Tauranga is one of the tightest housing markets in New Zealand right now, new figures from OneRoof show.
The number of new homes coming to market in the city last month was down 32% on the month before – one of the sharpest drops in the country.
The city is now in unenviable position of facing a listings drought as it heads into the spring season without any Covid restrictions.
Worryingly for buyers, is that fact that homes are selling fast, and while the city is unlikely to run out of houses for sale, the drop in listings will intensify competition and put further upwards pressure on prices.
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Tauranga’s average property value hit $1.115 million last month, up 33% or nearly $300,000 in the last 12 months. And unlike other major metros around New Zealand, Tauranga’s housing market has not slowed in the last quarter, with the city recording growth of more than 9%.
The number of sales in the city has also crashed. At market peak in 2015, there were 6252 sales. Last year, the tally was 3400, and so far this year there have been 1779 settled sales, and it’s possible that Tauranga will end up this with fewer sales in 2021 than in 2008, when the housing market slumped post-GFC and just 2259 properties sold.
Simon Martin, Harcourts Tauranga managing director, told OneRoof that Tauranga’s listings drought started well before last month’s level four lockdown, which put a lot of the housing market on hold.
“When we came out of lockdown last year, there were about 530 or so listings in Tauranga city alone [excluding Mount Maunganui or Papamoa]. Coming out of lockdown this year, we’re at less than half that, 215 listings,” he said.
“We were really light before lockdown, and coming into level 3 allowed a bit of a bump up, but not to the extent of meeting demand.”
Simon Anderson, managing director at Realty Group: "There’s an imbalance, an oversupply of buyers and an under-supply of property." Photo / Supplied
Like other agency heads OneRoof spoke to, Martin attributed the surge in demand to Tauranga’s beach lifestyle, which attracts people from around New Zealand (not just Auckland), as well as returning expats.
“Once you come here, you don’t want to leave. There’s a lot of building going on, but is it enough? Supply will be difficult.”
And while level 2 will see new properties coming onto the market, he said it won’t be the massive increase Tauranga needs to meet demand.
Richard Leary, general manager of New Zealand Sotheby’s International Realty, said that while some vendors were holding off until Aucklanders were free view properties in person, others were taking advantage of the huge numbers of website viewers by going ahead.
That said, he is concerned that even if the hoped-for backlog of listings appears for the spring market, there will still not be enough properties available to meet the demand.
“We’re probably 10-15% down. Things will always get sold, but before a big sale was $2.5 million, now that can be $3m to $4m.”
A real estate window in central Tauranga. The city’s average property value is now above $1m. Photo / Bay of Plenty Times
New Zealand Sotheby’s International Realty agent Chris Pringle concurred, adding that in the past 18 months, people hesitated to put their homes on the market because there wasn’t a lot available for them to buy.
“It’s a vicious cycle, and it just deepened through winter,” he said, pointing to popular suburbs that normally have 40-50 listings now barely having 20 properties at any one time.
Simon Anderson, managing director at Realty Group which operates Bayleys and Eves, said that even before this lockdown, listings for July were down 20%.
And in a market where some 20-30% of open home visitors are from Auckland, he expects vendors targeting that market to hold off their campaigns until Aucklanders can travel again.
Covid testing in Tauranga. The city is now at alert level two, and the hope is that will bring more homes to market. Photo / Getty Images
“I expect it will be a busier spring by about another 15%. Now that people are seeing new stock come on, they’ll be more willing to buy. But there’s still an imbalance, an oversupply of buyers and an under-supply of property,” he said.
Anderson said the rapid growth of new-build suburbs like Papamoa, and even the new-found appeal of inner-city apartment living, still won’t produce enough new housing to match population growth.
The Tauranga-based chief executive of mortgage brokers Mortgage Lab, Rupert Gough, said the shortage was impacting his clients.
“We have tens of millions of dollars of prepared mortgages just sitting, waiting, around the country and just nothing to buy,” he said, with buyers feeling fatigued after looking unsuccessfully for months.
“I don’t know how we’ll solve the stock issue. It takes a large group of people saying ‘I’m selling’ and maybe that will happen in October, or maybe after March next year when they get their tax invoice. Or maybe a few years.”
But the listings dearth is not unique to Tauranga.
Infometrics economist Gareth Kiernan has been puzzling through the data to figure out why so few new listings are coming to market.
“There have been people moving to Tauranga from other parts of the country for some time. And it’s not just retirees, like it was in the 1990s. It’s more affordable than Auckland and it’s very much an economic hub.
“But we’re still getting our heads around why stock numbers have been steadily trending down for the last 10 or 12 years.”
Valocity head of valuations James Wilson: “Prices are not going to halve again. The market won’t do that by itself.” Photo / Supplied
Kiernan said that after big building booms out to Papamoa, supply of residential land around the city itself was tight, meaning fewer new builds and buyers forced back to competing for existing builds.
In his new study, aptly titled The curious case of the shrinking housing stock, he hypothesized that changes to the bright-line tax rules going back to 2015 meant that investors, the property owners who are much more likely to sell a property to realise their capital gains in a growing market, were now doing their tax sums and hanging on.
“We estimate that between October 2016 and March 2019, for investors who had owned a property for one year, they would have been better off financially to have kept hold of the property for another year to avoid paying any capital gains tax, even if house prices fell by 1.9% on average during that additional year. As it turned out, the nationwide median house price during the following year never rose by less than 1.5%,” he said.
The Port of Tauranga, one of the main drivers of the city’s economy. Photo / Getty Images
More changes in 2018 and those announced this March have held investors back – despite the outcry at the time. The long-term news for more houses being listed for sale is not good.
“The recent extension of the bright-line test to 10 years could result in a more persistent imbalance between buyer and seller numbers out to 2031, until all buyers and sellers are once again working to the same rules and incentives.”
James Wilson, director of valuation at OneRoof’s data partner Valocity, said there had been murmurs of a change from valuers and mortgage brokers, if not from real estate agents.
“They’re telling me it feels like we’re approaching the end of a boom cycle. We haven’t had a cataclysmic event like the GFC or a share market crash, but they’re seeing the first signs,” he said.
“It comes down to affordability. Look at the recent study by Consumer NZ. Three out of five New Zealanders felt they wouldn’t be able to afford to buy their own home at its current valuation. It’s easy to ignore in the first phases of prices going up, but then people get more cautious and won’t take the risk of buying and selling.”
Wilson’s figures show that Tauranga’s long building boom attracted many first-home buyers to the city, who then used their increased equity to trade up. “They weren’t averse to taking on more debt, at first, and that helped push up prices,” he said.
The average holding time on a property in the city is 4.22 years, slightly lower than the rest of New Zealand – but still longer than the more speculative market of Auckland, where average holding time is just 4.06 years.
“But now, they are reaching the point where they’re saying ‘we can’t afford to move anymore’, and the result is listings stop quickly, then sales volumes drop in the medium term,” Wilson said.
“You won’t see a drop in values. There’s nothing pushing down heavily on prices, because there’s the strong demand and scarcity factor that masks what is happening.”
However, like Kiernan, Wilson doesn’t have good news: “This won’t fix the price problem; prices are not going to halve again. The market won’t do that by itself.”
