Property values across New Zealand’s major centres recorded a diverse performance in August, ranging from a 0.4% fall in Auckland to a 1.2% rise in Dunedin.

According to the August CoreLogic QV House Price Index, the average residential property value in Dunedin is now $415,888; values have risen 10.7% over the past year. This result is in stark contrast to the other main centres, although Wellington City values continued to show a strong rate of annual capital gains (7.4%) despite values slipping 0.2% over the rolling quarter.

Graph 1
Index results as at 31 August, 2018

CoreLogic Head of Research Nick Goodall said, “Dunedin values continue to grow off the back of low inventory levels, consistently high demand due to strong economic conditions as well as relatively low housing prices which are attractive to a broad range of buyers.” 

He said, “Investor activity has reduced over the past few years, however owner occupiers have picked up the slack. The release of MBIE’s Healthy Homes Standards discussion document this week will be of keen interest to investors in the south, as the quality of stock in the University town is well known as being of a lower standard.”

Graph 2
Rolling change in property values, national

Values in Auckland continued to track sideways as lending conditions remain tight, impacting buyer activity across New Zealand’s largest city where the average value hovers along at $1.05m. Within Auckland, there is not much variability between the sub-regions, with three month growth ranging from -1.1% in North Shore and +0.3% in Franklin.

Meanwhile both Hamilton and Tauranga continue to show modest value growth over the last three months of 0.3% and 0.7% respectively.

In Wellington similarities exist across the main four centres, however Upper Hutt continues to stand out with 2.7% quarterly growth and 11% annual growth, well above the other three centres. Wellington City tracked slightly down (0.2%) over the last three months, but values remain 7.4% above the same time last year as a lack of listings ensures some price pressure has remained, even in the quieter winter months. 

Across the regions, the performance was mixed, as the annual growth rate held or increased across five of the twelve centres; an improvement on the two recorded last month.

Graph 3
House Price Index, Main Centres Relative to December 2003

Invercargill property values saw a significant increase of 2.1% in August, taking the annual rate to 13.3% - the strongest percentage change in over ten years for the Deep South. Strong demand from owner occupiers has been a contributing factor to this growth. Given the strength of global agricultural commodity prices, the wider Southland region’s specialism in agriculture, and the associated manufacturing/processing activities (especially for dairy and meat), will be underpinning local economic activity and employment. And in turn, this will be providing impetus for the housing market.

Napier’s annual growth rate slide continued (11.4%), but it remains second among the other similarly sized regions. Nearby Hastings was one of the regions to see a slight lift in the annual rate of growth, up to 8.1% on the same time last year. 

Whanganui also saw a minor lift, up to 10.7% over the last year, while Palmerston North held strong at 9.9%. 

Gisborne rounded out the list of regions to see a lift in the annual growth rate - up 8.7% on the same time last year. As touched on last month, the Gisborne property market is supported by a relatively strong underlying economy with key industries including agriculture, forestry, and viticulture all doing reasonably well at present. Tourism in the area is also holding strong, with guest nights hovering at around record highs. 

Graph 4
Annual change in dwelling values

New Plymouth is now the region with the lowest annual growth rate, at 5.3%. Value growth has effectively stalled since April, probably in response to uncertainty surrounding the region off the back of the Government’s announcement banning new oil and gas exploration permits. 

Queenstown’s quarterly drop of 1.0% was noticeable and sees the annual rate drop to 5.3%; the lowest rate since September 2014. This could be evidence of a reduction in both demand and expectation from foreign buyers who are typically active in this market and are under scrutiny in the form of the ‘Foreign Buyer Ban’ being proposed by the Government.  

Mr Goodall said, “Property values continue to tick along at similar rates to what they have earlier in winter.” 

We retain a keen eye on a number of areas to help us assess the current property market situation. Property investors remain a key area of interest as both local and central Government continue to announce changes for the industry. The latest sees potential changes to the Tenancy Act in order to improve renters’ rights, while Auckland Council looks to address the underutilisation problems caused by the popularity of short stay options such as AirBnB and Bookabach.

Graph 5
Annual change in dwelling values, Territorial Authorities Main Urban Areas*

*Average value at 31 August 2018 inside bar

As widely expected the Reserve Bank held the OCR rate at 1.75% last month and intimated the low interest rate environment looks set to remain for even longer. This stability should give some confidence for current and potential home owners with mortgage affordability unlikely to worsen.

Business confidence is another area of considerable interest with the measure becoming a hot topic in political spheres in recent weeks. In general though it seems widely accepted that while the measure shouldn’t be outright ignored, it’s not forever and always a reliable economic indicator. Mr Goodall said, “While we remain cautious of the surveys’ implications for future economic growth, it seems that businesses are saying one thing but doing another at present with job growth still strong as well as growth in online job ads.”

Meanwhile KiwiBuild continues to take a high profile place at the forefront of many people’s minds. This week saw the first completed KiwiBuild houses unveiled, with the ballot to buy them opening in a week’s time. So some visible progress for the programme and this off the back of further information regarding the Government’s plan to set up an authority enabling it to relieve Auckland Council of its planning and consent authority for major housing developments in the City. There remains a long way to go to improve the supply side of the equation, particularly in Auckland and positive steps are being made, however any impact from the improved housing supply will take a while to be felt and in the meantime the overhanging shortfall will guard against a significant drop in prices across the city.

In summing up, Mr Goodall said “Market activity remains subdued and our indicators suggest there could be a slight worsening in housing market conditions yet before things get better.” 

“It remains to be seen whether this may contribute to the Reserve Bank considering a further loosening of the LVR restrictions which have been in place since November 2013 in order to bolster demand. With spring now upon us we’re also expecting a lift in listings, but unless there’s also a subsequent lift in demand this could simply prolong the slowdown due to buyer choice increasing and the power swinging more in their direction.”

Note the September release of the QV House Price Index includes revisions to the back series based on changes to the classifications for some property sales.   The revisions primarily affect the Council areas of Wellington and Nelson.