Wellington: Fault free
Befitting the capital city of the nation Wellington traditionally doesn’t indulge in the property frenzy seen in other parts. And, Rob Hosking reports, that’s not about to change.
Wednesday, August 30th 2006, 12:00AM
by Rob Hosking
Wellington properties may be sitting on a fault-line or two but there are no cracks appearing in the Wellington property market.
Slowdown? What slowdown has been the reaction to New Zealand Property Magazine’s queries about the state of the Wellington property market for 2006.
To a certain extent, Wellington has always been like this. The capital’s house prices tend not to exhibit the great exhibitionist hikes seen in other, more flashy locations around the country. But neither do they see the same troughs.
It probably has something to do with being the seat of government. And, as we know, government has been going through a boom phase over recent years. Jobs in the core public sector have been on the rise and the local housing market has reflected that.
In short, there is no sign of the slowing property market seen in some other parts of the country.
“All too often when people talk about the property market they really mean Auckland,” says Tommy Heptinstall, managing director of Tommy’s Real Estate.
“But Auckland is very much a boom and bust sort of town – Wellington is a lot steadier. I remember going to Auckland 15 years ago and going along to auctions and there were no bids coming in. I came to Wellington and was rushed off my feet.”
Recent years have seen quite steady growth in house values in Wellington – not the huge increases seen in some areas of Auckland, or other pockets around the country such as Tauranga or Queenstown – but good, double-figure growth nonetheless.
John Ross, who heads the Real Estate Institute’s Wellington branch and also is from Professionals Real Estate in Lower Hutt, says “we are not having a bust, perhaps because we didn’t have a boom either”.
Nevertheless, he cites regional growth figures for the past five years which show good solid, double-figure rises most years.
Median house prices rose 9.45% for the year to December 2002 – and that was the last single figure rise. The following year saw a median rise of 12,54%. December 2004 saw a higher median increase of 14.86%, and the most recent figures, to December last year, saw a similar rise – a median house price increase of 14.39%.
The theory of a “no boom, no bust” Wellington real estate cycle is backed up by a recent study by the Treasury.
That study, into national housing affordability, found house prices in Wellington have tended to steadily rise rather than rise and fall dramatically.
The net result is houses in the capital are more affordable.
“The difference between Auckland and Wellington is interesting, since they have the two highest incomes and house prices, yet Wellington is significantly more affordable,” says the report.
“The difference lies in the fact that their incomes are relatively the same, yet Auckland’s house prices are far greater than those of Wellington.”
The signs are also there that Wellington will weather the coming slowdown in the housing market rather well.
“You look at the number of new dwelling consents in the region,” says John Ross.
“These were up 25% for the last two months of last year. Nationally, the number of consents is down. So that has to imply the city has a good base for at least another year.”
All that adds up to a pretty positive outlook but that does not mean there is not some slackening going on, just that it is a long way from being a bust.
“Last month we had 86 transactions,” says Heptinstall. “Our best ever month was 106, so it’s still going pretty well.” Those 86 transactions do not include any apartment developments – these can boost a month's figures, he says.
What has happened though is a bit more haggling coming into transactions.
“There are still plenty of buyers. But there’s a bit more negotiation coming in. For the past few years houses have just sold themselves, but I get the feeling at the moment there’s a bit more negotiating going on.
“That then becomes a skills issue for people like us – it’s going to become a bit more crucial that people who sell property can put deals together.”
Hotspots in the region include Petone, which has gone from being a somewhat down-at-heel suburb to a more gentrified, interesting place to be.
Some liken it to what happened to Auckland’s Ponsonby 15-20 years ago, although perhaps Onehunga is a better comparison.
There are also some large-scale developments in the Hutt region.
Lower Hutt and Petone have often been dominated by first-home buyers who work in the city and live there as a stepping stone with the region’s public transport system making it easy to get to and from Wellington city itself.
“There’s a changing attitude now in people living outside the main city. There’s a recognition that Lower Hutt has changed and that it’s a bit of a newer breed. Now they’re prepared to venture to the Hutt, or to Petone at least.”
Lower Hutt’s first apartment block is on the way – the 12 to 14 floor Bloomfield development. That has still to get resource consent but Ross says it is a pointer to the future.
“There’s a drive now to find more developers to build more of these. There’s a shortage of apartments to meet the demand that’s already there.”
Elsewhere there are 180 new homes being built, and a development of several hundred at Porirua.
“There are also pockets of new developments in Wellington city – Seatoun, Kilbirne and Johnsonville have all got new sub-divisions going in.”
These tend to be smaller because the city itself has a much more compact geography.
Ross also points to the enthusiasm people tend to have for living in Wellington. Although not inherently measurable, he notes a higher degree of enthusiasm among Wellingtonians for living in the area than is heard in some other centres.
“And we’ve got the example of people such as Peter Jackson, who could live anywhere but works and lives in Wellington. And take the Trade Me guy – Sam Morgan - who also chooses to live in Wellington.”
As far as sales go, Ross says there is a slight slowing, but they are still running strong – 22 to 30 days on average.
“That’s still a pretty buoyant market. And just from an investment point of view, having an investment of $300,000 or whatever that you can realise in 30 days is pretty good going.”
How much the Wellington market will slow is still very much an open question.
On the renting side, there are some intriguing indicators.
More people are renting, and Mike Seeger, of Active Property Management, says frankly he is unsure what is driving it.
“The demand has absolutely staggered us. Normally you get a big rush from students at the start of the year – we don’t really manage student accommodation but there’s an impact on the market in January-February.
“But the demand tends to taper off after that and as we get into winter. This year, though, it has stayed strong. There have been a good five years, but this has been unprecedented.”
As an example of how quickly rental accommodation moves, Seeger cites a recent listing in Aro Valley.
“We advertised … actually, we didn’t really advertise it, we put this two-bedroom property on the Internet on Friday afternoon.
“By midday the next day we’d had 30 inquires. Some people are getting really desperate, particularly for those two-bedroom, close-to-the-city spaces.”
Seeger says he can’t be certain of the causes, but he points to a few likely factors.
Firstly, like the rest of the market, is the boom in government services.
Thorndon, which is the nearest suburb to many major government offices, is particularly popular.
The other factor is the anticipated slowdown – the one which does not appear to be happening, at least not yet.
A disproportionately large number of people who have taken out leases in the first part of this year have gone for 12-month leases. Previously six-month leases would have been much more popular.
Two possible reasons present themselves: one is that they are people who have moved to Wellington on year-long government contracts and who expect to move on after that.
The other possibility is more closely related to the economic predictions people have seen in the news of late. Many are people who intend to move to Wellington permanently, and who in the past would have taken a six-month lease while they found a place to buy.
“They now seem to want to see what will happen to the property prices before they buy,” says Seeger.
If history is any guide, however, those renters will not have the chance at cheaper prices in 12 months time.
Reproduced from the NZ Property Magazine, May 2006.
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Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.
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