House prices in Tauranga are making it increasingly difficult to attract people to the city. Photo / File
"A worse economic effect than the pandemic" is predicted for Tauranga with house prices deterring people from moving to the city for work.
That's according to Nigel Tutt, the chief executive of Tauranga's economic development organisation, Priority One.
It comes off the back of CoreLogic NZ's latest House Price Index which shows Tauranga's average property value is now $888,930, up from $876,122 in the last quarter.
The average is found through Corelogic's house price index process, reflecting the value of the entire stock in an area, as opposed to what has sold at any point in time.
This was despite the monthly rate slowing from 6.8 per cent in December, to a more sustainable 1.5 per cent in January.
This made the quarter more consistent at 10.6 per cent.
There was a noticeable lift in mortgaged investors which took 27 per cent of sales in the last quarter of last year, the highest since 2017.
In the last quarter, Tauranga's quarterly growth rate rose an "extraordinary" 10.2 per cent from $800,000 the previous quarter.
Hamish Ellis, 33, and his partner have been looking to get into the Tauranga housing market for the past nine months, selling their Christchurch home.
They've been to open homes, auctions, and put in an offer, with no success against the small supply and rising prices.
This meant he has to work remotely, which he says is not ideal.
"It definitely impacts the ability to gain traction ... I wouldn't be able to get the same level of understanding while being in Auckland.
He said the price of housing was "100 per cent" putting him off moving to Tauranga.
"The only real driver is that [the housing market in] Auckland is worse."
Tutt said higher house prices and a tight market meant attracting talent to businesses in the city was getting increasingly difficult.
"We've seen that as a barrier over the past few years and it will become more of a problem as employment intentions improve over the next year," he said.
"The effect of rapid increases is bad for our community and will likely have a worse economic effect than the pandemic."
He said the problem was "large and complex" and Tauranga was worse-off than other places in the country due to the proximity to Auckland and desirability of the area.
He believed more housing supply was needed to solve the issue, and building up as well as out.
"We also need to create higher-value jobs in our economy to lift incomes and affordability. Incremental change won't be enough in this area."
Kiri Burney, director of Ryan + Alexander recruitment in Tauranga, said recruiting skilled workers to the region was difficult with rising house prices and stagnant salary levels.
"Selling the lifestyle dream to potential employees diminishes when living in the Bay of Plenty has become so expensive."
General manager of Tremains Bay of Plenty and Waikato, Anton Jones, said higher-end properties were selling slightly slower
However, there were still a lot of people going through open homes, multi-offers being placed, and auction sales. which highlighted the demand which drove up the price, he said.
"More often than not, we're getting significantly more than what the first offer was."
Last week, there was a four-way multi-offer, and the person who won had already missed out on four properties prior.
"Inevitably, they're going to put in a better price because they don't want to miss out on another one," which he said was common.
Tauranga Harcourts managing director Simon Martin said it all came down to supply and demand.
This was demonstrated in the rise in multi-offers and houses going to auction, he said.
Although it was difficult to predict what would happen this year, he said external factors, which also helped drive the growing values, would impact the rate of value growth.
Tauranga Budget Advisory Service manager Shirley McCombe said the increasing cost of housing is widening the economic divide in communities, "trapping more and more people in poverty".
McCombe said their clients couldn't afford to buy, rents were rising and they lived with the constant stress of losing their home.
"For those stuck in emergency and transitional housing, this affects employment, schooling, feeling of belonging, community."
It was now "impossible" for those on low incomes to buy their own homes unless they are working with programmes like the Doing Good Foundation or had family support, she said.
Corelogic head of research Nick Goodall said they expected value growth to slow down later in the year, "probably short of the million-dollar mark".
He said Tauranga was "unique" due to a larger retirement population, generally with accumulated wealth.
Tauranga is still a market with strong owner-occupier activity, "next-home buyers, you could say"- taking 31 per cent of sales in the fourth quarter last year.
Recently, there had been an increase in people upsizing properties which he said could become more difficult as values continued to grow.
Goodall said the market would likely return to some form of normality to a more sustainable growth rate.