Property Report: Has Wellington lost it?

By Tony Verdon

Businesses are relocating, people are leaving, economic growth is slow and the property market is soft. Even the PM has put the boot into the capital. And all of it is having an effect on Auckland.

Photo / Getty Images
Photo / Getty Images

Auckland continues to grapple with the stresses and strains of strong economic growth as dozens of people a week swarm into the country's largest city. In contrast, Wellington leaders search the horizons for signs of the capital's economic salvation, as the Government continues to hack away at the ranks of bureaucrats and government spending.

Wellington has endured almost six years of Government efforts to restrain the growth of the public service, effectively locking in either declining or, at best, mediocre economic growth in the capital. Auckland enters this year with the best economic growth projections since before the global financial crisis, but Wellington struggles to shake off the impact of almost a decade of modest growth.

Economists and demographers warn the gap between the two cities will expand as Auckland continues to surge ahead and suck in jobs. With that wider gap will come both increased pressure on the Auckland housing market, and more resentment south of the Bombay Hills about the public cost of keeping the country's largest city functioning.

As Auckland continues to grow, so it will continue to play catch-up as it strives to cope with its ballooning population. This trend is forecast to continue for at least the next two decades. Auckland's annual gross domestic product grew by 2.4 per cent last year, compared with less than half that in Wellington.

However, economists say it would be wrong to write off the future economic prospects of Greater Wellington. They point to the city's successes in creating a robust creative sector, largely on the back of the efforts of Lord of the Rings duo Sir Peter Jackson and Sir Richard Taylor, and argue that while Auckland will continue to grow faster than the rest of the country, Wellington will eventually thrive again - as long as it remains the seat of government.

But as Auckland's growth momentum continues, fuelled by strong immigration, the gap between the two cities economies increases. The latest Census revealed that 9204 people moved from Wellington to live in Auckland during the seven years between 2006 and 2013. Wellington was the second-largest source of new Aucklanders, after Christchurch.

The Census showed Auckland was the fastest-growing region in the country, increasing its population by 8.5 per cent during the seven years, to 1,415,550. This was the equivalent of a city the size of Tauranga being added to the Auckland region. Auckland also accounted for more than half of New Zealand's entire population growth between 2006 and 2013. During the seven years between the last two censuses, Wellington retained its place as the country's third largest city, behind Auckland and Christchurch. Wellington's population increased by 5 per cent, to 190,956, during the seven years.

Infographic: Click here to view latest property data from CoreLogic.

Quotable Value figures show that house prices across the Auckland region increased by 14.4 per cent during the year to the end of January. Values were 27.2 per cent higher than the last peak in 2007. In the Wellington Region, property prices were just 2.7 per cent higher during the year to the end of January, and still languished 0.7 per cent below the last peak.

Professor Paul Spoonley, pro-vice chancellor at the College of Humanities and Social Services at Massey University, says the gap between Auckland and Wellington will continue to widen. Already Auckland is the home to one third of all New Zealanders, but over coming years this would increase to 37 or 38 per cent. "This degree of concentration of population is unusual," he says. "For example London and Paris both have around 18 per cent to 20 per cent of their country's total population."

Dublin, about the same size as Auckland, also had about a third of Ireland's total population, but it was not growing like Auckland. "It means Auckland is always trying to play catch-up with infrastructure spending, on services such as schools and transport."

Auckland would continue to suck in jobs and people, and with that growth would come increased resentment about the extent of public spending in the city.

Spoonley says there is already antagonism in the regions about the extent of government spending in Auckland, and this was likely to increase. "We are going to see a greater contrast between Auckland and Wellington," he says.

"Wellington is a city of government and departments while Auckland is a more private sector, internationally focused big city economy. A lot of the Wellington economy is built around managing the rest of New Zealand."

Sir Peter Jackson directs actor Martin Freeman on the Wellington set of The Hobbit. The city's creative sector is one of its successes.
Sir Peter Jackson directs actor Martin Freeman on the Wellington set of The Hobbit. The city's creative sector is one of its successes.

The capital lacks the diversity and depth of industry now based in Auckland, and its large number of private sector employers. Spoonley says the gap between the two cities would continue to widen because Auckland was the favoured destination for immigrants. "Wellington is not a major recipient of immigrants, 60 per cent of whom settle in Auckland," he says.

Immigrants generated significant economic activity both as they became established in their new city, and they tended to have higher on-going expenditure which helped generate spending and in turn jobs.

Last year Prime Minister John Key angered Wellingtonians when he suggested their city was "dying". He subsequently tried to back-track from the remark but it does contain an element of truth. A comparison of property values in the two cities shows how lacklustre much of the Wellington property market has been lately. The E-Valuer estimate of average value at the end of January in Epsom was $1,310,000, in Remuera it was $1,326,950, and in Mt Eden it was $981,000. Comparable suburbs in Wellington include Khandallah at $677,700, Kelburn at $814,800 and Wadestown at $711,000.

Wellington City leaders have been keen, especially since Key's comments, to promote what they believe is progress towards economic growth. They cite economic researcher Infometric's report released last month that showed GDP in Wellington City increased 2.6 per cent during the year to March 2013, which matched the growth rate achieved by the whole country during the same period.

Higher value-adding, knowledge-based service industries, which includes Wellington-based stock market hero Xero, accounted for the largest proportion of GDP (55.2 per cent) in the city. Nationally these industries accounted for 31.1 per cent of the economy.

The Infometrics report, commissioned by the Wellington City Council, also showed the capital's population increase kept pace with the country's overall population increase during the year to March 2013. Professional, scientific and technical services made the largest contribution to employment growth in Wellington, contributing 968 jobs during the same period. The next largest contributor was public administration and safety (689 jobs) followed by financial and insurance services (299 jobs). Wellington's proposals to boost economic development include a film museum, improved international air connections, establishing a tech precinct in the central city to foster growth of high tech companies, and promoting the capital as "a highly educated, cosmopolitan international city".

The city's economic growth agenda features the suburb of Miramar, describing it as "once the epitome of quiet and unassuming Kiwi suburbia". Miramar is now the home to Wellington's international film industry, employing more than 5000 people.

The council says the proposed extension of Wellington Airport's runway and film tax breaks leading to the filming of the new Avatar movie, provide opportunities to develop a film precinct and associated education facilities, and an enterprise zone.

Former Reserve Bank economist Rodney Dickens says government cost-cutting and decentralisation of some services in the early 1990s hit Wellington hard. The head offices of many large corporates, including banks, moved north.

Many manufacturers also moved to Auckland, closer to their largest customer base. This reduced the Wellington Region's industrial and manufacturing base in the Hutt Valley and around Porirua. The drift of business northwards continues, with BP among the latest to decide to move its New Zealand headquarters from Wellington to Auckland. But after the introduction of the MMP electoral system in 1996 and a change of government three years later, there was some degree of recentralisation of government services in the capital.

Dickens, now general manager of Strategic Risk Management, says Wellington also suffered in the aftermath of the Christchurch earthquakes, with many people seeing the destruction and turmoil as a good reason to move north from the earthquake-prone capital. "So cutbacks in government and the impact of the Christchurch earthquakes will have encouraged more people to go to Auckland rather than Wellington," he said.

While Wellington had done well in developing its creative sector, its economy was still largely reliant on government. Dickens says other strong factors contributing to the northward drift from Wellington's "café society" included Auckland's better climate which suited people keen on outdoor recreational pursuits.

- NZ Herald

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