New Zealand’s most expensive suburb and one of its cheapest were at the epicentre of the country’s biggest property boom, according to new research by OneRoof and its data partner Valocity.
Median house prices in Herne Bay, in central Auckland, jumped a massive 77.78 percent – from $1,125,000 to $2,000,000 - during the peak boom year of 2014, while prices in the uni student-friendly suburb of Grafton rose 89.06 percent over the same period, from $320,000 to $605,000.
The two suburbs experienced the largest annual growth following the house price slump triggered by the Global Financial Crisis in 2008.
Research by OneRoof and Valocity found that prices in more than 51 suburbs in Greater Auckland grew more than 20 percent during the 12 months of 2014, with the average gain for the city as whole coming in at just under $100,000. The figures show how the boom then moved steadily outwards and spread to Hamilton and Tauranga in the second half of 2015.
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OneRoof and Valocity measured six-monthly changes in house values in Auckland, Hamilton, Tauranga, Wellington, Christchurch and Dunedin between 2005 and 2019, to get a more accurate picture of how the boom spread and to pinpoint where the weaknesses are in the market.
Double-digit growth
The time-series of property prices shows the price ripple in action, highlighting the boom’s spread to the regions outside Auckland and the softening of prices as the market slowed.
“Some parts of Auckland were in double digit growth through early and mid-2015," OneRoof editor Owen Vaughan said.
"The explosion in prices in Herne Bay and Grafton heralded a lot of what was to come in the boom, with properties in wealthier suburbs becoming seriously expensive in a short time frame, and previously affordable inner city suburbs increasing in value and demand because of their proximity to the CBD.”
The Auckland region to see the biggest lift in prices in the first year of the boom was North Shore, with median prices jumps 25.57 percent ($211,969) to $1,041,051. However, price growth for the region dropped fairly rapidly in the following years of the boom, down to 10 percent in 2015-16 and then 2 percent in 2016-17.
Vaughan says: “The North Shore has been at the centre of the current slowdown in Auckland’s housing market, with high prices, the foreign buyer ban and a lack of pressure on vendors putting brakes on activity. The region’s housing market is a sign of what is happening and is going to happen to the rest of Auckland and other high growth areas around New Zealand.”
James Wilson, director of valuation innovation at Valocity, agrees: “This part of Auckland has traditionally attracted the international market and higher net worth individuals, so boomed first and then went off the boil sooner.”
Moving out to the fringes
He expects the negative growth in the North Shore (-4 percent in early 2018 then -5 percent in the first half of 2019) to fan out to suburbs in Auckland City, Franklin, Rodney, Manukau and Papakura, albeit at slower rates of decline than the shore has experienced.
He points to areas like Waitakere and Papakura, which kept showing growth right through until mid- 2017, and where price drops are still around two to three percent compared to the five to eight percent drops in Auckland Central and the North Shore.
“Now the money is moving to the local authorities on the fringes of Auckland: Kaipara grew 34 percent in first half of 2017 and is still showing two percent growth; Hauraki grew 22 percent in six months, only slowing now to six percent and Waikato growth peaked well into 2017, now at three percent. That’s places like Te Kauwhata or Pokeno.”
Wilson says investors typically start in the centre, in area close to the economic heart of the city in areas such as Auckland Central and the North Shore, and then as their equity improved, pulled out and took their funds to the fringe.
“Then they flow out to the buffering edges of the city where prices are comparatively more affordable, and equity gained in central locations goes a lot further”
Vaughan says OneRoof and Valocity found similar patterns around Hamilton, where the prices shot up 13 percent in the second half of 2015 and then grew 10 percent every six months until the end of 2016. The ripple then spread to neighbouring rural Waikato and Waipa six to 12 months later, when prices grew between eight and 13 percent every six months until the end of 2017.
“In the same way, Tauranga’s boom started to taper off towards the end of 2016, and spill into neighbouring Bay of Plenty towns, pushing prices up between seven and 17 percent right through until 2017.”
Mini-boom
In Wellington, the flow of price growth has gone from the city to Lower Hutt and, more recently Poririua, where prices grew between 12 and 16 percent through late 2018, and are only now slowing down, with buyers turning their attention to the Kapiti Coast or Wairarapa.
In the South Island, Selwyn and, to a lesser extent Waimakariri, showed price pick-ups after house prices in Christchurch picked up in the first half of 2014 as those affected by the 2011 earthquake relocated and the city’s rebuild gathered pace. However, beyond that lift, Christchurch’s property market has stayed relatively flat.
The figures show Queenstown and Otago’s housing market fell hard following the GFC, dropping on average 7 percent every six months before experiencing a mini-boom in the second half of 2013, when prices rose 8 percent. Prices were essentially flat until the second half of 2016 when they shot up an impressive 18 percent. Over the next 24 months the housing market there enjoyed price rise of 14 percent, 10 percent and 11 percent, before dropping to 2 percent as the boom waned and the foreign buyer started to take effect.
The figures also show the boom reaching Dunedin in the second half of 2016, when property prices for the city were up 6 percent on the six months before. Over the next 12 month period prices rose 7 percent every six months. The pace slowed in the first half of 2018, following the Government’s announcement of its intention to extend the bright line test and introduce a foreign buyer ban, but then shot up 10 percent in the second half the year.
Queenstown-based economist Benje Patterson, who specializes in regional development, says Dunedin is an unusual case. Although prices started to grow in Clutha, Waitaki and the rest of Otago, prices in the city itself have kept growing.
“It’s still a drawcard across the south,” he says. “People from Southland and Invercargill move there, and that trend is unlikely to diminish. There are jobs with the hospital rebuild, huge council infrastructure spend, the University, it’s got built-in recession stabiliser.”
Auckland exodus
Patterson has analyzed Statistics New Zealand population data from 2013 to 2017 to see where people have migrated to and from around the country.
Of the 33,000 people who left Auckland during the four-year period, more than 1100 landed in Queenstown Lakes District, accounting for more than half of the area’s population lift.
But now high prices are driving people further afield. “Of interest, Queenstown has also experienced relatively significant losses of regional migrants to Central Otago and Dunedin,” Patterson says. “There are also signs of emerging migration to Tasman, Mackenzie and Wellington.”
Patterson’s analysis of population shows exodus of Aucklanders grew from 2,727 in 2014 to 12,942 in 2017. Those moving were mostly families with young children, with a second wave of 65-year-olds cashing up and moving to the regions with Auckland dollars. Only 20- to 24-year-olds had a net gain in migration to Auckland.
“The halo places – Kawerau from Tauranga, for example – still have economies that are doing well,” he says. “Once places like Tauranga or Whangarei become expensive, [they move] to another place with a good job, good population.”
It’s not just about sunshine and beaches, either. Patterson found that the second biggest destination for Auckland migrants was Waikato (up from 330 in 2013 to 1200 in 2017), as it’s the second biggest job market, a big population centre with amenities and on the commuter belt to Auckland.
Valocity’s Wilson says that once the 2018 Census is released, people will finally get a good sense of whether the population growth has indeed matched the value growth.
“If it hasn’t, then investors will have to ask ‘do I continue pouring capital into place’ or do they take their capital where the population is which may support a more sustainable investment”
