Values on doubtful foundations
Some areas caught up in the tail end of the property boom haven’t had the population growth to justify the lift.
Some areas of the country are more exposed than others if property prices start to fall. New data shows Auckland’s house prices have fallen, year-on-year, for the first time since 2011, and economists say the country’s largest city could lead the rest of the country into a decline.
Infometrics chief forecaster Gareth Kiernan compiled a list of the top 10 places most vulnerable to price falls. Wairoa topped the list. There, house prices had risen 22 per cent between September 2014 and March 2017.
That was followed by Gore and Kawerau, South Waikato, Timaru and Ashburton.
‘‘There’s a common theme among the top eight – to varying degrees – that they’re smaller outlying areas that have been caught up in the tail end of the boom, without any real solid fundamentals to justify the lift – population growth might have been reasonably strong, but not to the degree that justifies some of the house prices lifts we’ve seen,’’ Kiernan said.
‘‘Timaru and Ashburton are obviously a little different as they’ve had the quake refugee effect in early years as well, but then changes around irrigation/water policy could have potential negative effects for their economies over the medium-term.’’
Even Hamilton and Central Otago registered as a potential concern, he said, and featured at nine and 10 on the list.
‘‘Hamilton and Central Otago reflect spillovers from nearby booming markets that have helped drive their own markets up.
‘‘However, they are vulnerable to slowdowns in the Auckland and Queenstown markets that could have bigger flow-on effects for them as they are smaller or relatively more outlying – so arguably more at risk of an oversupply.’’
Nick Goodall, head of research at CoreLogic, said a number of areas had seen strong growth in prices but relatively restrained population growth, which could suggest an overinvestment in property.
‘‘One word of caution is that holiday home purchases could account for this increased demand, without contributing to population growth.’’
In Western Bay of Plenty, house values lifted 49 per cent between July 2011 and July 2017. The population grew 7.5 per cent but there was a 9.5 per cent increase in housing stock.
South Wairarapa District had 45.7 per cent value growth, 5.8 per cent population growth but a 7.7 per cent increase in stock.
The situation occurred in the South Island, too. In the Tasman District, the population grew 6 per cent and stock levels 8.9 per cent as prices lifted 37.2 per cent.
"Timaru and Ashburton are obviously a little different as they've had the quake refugee effect in early years as well." Gareth Kiernan of Infometrics