Tauranga has 11 suburbs where the average house is valued at more than $1 million. Photo / Getty Images
A senior economist says Tauranga's rising house prices are putting home ownership out of reach for average-income earners.
Prospective home buyers now need an annual income of more than $152,000 to afford to buy an average house in the city, according to a new report.
However, real estate agents say the city offers a range of property values and the first home buyer market remains strong, with some saving up overseas to buy into Tauranga's million-dollar market.
Infometrics' latest report looked at average house values in the June 2021 quarter and calculated how much income people needed to buy if 30 per cent was spent on a mortgage with a 4 per cent interest rate and a 30-year term.
In Tauranga, the mean house value was $994,708. That meant the annual income to afford to buy was $152,434. The mean income of Tauranga households was $95,106.
Infometrics senior economist Nick Brunsdon said Tauranga's average house value had grown an "eye-watering" 26.4 per cent in the past year.
"Internationally, housing is considered affordable if housing costs are no more than 30 per cent of a household's income.
"On this basis, a family would need an annual income of $152,400, plus a $198,900 deposit, to affordably buy an average house in Tauranga ...
"Clearly, housing is nowhere near being affordable."
Brunsdon said household incomes were an average figure.
"In many cases, achieving a six-digit household income will require multiple family members to be working full time, and potentially other sacrifices such as taking in boarders to help save up a deposit or cover the mortgage."
In the Western Bay of Plenty where the mean house value was $885,310, the annual income needed to afford to buy was $135,563. The mean household income was $124,684.
The annual income to afford to buy an average home in the Thames-Coromandel district was $166,329.
Brunsdon said that illustrated how high prices for holiday houses, funded by out-of-town incomes, could skew the market for locals.
Simon Anderson, managing director of Realty Group Ltd, which operates Eves and Bayleys, said Tauranga was fortunate to have a "big range" of property values.
"The Bay of Plenty is a very desirable area and anyone in real estate knows location, location, location, is value.
"The prices are going to be higher in desirable areas."
Anderson said New Zealand's real estate market was expensive and house prices had jumped more than 20 per cent in the past 12 months.
There was minimal housing stock and houses were being snapped up quickly even on virtual auctions, he said.
"Even a lockdown has not effected the desirability of people to own property.
"So it's affordable for someone."
Tauranga Harcourts managing director Simon Martin said while some had been put out by the loan-to-value ratios, the city's first-home buyer market remained strong.
"Some have gone back to the drawing board to save a bit more," he said.
"But you can still see the elation on their faces when they do get one. Some of them have saved for some time to get there."
Martin said half the sales they had seen were homes under the $900,000 mark and the other half were above that figure.
"Some have come back from overseas after saving a bit of money and looking to buy in the $1m market. Some are buying cheaper."
Responding to the Infometrics figures, Martin said the banks were assessing people's ability to buy under "pretty strict" criteria and sales were still happening.
"People are still buying."
Tremains Bay of Plenty managing director Anton Jones said it was tough for people wanting to get into the market.
"But if you're getting into your first home, you're not looking at the average, you're more likely to be looking at houses below the average."
It also depended on people's income and equity, he said.
"The equity proportion is very critical in how much you have to borrow.
"It's all about finding something that suits your budget and how much you're earning.
"In some cases, people may have to look further afield to be able to buy."
According to the Real Estate Institute of New Zealand, Tauranga's median house price jumped 30.5per cent in the year to July to $930,000, from $712,500.
REINZ chief executive Jen Baird said the most common price band in the past few months was between $600,000 and $900,000, accounting for 52.7 per cent of sales.
Baird said the Bay of Plenty was a popular destination for those looking to relocate out of the big cities, and this had influenced the increase of median house prices over the past year.
"Bay of Plenty is also an attractive option for residential investors and developers looking for opportunities to build higher-density properties by the beach, and luxury homes, which tend to fall into the upper price brackets."
However, Baird said the Bay was also experiencing a low level of stock resulting in strong competition for available properties as demand continues to outweigh supply, thus putting upward pressure on prices.
"With the warmer months just around the corner and the easing of Covid-19 alert levels to come, more properties are expected to come to market, which may stabilise these prices."
Tauranga now has 11 suburbs with a median property value of $1 million, new OneRoof analysis shows.
The news comes as a new house price index launched by OneRoof.co.nz showed the city's average property value has now reached above the million-dollar mark.
The index, developed by OneRoof's data partner Valocity, showed Tauranga's average property value jumped 6.6 per cent to $1,075,000 from $1,008,000 in the three months to August 31.
The wider Bay of Plenty's property values climbed 5.5 per cent to $945,000.
James Wilson, director of valuation at Valocity, said 11 of the city's 23 suburbs were now over $1m, with Pāpāmoa Beach leading the growth in the past quarter at 11per cent.
The five top value suburbs were Tauriko ($1.8m), Mount Maunganui ($1.4m), Kairua ($1.3m), Matua ($1.1m) and Matapihi ($1.1m).
"The city continues to attract buyers from other main centres seeking a better remote- working lifestyle, at lower price. Supply is yet to catch up to the strong demand."
Wilson said the Valocity Value Index showed Tauranga's average index value was now above the $1m mark.
But, he said, while the market has continued to climb in the past three months the rate of increase had dropped to 6.6 per cent from 7.7 per cent.
"Whilst the rate of growth has stalled, values are still increasing and have done so rapidly over the past 12months.
"We are now seeing the reality of what impact this has on the actual value of stock in the area."
The market share by owner-occupiers (first-home buyers and movers) had increased at the expense of investors and multi homeowners.
"That is potentially due to the March policy changes impacting buyer decisions."
OneRoof editor Owen Vaughan said Tauranga had recorded one of the steepest value growths this quarter.
He said there were a lot of high-value sales in beachfront areas, but also in areas that were not prime real estate.
"Everyone just wants to tip into Tauranga. That is why the average value is now above a million."
Tauranga:
Mean house value: $994,708
Annual income to afford to buy: $152,434
Mean household income: $95,106
Western Bay of Plenty:
Mean house value: $885,310
Annual income to afford to buy: $135,563
Mean household income: $124,684
Rotorua:
Mean house value: $650,546
Annual income to afford to buy: $99,359
Mean household income: $103,049
Thames-Coromandel:
Mean house value: $1,084,811
Annual income to afford to buy: $166,329
Mean household income: $69,101
Source: Infometrics
'This decision has not been made lightly'.