The homes.co.nz Monthly Property Update is generated using homes.co.nz’s March 2019 HomesEstimates, providing an up-to-date perspective on house values around New Zealand.
Record rental prices set to continue in Wellington
Wellington has seen property prices increase dramatically in the last 3 years following a period of sustained, but modest growth.
But what has caused this sharp increase in Wellington’s property prices since mid-2015? Is this a flow-on effect of people moving from Auckland, or are there other reasons behind this growth?
The median HomesEstimate has followed this sales trend and is now $746k in Wellington, up 10.2% in the last 12 months. Growth has exceeded 20% pa in two of Wellington’s suburbs; Mount Victoria and Grenada North; and 29 of Wellington’s 50 suburbs have seen HomesEstimate increases of more than 10% in the last 12 months.
Price growth within Wellington’s central suburbs is even more pronounced, particularly within the lower value properties likely to contribute significantly to the city’s rental stock.
Brad Olsen, an Economist from Infometrics, suggests that limited supply of housing stock is the key driver of increasing property prices in Wellington, resulting in rents being some of the most expensive in the country – homes.co.nz’s median RentEstimate in Wellington is now over $680 p/w.
We think that Wellington’s boom is all its own doing, and not a delayed by-product of Auckland’s price growth. This is bad news for tenants as it does not appear that Auckland’s current price reversal will occur in Wellington anytime soon. With strong earning potential, steady population growth (especially within the public service and student communities), a tightening of supply, and increased regulations on landlords, we expect record rental rates to continue.
Wellington’s rental market hit by supply issues
Commentary from Brad Olsen
Wellington’s property market is tracing a different course than most of the country with growth in house prices racing away. Data from homes.co.nz indicate Wellington has the second highest growth of any main centre in New Zealand, at a time when Auckland’s house prices are actually failing – noting that Auckland prices have started to fall as a result of unaffordability biting. These higher house prices are forcing rents higher even as student and public service numbers rise, creating a perfect storm for renters.
The population in the wider Wellington region is growing, increasing demand for housing, but supply isn’t keeping up. This problem is particularly acute in Wellington City itself. Over the last five years, population in the wider Wellington region has risen at 1.2%pa on average, with growth peaking at 1.8%pa in 2017. Wellington City has been growing even faster, with average growth of 1.6%pa and a peak rate of 2.3%pa in 2017.
If you compare building consents (using average housing ratios) and population growth, the wider Wellington region looks to have enough broadly enough houses, but in Wellington City, there could be an undersupply of around 5,500 houses.
Two clear drivers of the population growth are both students and public servants. Over the five years from 2013 to 2017, student numbers at Victoria University of Wellington alone have grown by 760 to 22,240 students in 2017 (the last data available), with the University expanding its share of students from 12.3% to 12.7%. According to Infometrics’ employment estimates, the wider public service looks to have grown by 1.6%pa on average over the past five years in the Wellington region, with an extra 2,600 workers in the area.
To add to the supply issue, the 2016 earthquake caused a double reduction in supply in some instances. Firstly, those tenants in earthquake damaged apartments and houses took over leases at undamaged dwellings, tightening supply. And due to the need for undamaged commercial space (think of the necessary relocations by BNZ, StatsNZ, etc), a few offices which were slated to be converted to apartments were reintroduced as offices, taking away future potential housing stock in central Wellington.
Growing demand and limited supply in Wellington has seen house price growth speed up over the last year or so, and with first home buyers keen to purchase property, lower quartile housing prices have accelerated faster still. Homes.co.nz data show that median house prices in central Wellington have risen 12.8%pa, with lower quartile house prices growing faster at 13.3%pa. The lowest 10% (usually apartments) rose 13.9%pa over the last year. Higher house prices for lower quartile houses mean that landlords will be looking to increase rents to cover higher mortgage payments or get a more aligned return from the local market. So, renters in the capital face a tall order to cover higher rent, which are now more expensive than in Auckland.
Although Infometrics expects house prices across New Zealand to start trending down over the next five years, Wellington’s supply issues mean that house prices in the capital will continue to shift higher. We also expect a rise in borrowing costs at the end of 2019 or start of 2020, which alongside new rental standards will force higher costs on landlords which will be passed onto tenants. Efforts underway from private and public entities to increase house building will assist with mitigating these rental issues, but the problem is likely to persist for a while until supply and demand for housing is rebalanced.
Economist at Infometrics
Trends in our Main Cities
Other than Wellington, Dunedin continues to be a stand-out performer with the median HomesEstimate increasing by 12.1% p.a. Auckland’s slow correction continues with the median HomesEstimate down 1.1% since March 2018, and modest growth is being seen in both Tauranga and Hamilton of 5.8% and 6.8%, respectively.
NZ’s First Home Buyer HomesEstimate
The “First Home Buyer HomesEstimate” is homes.co.nz’s estimate of what a typical first home may cost. It is calculated to be the lower quartile HomesEstimate in a town.
How do we calculate these figures?
The homes.co.nz Monthly Property Update is generated using homes.co.nz’s monthly HomesEstimates and provides an up-to-date perspective on house values around New Zealand. By valuing the entire housing stock, the homes.co.nz Monthly Property Update can compare median values from month to month in a consistent and reliable way. Our HomesEstimates are calculated for almost every home in New Zealand by an algorithm that identifies the relationships between sales prices and the features of a property.
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