The housing market boom has changed the face of Rotorua, a new report says. Photo / Andrew Warner
The housing market boom has changed the face of Rotorua, turning previously affordable suburbs into no-go areas for first-home buyers, a new report says.
But local real estate agents say Rotorua is still one of the more affordable cities in the Bay of Plenty.
New analysis of house price inflation between January 2020 and January 2022 shows a sharp decrease in the overall number of New Zealand suburbs with an average property value of less than $500,000, from 975 to 434.
The boom has had a dramatic effect on Rotorua, where the number of sub-$500,000 suburbs in the city dropped from 19 to three and $1m-plus suburbs jumped from four to 10.
The research, carried out by NZME-owned property listing site OneRoof.co.nz and its data partner, Valocity, and published in the OneRoof Property Report, showed affordability in the city was under pressure.
OneRoof editor Owen Vaughan said the housing frenzy of the last two years, fuelled by low-interest rates and the fear of missing out, has radically altered the landscape for buyers and sellers.
Rotorua's average property value has grown 28 per cent from $587,000 to $755,000 in the last two years, he said.
"That's one of the smallest growth rates in the country over the two-year period, but a near-$200,000 jump in prices is not unsubstantial for an area where many Kiwis struggle to make ends meet.
"Our research shows there are fewer than 5000 homes in the territorial authority that are in that sub-$500,000 bracket, down from just under 10,000 in 2020 and 18,400 in 2014."
Vaughan said rising interest rates would put pressure on those who bought at the height of the market last year.
"While many homeowners will be pleased that their biggest asset has grown in value, the bottom rung of the ladder has been pulled up, leaving many with no choice but to stretch themselves and take on stressful levels of debt."
But Professionals McDowell Real Estate co-owner Steve Lovegrove said the "dramatic effect" of the housing boom had only highlighted Rotorua's need for more houses.
Lovegrove said in the last six years Rotorua had been an exceptional place to own property.
"I think it's a place that demonstrates opportunity, and I firmly believe there is more opportunity to come."
He said there was a major slowdown of sales in the mid-to-low priced properties but "healthy activity" in the mid-to-high priced properties, with Covid proving "nothing is predictable".
There had been a lift in listings but buyers were subdued, there were fewer people through open homes and less fear of missing out, but he said it would only be temporary.
Lovegrove said one of the reasons Rotorua had not seen price growth like other areas such as Tauranga, Auckland and Hamilton was because it had not seen a large growth in construction of new builds.
"But now Rotorua is much more prepared for its growth than it has been in the last six years. There is an appetite from government and private developers.
"For a long time Rotorua has been recycling older properties and we have had investment put back into them.
"There has been a massive conversion in the last five or six years in Rotorua from property that was typically rentals to now owner-occupied."
First National principal and Rotorua Real Estate Institue of New Zealand spokeswoman Ann Crossley said the price caps on the First Home Grant needed to be readjusted.
The grant can be used to help first-home buyers get onto the property ladder but the price cap in Rotorua was $400,000 for an existing property, which she said was much less than the city's $755,000 average value.
Crossley said people with budgets of only $400,000 were hit "doubly hard" as properties in that price bracket generally needed a lot of work.
For people to buy property Crossley said something had to give.
"If you've got a wish list, something has to change. If the price isn't flexible then something else has to be, and often it is the suburb.
"We have to remember our first homes aren't going to be our dream homes.
"For a while, there was a whole generation of young people who wanted what it took their parents 30 years to achieve."
But, Crossley said Rotorua was still more affordable than other areas such as Auckland and Tauranga.
"Because we didn't see the boom as much, we won't see the crash as much."
Heath Young, chief executive of the Realty Group, which operates Eves and Bayleys, said there was no doubt Rotorua and Tauranga had experienced significant price growth in the last two years.
"This has been fuelled by cheap borrowing costs and the inability to keep pace with new-build housing to match supply for those moving into the regions."
Young said the Government had an opportunity to be smarter about how it addressed some of the recessionary risk in response to Covid-19.
"The Government not only spent large sums, it quantitatively eased billions of funds into the banking system at record low funding rates to give the economy confidence. This in reality had the indirect and unintended impact of priming and causing a large component of the recent two-year housing growth."
Young said what could have been done was allocate part of its funds to local councils for infrastructure to partner with local private developers to open up new housing supply.
"This would be done on the proviso that some of this new supply would be restricted to first home buyers.
"This would have gone a long way towards unlocking the new housing supply that these regions so desperately need, along with providing first home buyers with some good quality, cost-effective options, and effectively producing more normalised housing price growth."
The research also showed disruptions in the country's seven major metros. The city most affected by the boom was Wellington, where the share of suburbs with an average property value of less than $1m fell from 78 per cent (44 suburbs) in January 2020 to 12 per cent (seven suburbs) in January 2022.
Tauranga saw the next biggest fall in sub-$1m suburbs: 86 per cent of the city (20 suburbs) was in the price bracket in 2020 but by 2022 that had fallen to 34 per cent, eight suburbs.
The number of sub-$1m suburbs in Auckland fell from 123 (44 per cent) to 26 (9 per cent) over the same period, while the number of suburbs in the $1.5m-plus band exploded from 57 to 149.
The least changed by the boom was Dunedin, where the overall average property value grew 33.4 per cent over the two-year period from $568,000 to $758,000 and the number of sub-$1m suburbs fell 14 per cent.
Valocity head of research Wayne Shum said the growth over the two-year period was fuelled by record-low mortgage rates and the suspension of the loan-to-value ratio restrictions after Covid-19 hit in March 2020.
"The rate of house price growth over the last two years was highly unusual. Before Covid, it had taken New Zealand's property market almost five years to achieve the same amount of value growth, with Canterbury and West Coast taking more than a decade to match their growth levels."
However, Shum said the housing market was unlikely to see the same amount of growth in 2022.
"As inflation begins to bite and mortgage rate rises, we are likely to see the growth rate moderate to level seen pre-Covid. And expect to see some value softening in some locations or within some property types."
A woman, 25, has been charged with assault.