419,000 and Tasman’s $369,000.
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Regional Property Insights
But does the region display the same tendency as most And the pace at which the population is aging further, others of a falling average dwelling size? No. And at is fourth highest. 195 square metres over the past year the average size is well above that for all New Zealand of 157, down from 197 seven years ago.
House Price Movements With which region are changes in average house prices
in Marlborough best correlated? Unsurprisingly, the Marlborough does not face the same shortage of land answer is Nelson. as many other parts of New Zealand, does not face the same traffic congestion issues encouraging people to live more densely, and does not face the same age demographic as the rest of the country. The median age of the Marlborough population is the second highest in the country at 45.2 years (2018 census).
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Regional Property Insights
West Coast The West Coast region has one of the smallest populations of all regions in New Zealand and has the distinction of being the only region to experience population decline between 1996 and 2018.
There was a severe burst of activity from 2004 to 2008, observed and discussed above for Marlborough and some other locations around the country. This burst of activity however, produced somewhat of an over- supply of sections which is still being worked through in some of the less urban locations on the Coast.
Has construction followed the pattern of section sales? Generally, but we can see how the surge in section sales from 2004-08 facilitated a firm, though declining, level of residential construction activity up until 2016.
But just because population is declining does not mean house prices do not rise, as was discussed in last month’s Regional Property Insights report. We noted that whereas since 1992 average house prices for all New Zealand have risen by 500% or 6.8% per annum, on the West Coast they have risen by 382% or 6.1% per Since then, construction has recovered slightly in a annum on average. pattern consistent with growth observed from that time across most regions in the country. And just because there is an absence of population growth does not mean that there is an absence of But now we get to an interesting development on the construction or sales of sections to facilitate such. West Coast. Unlike Marlborough where population growth is much faster, on the West Coast there is a Over the past year the number of sections sold on the downward trend in the average size of dwellings being West Coast totalled 76 which is just above the average built. The decline is not rapid, but it is there. annual number of sales since 1993 of 64.
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Regional Property Insights
prices have risen 54%, Canterbury’s 12%, West Coast gains add up to 85%.
Again, as with house price changes over the long-term, it is not correct to discount section price movements in low population growth regions simply on the basis of that low growth.
House Price Movements Are average house price changes on the West Coast correlated with any other region? Yes, and the best
correlation is with Nelson. The two markets move very There is a fairly stark difference between the West closely together. Coast and the country overall when it comes to average section prices. The average price over the past year has been $90,000 compared with $258,000 for the rest of the country excluding Auckland.
This relationship is far closer than for the region which the West Coast is sometimes subsumed within – Canterbury.
There has been very little growth in average section prices on the Coast since immediately ahead of the 2008-09 Global Financial Crisis.
Over the same time period average section prices have risen by 69% nationwide versus West Coast’s 20%. Having said that, compared with 2014 when NZ section
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Regional Property Insights
Canterbury numbers have increased recently without any obvious rise in section sales. Canterbury’s residential real estate market, and that of Christchurch in particular, has been affected by the devastating earthquake of February 2011. That does not invalidate the long-term analysis which we are focussing on in Regional Property Insights. But it does mean that patterns can be different from the rest of the country, and that interpreting those patterns and their implications for future price movements can be a fraught exercise. So, caution is required before making any big conclusions about where the Canterbury market may be headed on the basis of the material we present here.
One of the key dynamics of the Canterbury real estate This is perhaps a key reason why anecdotal evidence is market is the deliberate freeing up of land for appearing along the lines that the pipeline of sections residential construction following the 2011 earthquake. in Christchurch is starting to dry up. This is a slightly This has had the effect not just of facilitating a strong different dynamic from the rest of the country where it lift in construction, but of suppressing land and is not so much pipelines being depleted, but the therefore total property price growth over the past five availability of sections on the market as people have years in particular. scrambled in recent months to buy anything housing related. Let’s start with the volume of section sales. As with many other regions sales were strong from 2004-08 Because of the earthquake’s effects it is hard to figure then slumped, but a recovery has since been out if Canterbury is intensifying. The following graph underway. shows the ratio of consents issued to section sales over the past five years and the five years before. For regions with intensification underway the green bar representing the consents/sales ratio for the past five years is longer than the blue bar for the five years from 2011-15. This is seen most clearly for Auckland.
The extent of reconstruction in Canterbury following the earthquake is made clear in the following graph which compares dwelling consent numbers issued with section sales. We can see the unusually strong lift in consents from 2012 bringing peak construction over 2015. Activity eased off from then but perhaps assisted The green bar is shorter for Canterbury. This reflects by the good affordability of Christchurch consent the preponderance of consents issued for standalone houses, and has occurred even with the ratio in recent
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Regional Property Insights years perhaps being biased upward by rebuilding of damaged houses on a section already owned. But as one of the other graphs above shows, there was a large surge in consents without a commensurate surge in section sales over 2013 and 2014, so the blue bar for the region is also biased longer.
With regard to prices, we can see that on average over the past year sections sold in Canterbury for $200,000. This was below the NZ average of $293,000 or $258,000 excluding Auckland. Over the past five years while section prices nationwide have risen 54%, in But it will be interesting to see how this situation Canterbury they have gone up by just 12%. develops over the coming two years as house construction nationwide rises to record levels, and as some people perhaps finding not just Auckland but now Wellington too expensive, relocate to the more affordable housing market of Christchurch – New Zealand’s second-biggest city.
House Price Movements With regard to regions with which Canterbury’s house price movements might be correlated, we choose to examine this only with relevance to Auckland and Wellington. These three large markets containing 57% of our population do not tend to move closely This shows clearly the effect of making large areas of together. There are different dynamics affecting each land quickly available for use through special of them. legislation. It has helped that the land around Christchurch is flat and that there is lots of it. Relative to the NZ-wide section price average, Canterbury has been on a downward trend since 2015.
As yet there is no strong sign that the anecdotes of reduced future section availability are producing a price response.
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Dunedin City The average price of a section sold in Dunedin over the past year was $266,000. This was an unusually strong 35% increase from a year earlier when the average was $197,000.
There is a tendency for section prices in the city to move in the same direction as prices nationwide generally. But this latest surge is of unusual magnitude. Relative to the NZ average this is the highest price for sections in Dunedin on record. But weak demand leading to weak sales would not explain the hike in average prices. Either the sections sold in the past year have been in very attractive locations, or the pipeline of sections for development has become relatively dry recently.
Have section sales also boomed recently? No. In fact at 101 the number of sections sold is the lowest annual total since 2012. If low section sales numbers reflected low demand one might cite low population growth.
Growth in the number of people living in Dunedin has been consistently below average NZ population growth Has housing construction followed the pattern of for many years. section sales? Yes, but as yet the decline in section sales over the past year has not fed through into a construction pullback.
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Regional Property Insights
Is Dunedin City intensifying? If it is then it seems to be House Price Movements to no greater degree than the rest of the country With which region are price changes for Dunedin excluding Auckland. But the green line showing the dwellings most closely correlated? The answer is Hawkes ratio of consents issued to sections sold in Dunedin has Bay, possibly because of the strong role played in both been somewhat volatile recently and it would be hard economies by the sheep and beef sectors. to argue strongly that the city is going down the same route as Auckland.
The ratio of Dunedin’s House Price Index to that of Hawkes Bay has been trending up since 2004. But the Is the average size of a newly-constructed dwelling relative affordability of these two correlated regions has decreasing as we are seeing in many other parts of the moved in Dunedin’s favour over the past five years. country? Maybe. But again, this most recent year has been an unusual period of low section sales, soaring section prices, yet continued low underlying population growth.
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Regional Property Insights
Queenstown Lakes In the Queenstown Lakes District average section prices have been above the all-NZ average since our data series started in 1992. During this period of time there have been two occasions when Queenstown section prices have risen at a much faster pace than elsewhere in the country – 2002-2004, and 2016-2017.
This high rate of population growth explains why the development of sections in Queenstown Lakes is such a strong business compared with the population. The number of section sales per 10,000 people in Queenstown has averaged 149 a year since 1996. This is well above the average for all New Zealand of 17 and far beyond the next highest location of the Tasman region at 36. This second graph shows the ratio of Queenstown’s section prices to the NZ average even more explicitly. It shows that there is a mild upward trend in the ratio, but it is not a particularly fast trend.
Where population growth is strong, section development and residential construction growth are also strong, and a key focus of local authorities is to facilitate the development of subdivisions whilst trying This might come as a surprise when we consider the their best to manage rapid growth in infrastructure fast pace of growth in Queenstown’s population over requirements and the environmental impacts of that the past three decades. The location’s population has growth. grown by 220% since 1996 compared with 54% in With regard to the surge in Queenstown section prices Auckland and 36% for all New Zealand. over the two time periods mentioned, this seems to be a lagged response to an acceleration in the pace of population growth. If we accept that, then the recent slowing in the pace of growth in Queenstown’s population would suggest some easing at least in the pace of section price inflation. Is this happening yet?
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The following graph shows the annual change in all other regions when it comes to house price section prices measured as a 12-month average versus inflation. the previous year’s 12-month average. Queenstown has experienced a period of falling average section But in broad terms, the region does have a tendency to prices up until late in 2019, and since then an move as Nelson and Tasman regions do, but with a acceleration has been in place in line with the country tendency to move ahead of those two locations most as a whole. recently. And clearly, as the following graph of price relativities to the NZ average shows, Queenstown has since 2015 experienced a period of strong prices growth well in excess of those locations.
Will the Covid-19 shock to the location’s tourism sector cause section prices to fall away? Not necessarily. Early on in the crisis anecdotes emerged of many Kiwis, particularly those already living in Otago, contacting There are some regions with which Queenstown has no real estate agents seeking properties for retirement, relationship when it comes to house price inflation. lifestyle, and holidaying purposes. Principally Northland and Southland. Nearness does not bring togetherness. As a location of aspirational demand, it is certainly possible that price volatility can be high. But such a location can produce a backlog of frustrated buyers ready to take advantage of a period of weakness. This seems to have happened in Queenstown.
Reports from the region indicate that demand for sections being released in a number of large subdivisions is good. But then again, this is the case for virtually every location around New Zealand as home builders and home buyers secure land onto which a great number of dwellings are likely to be built in the very near future. House Price Movements Turning to the second focus of this month’s report, is there any region with which average house price movements in Queenstown Lakes are correlated? One would not say highly correlated, and in fact Queenstown has a profile vastly different from almost
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Regional Property Insights
Southland All regions show price changes more volatile than the average, so there is nothing to be read into the greater Over the past year the average price for a residential change in Southland’s section price inflation as a rule. section in Southland has been the second lowest in the country at just $133,000. Only the West Coast is There was a strong surge in sales of sections in cheaper at $90,000. Auckland’s average section price is Southland over 2017 and again in the period to mid- $474,000, Canterbury $202,000 and Dunedin $266,000. 2019.
The price of land to build on in Southland has always been well below the national average.
These surges in sales corresponded with surges in prices. Did this happen also in the 2001-2008 period? This following graph showing the average Southland But since 2014, whereas average NZ section prices section price as a proportion of the NZ average says have risen by 54% around New Zealand, in Southland yes. the price rise has been the highest for all the country at 142%. That is, over 2014 Southland’s section price was just $55,000. Why has price growth been so strong and is the strength still continuing?
The second part of this question is the easiest to answer – no. The surge in Southland section prices these past six years occurred mainly over 2017 with another brief spurt to mid-2019. This can be seen in the following graph showing annual price changes.
Why these surges? Population growth was not unusually strong at these times, as shown in the next graph.
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And, in the most recent three-month period, consents issued in Southland were down by 19% from a year ago compared with a 1% rise nationwide. The data do not tell us that a new construction surge is afoot in Southland and on that basis, it would seem reasonable to expect the recent easing in the pace of average section price inflation will continue. This may be especially so as from an historical perspective, the last graph on the previous page tells us average Southland section prices are about as high versus the NZ average as they have tended to get since 1998. Instead, we simply saw a lot of extra house House Price Movements construction, mainly over the 2001-08 period, and to a With which region is the pace of change in average lesser extent more recently. house prices across Southland most correlated? There are three candidates – Manawatu-Wanganui, Gisborne, and Dunedin City. None of the matches are perfect.
What we can take from this is that if house construction in Southland starts rising anew, it would seem reasonable to expect that section prices will go In contrast, there is a very large difference in the way up at a reasonably fast pace. Southland’s house prices change and those in Auckland If we look at the most recent data, we have to be (dark blue) and Queenstown (brown). careful, regardless of the part of the country we are looking at. The Covid-19 shock has generated substantial gyrations in all measures of actual and expected economic activity, along with confidence of businesses and consumers.
But taking that caveat into account, we can see that the number of consents issued for the construction of new dwellings in Southland in the past year was down by 4% from a year earlier. For all New Zealand there was a rise of 4%. Consent numbers in the past year were 19% above the ten-year average in Southland. But they were 52% above average for all the country.
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