In hindsight, it's easy to see where easy money could be made. At the start of the new Millennium, Queenstown was a popular tourist destination but was yet become a home to international billionaires, Hollywood directors and Silicon Valley escapees.
The median price for property in Queenstown at the end of 1999 was $195,000. In Auckland it was $235,000, a tad lower than the $236,000 Wellingtonians had to stump up for a home. Flash forward to 2019 and that $195,000 investment in Queenstown — equivalent to the deposit many Auckland buyers face pulling together — has shot up 396 per cent, with Queenstown’s median price now $966,500. The city's property market is without doubt the biggest winner — so far — of the 21st Century.
The last 20 years in New Zealand real estate have been tumultuous. The country has experienced a leaky homes scandal, a market slump, several devastating earthquakes and rocketing house prices that have benefited those that own but alienated those that don't.
OneRoof and its data partner Valocity tracked median prices for every New Zealand territorial authority over the last 20 years. The figures show how much the course of the country's property market has changed — and indicate where the next boom towns are to be found.
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Nationally, the median house price has risen 242 per cent since the end of 1999. Every region has enjoyed a lift. Some, like Queenstown, have done better than others.
The interactive below shows the median sales price for 1999, 2004, 2009, 2014 and 2019 (but 1999, 2009 and 2019 for mobile and app users). OneRoof editor Owen Vaughan says: "We chose to track the median sale price over median value for two reasons: firstly, to show the price of what had sold, to reflect what prices Kiwis were paying during the 1999-2019 period; and secondly, because of the quality of the data that was available 20 years ago, it was hard to accurately gauge property values at a suburb level. Due to a lack of data we have only been able to show price jumps for suburbs in the main towns and cities - however, we have been able to show the price leap for all territorial authorities."
Vaughan adds: "The median sale price is a reflection of what was selling in the suburb at the time, and, because it is prone to fluctuation, isn't necessarily a true reflection of the value of every home in the suburb. For example, the median sale price of houses selling in New Zealand's most expensive suburb, Herne Bay, in 2019 is $1,555,000 while the median value of the suburb is $2,432,500. The difference can be explained by the fact that what was listed and sold in Herne Bay during 2019 was generally at a price point close to $1 million lower than what the majority of houses in the suburb are valued at."
According to the data, the region that has seen the biggest percentage increase is Mackenzie. Twenty years ago buyers in the region could pick up a home for $71,500. Now they'd typically have to shell out $435,000 —an increase of 508 per cent.
Mackenzie, home to Aoraki/Mount Cook National Park and ski-fields that are every bit as stunning as those in neighbouring Queenstown Lakes, is OneRoof's pick for further big increases in property values.
If you bought in Queenstown at the end of 1999, you are likely to be in the money.
It has all the elements to be the next Queenstown — a solid economy, relative affordable housing and scope for large-scale development.
Visitors to Lake Tekapo and Twizel will have seen a marked increase in residential construction, and it doesn't take a much imagination to envisage a transformation on a par with Queenstown's and house prices to match.
Vaughan says: “Everybody is looking for the next Queenstown and Mackenzie could well be it. Although the area lacks an all-important airport, it is still well connected, with Christchurch just several hours' drive away. Those that buy into the area now could well be sitting on a million dollars or more by 2040.”
The OneRoof-Valocity data illustrates the big changes in New Zealand's major metros. Valocity director of valuation and innovation James Wilson says: “Over the last 20 years the market has shifted from one of comparatively even values across the main urban centres to one where there are significant variations.”
At the start of the century, it cost as much to buy a house in Auckland as it did in Wellington — and prices tracked upwards at a similar rate until just before the GFC, when Auckland surged ahead.
Between 2009 and 2014, Wellington prices stagnated, while Auckland's rocketed. Auckland's median house price now sits at $830,500 —an increase of 253 per cent on 1999 — while Wellington, which sits close to the bottom of the growth table, has a median house price of $750,000, a rise of 217 per cent.
Overseas money
Further down the table is Christchurch, where the median house price grew 185 per cent in the last 20 years, while sitting at the bottom is Wairoa, in Hawke's Bay, which has seen house prices rise 128 per cent.
Wilson says: "In the year 2000, all of our main urban metros had median values that sat within a $200,000 band of each other. In 2019, the largest difference in median prices — between Queenstown and Dunedin — is well over half a million dollars.
"This disparate growth can mostly be attributed to the fact that our wealthiest urban markets — Auckland and Queenstown — have been exposed to international drivers, such as increased immigration and overseas money, more than any other market in New Zealand."
Tourist attraction: The Church of the Good Shepherd in Tekapo.
A number of other factors have influenced the housing market over the last 20 years: the 2007 Global Financial Crisis saw house prices tumble and New Zealand’s official cash rate fall from 7.5 per cent in September 2008, to 3.5 per cent in early 2009.
Other factors include changes in immigration and home-ownership rules, the Christchurch and Kaikoura earthquakes, which damaged tens of thousands of homes, and the leaky homes crisis, which has cost the country billions of dollars. Through it all, New Zealand’s housing market has continued on an upwards trajectory.
Rate cuts
If you bought and sold in the last 20 years it's highly likely you came out smiling, unless you’ve been stuck with a leaky home.
Westpac’s chief economist Dominick Stephens says the main driver for such big price rises in New Zealand homes over the past 20 years is a global drop in interest rates, coupled with immigration.
Over 20 years ago the one-year fixed mortgage rate in New Zealand was over 10 per cent, but now we are looking at under 4 per cent, he says. “That’s more than halving what it costs to service a mortgage.”
Stephens says that at least from World War II through to the late 1980s, interest rates were on a slow rise — but they have been falling ever since.
“The New Zealand housing market has just been one of many asset markets affected by global drop in interest rates over the past 30 years. “
When interest rates fall people find it cheaper and easier to borrow money and buy assets, and people with money are happy to accept a lower yield on investments.
“Both of those things mean higher prices relative to rents or relative to incomes, and I think this has driven asset prices of all stripes up around the world.”
The end result of the property market over the past 20 years has been a random reassignment of wealth from non-home owners to home owners, which “I think rightly has created lots of social concern”, Stephens says.
While hefty prices in Auckland have kept some out of the property market altogether, others have moved to cheaper regions to get on the property market. Still others have made gains on their Auckland properties and have moved out to smaller towns.
Population growth
David Norman, Auckland Council’s chief economist, whose his role requires him to have an independent, objective view that may not be the same as those of other council staff and elected members,says population growth is undeniably the fundamental driver in Auckland's housing market. “It’s no surprise that through our two periods of most rapid population growth in the last 20 years — early 2000s and most recently 2013 to 2016 — we saw the fastest growth in house prices.”
One of the ways the Auckland market differs from the rest of New Zealand is because of its dominant role in net international migration, Norman says.
“Unlike the rest of New Zealand, which saw negative net external migration between 2011 and 2013, Auckland did not. We are the gateway city for new migrants and typically attract more than half of them, even though we’re about 35 per cent of the total population of New Zealand.
“What we see is that as house prices in Auckland increased, many people here, often closer to retirement, have taken their house price gains and moved mostly to other parts of [the country] where house prices are more affordable.”
A second factor in the Auckland market is the traditional role of overseas buyers, and Statistics New Zealand data shows overseas buyers were “massively more active” in Auckland.
“We’ll probably never have the sub-national data from back in 2015 and 2016 when, many real estate agents will tell you, demand from offshore was at its peak as house price growth was peaking.
“With the overseas buyer ban now in place, the impact on keeping prices flat for longer in Auckland should not be understated.”
The ban has done exactly what it set out to do, which is good news for New Zealanders hoping to get into the market, Norman says, but bad news for those who were banking on higher capital gains.
“The ban will affect most other parts of New Zealand, with the possible exception of Queenstown-Lakes where we know overseas buyers were also more active.”
The introduction of the Unitary Plan in Auckland is also highly significant, Norman says.
“It zoned for up to 2 million additional homes in Auckland, which would effectively quadruple our housing stock.
“It has allowed for roughly 12 times more new housing than the old council plans it replaced. It has made land markets hugely more competitive.”
A developer looking to put up townhouses has an almost endless number of possible development sites available, Norman says.
Looking ahead
“This means the supply of development opportunities, which was constrained and probably artificially inflating land prices before the Unitary Plan, has expanded sharply.”
That made it hard to argue Auckland has a land supply or shortage of development sites today, Norman says, yet even these big changes to zoning rules have reduced land prices by a maximum of 6.6 per cent inside existing urban areas, showing that flooding the market with more land is unlikely to see prices fall more dramatically.
If the last 20 years have been tumultuous, Stephens says the next 20 are unlikely to be anywhere near as dramatic. What happens in the years ahead will depend on interest rates, he says. If they go up house prices could fall, but if they stay where they are prices could rise some more.
He thinks interest rates will stay relatively low, however, and predicts they will lift again in five or ten years’ time – so there could be a period of modest house price decline in the mid-2020s.
