Why is Wellington’s housing market so hot right now?

Property values in the capital have picked up the pace again in the past few months, despite the rise of 45 percent already seen in the past three years (bringing the Capital’s average value to more than $800,000). The bounce in values can be explained by a number of underlying drivers, but the key thing is simply that there’s not much property on the market currently available to buy.

October’s CoreLogic QV House Price Index showed that Wellington City’s property values have picked up pace again in the past few months, especially compared to the continued slowdown in other parts of the wider region, such as Lower Hutt. Porirua has also gathered a little speed since August, but not to the same extent as Wellington (which has accelerated from 7.4 percent to 9.6 percent, an 11-month high).

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When we dig down further, and focus on suburb-level data (and note that we’re now looking at median values not average values), some of the areas that have picked up the most in terms of growth in the past few months all feature in the top 15 largest* across the city, helping to explain why the overall figure has picked up. Wellington Central and Te Aro, for example, are also lower value suburbs (the median is less than $600,000), reflecting their higher shares of apartments/flats.

Yet you’d be forgiven for thinking that Wellington’s growth should be slowing not accelerating. After all, values have already risen by more than 45 percent (or $256,000) in the past three years, and in October they rose above $800,000 for the first time.

However, there are underlying factors that can explain the continued growth in property values. Most importantly, there is very little property available on the market to buy. Although new listings have risen as per normal for this time of year, total listings are slightly lower than they were this time last year – which was itself a low level. In other words, anything new onto the market mostly sells quickly, which is holding down inventory levels and boosting prices (perhaps as a slight “fear of missing out” factor takes hold).

The strength of demand is surely being underpinned by continued population growth (1.7 percent in the year to June 2018), a low unemployment rate (at an estimated 4.2 percent, it’s the lowest in seven years and below the national average), as well as the fact that many jobs in Wellington are high-paid public sector roles.

Who is buying also provides some insight into the recent bounce in Wellington property values. The big movers in the past few months in terms of share of property transactions** have been multiple property owners (MPOs) with cash. It seems fair to suggest that cash MPOs may have deeper pockets than some other buyer groups and be less affected by tight credit policies, so have probably exerted upwards pressure on the price to secure the property they want in a tight market.

It remains to be seen how long this bounce in Wellington property values will last. But it’s worth noting that “new dwelling” consents in the capital over the past year have reached their highest levels in a decade. These new consents are translating into a strong rise in the actual stock of housing too, so all else being equal; this would be one factor that could eventually dampen Wellington’s value growth.

* By number of dwellings.

** They’ve also increased their activity sharply in absolute terms too, from 101 transactions in Q2 to 139 in Q3. All other buyer groups were less active in Q3 than Q2.

Kelvin Davidson is a research analyst at CoreLogic NZ

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