House price growth in fast growing towns to slow

Towns which have had low population growth, but strong house price growth in recent years are vulnerable to a correction, Arcus economist Rozanna Wozniak says.

Tuesday, September 19th 2006, 12:00AM

by The Landlord

She says the housing bubble has been strongest in provincial New Zealand over recent years, but the emphasis may now move to larger urban areas.

“There are many towns and cities where house prices have soared, but where, based on population growth, the sustainability of these gains is questionable,” she says.

Several districts including South Waikato, Wairoa, South Taranaki, Ruapehu, Rangitikei, Clutha and Gore experienced a decline in the number of occupied dwellings between March 2001 and March 2006.

ost still enjoyed rapid rises in house prices, the strongest being Clutha at 132%. The only laggard was Wairoa, where house prices rose 56%, well in excess of the rate of inflation, but still well behind the national average.

Wozniak says all of these districts experienced significant building activity. For example South Taranaki District has 90 fewer occupied dwellings in March 2006 than there were five years earlier, yet 261 consents were issued during that time.

“There are also many districts that had low population growth and significant building activity but rapid house price growth. House prices in Westland almost doubled, despite an increase in occupied households of only 6.5%.

Wozniak says while the percentage gains look big the actual dollar gains can be quite low. For instance a 20% increase in house prices on a $80,000 house is only $16,000.

She says investors may have targeted these places because they are cheap, and/or that residents may have taken the opportunity to trade up.

However, rapid house price growth can only be sustained if people shift into the region.

“How else can the additional homes that were built be absorbed? Upgrading only amounts to a redistribution of existing homes, while homes that are bought by investors still need tenants.

Wozniak says that the provincial areas may see stagnant house price growth going forward and the action will shift to places like Tauranga, Auckland, Nelson and Queenstown, which enjoy rapid population growth.

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