Jono Ingerson: Values rise as property shortage continues

Wellington values have continued to drop as potential restructuring of the public sector has made many potential home buyers and sellers cautious. File photo / NZ Herald

In the last few months we have seen another change in the New Zealand property market. From late 2009 nationwide values began to gradually slide, and this continued through until late 2010 when values began to stabilise. In the last few months, however, values have begun to gradually increase again. This increase was at first experienced solely by Auckland, but has since been followed by some other parts of the country, notably Canterbury.

At a nationwide level, values according to the QV index are now 5.2 per cent below the market peak of late 2007. Across the wider Auckland area values are currently only 0.6 per cent below the market peak and, if the trend continues, then in a month or two values in Auckland will have reached a new high. The recent increase in values does not mean that the market has returned to anything approaching 'normal'.

First, the number of sales we saw nationwide in the three months to the end of June was about 20 per cent below the long-term average, and about 40 per cent below peak levels. Secondly, there is a general shortage of quality properties for sale, particularly in the main centres. This is leading to frustration for many potential buyers who simply can't find a property and is, of course, contributing to the lower-than normal sales volume. Thirdly, there remains a good deal of caution amongst both buyers and sellers, slowing the whole process down. Fourthly, the market is very different between cities and towns, between suburbs, even between streets or houses on the same street. More than ever, general statements about the property market cannot be applied to all situations.

So let's look at some of those differences between areas. The wider Auckland area we know is performing more strongly than other parts of the country. But within Auckland there are differences across the Super City. There has been strong growth in values in the past few months in the old Auckland City, modest increases in Rodney, North Shore and Waitakere, while the Manukau, Papakura and Franklin areas have stayed more or less stable.

Looking across the rest of the North Island, values in Hamilton and Tauranga have been relatively stable for the past six months, while Wellington has continued to drop as potential restructuring of the public sector has made many potential home buyers and sellers cautious.

The property market in Canterbury has, not surprisingly, been highly disrupted by the string of earthquakes since September. Immediately after the first quake, values increased for a few months and then dropped just before the February quake, and since then have continued to grow, leaving current values about 0.5 per cent above the same time last year. Sales activity is naturally concentrated in the less-damaged areas of Christchurch where strong demand for good houses in undamaged areas has driven the value increase. The rest of the Canterbury Region has also seen value growth, particularly in Ashburton, but also in the towns just to the west and north of Christchurch, such as Rolleston and Rangiora.

Looking at the tables of data for the main suburbs, the differences between areas also become clear. Many more suburbs in the Auckland area have seen values increase during the three months to the end of June than was the case in other parts of the country.

About 60 per cent of the suburbs in the North Shore and Manukau areas increased in value, with Northcote Pt and Manurewa East leading the way in each area respectively, with values increasing around 5 per cent. In the old Auckland City, three quarters of the suburbs grew in value, led by Ellerslie, One Tree Hill and Onehunga. These increases reflect two main forces at work in the Auckland area; one is the strong demand for quality properties in established central suburbs; the other is increased activity from first-home buyers. It is notable that property investors are largely inactive at the moment, which will be affecting values in some areas.

Looking outside Auckland, most places have a much smaller proportion of suburbs with increasing values. In Whangarei and Northland the market has seen some recovery in recent months which is a welcome relief after many months of continued declines. In Tauranga, more than half the suburbs are on the rise, as is the case in Horowhenua/Kapiti. Across the Wellington area, 80 to 90 per cent of the suburbs have declined in value, although in Wellington City at least the drops are slight.

So where is the market heading? A general shortage of properties is likely to see values continuing to rise in many parts of Auckland. In the coming months it is likely that
more parts of the country will follow Auckland and begin to increase also, with the probable exception of Wellington. As spring approaches, it is likely that more properties will come on the market which may see sales volumes increase a little more also. While general consumer confidence seems to be increasing, there are still headwinds in the market which are likely to keep things below normal levels for the time being.