OneRoof: Tauranga's housing affordability takes huge hit

The housing market boom has changed the face of Tauranga, a new report says. Photo / George Novak

The housing market boom has changed the face of Tauranga, turning previously affordable suburbs into no-go areas for first home buyers, a new report shows.

Bay experts say $1 million for property in Tauranga was the "norm" with one agent saying entry into the city's luxury residential market was now north of $2m.

New analysis of house price inflation between January 2020 and January 2022 shows an explosion in the overall number of New Zealand suburbs with an average property value of $1m or more, rising from 298 to 894.

The boom has had a dramatic effect on Tauranga, where the number of $1m-plus suburbs has grown from three to 15 - covering 66 per cent of the city.

The research, carried out by NZME-owned property listing site OneRoof.co.nz and its data partner, Valocity, and published in the OneRoof Property Report, shows affordability in the city is under pressure.

OneRoof editor Owen Vaughan. Photo / NZME

OneRoof editor Owen Vaughan said the housing frenzy of the past two years, fuelled by low-interest rates and fear of missing out, has radically altered the landscape for buyers and sellers.

"Between January 2020, just before Covid struck, and January 2022, Tauranga's average property value grew 53.2 per cent to $1.24m.

"That's one of the country's biggest growth rates, with houses in the city typically $430,000 more expensive now than they were two years ago.

"Our research shows pressure at the bottom of the market."

In 2020, Tauranga's cheapest suburb, Parkvale, had an average property value of less than $500,000. A further six suburbs had an average property value between $500,000 and $600,000, putting them well within reach of most first home buyers.

"Now, Parkvale has an average property value of $770,000, and is one of only eight suburbs that sits in the sub-$1m price bracket."

Vaughan said rising interest rates would put pressure on those who bought at the height of the market last year.

"While many homeowners will be pleased their biggest asset has grown in value, the bottom rung of the ladder has been pulled up, leaving many with no choice but to stretch themselves and take on stressful levels of debt."

Oliver Road Estate Agents partners Jason Eves and Cameron Winter. Photo / Supplied

Oliver Road Estate Agents partner Jason Eves said three years ago, $1.25m to $1.5m was considered to be the entry-level to the top end of the city's luxury and aspirational residential market.

"That entry point now sits north of $2m."

Eves said the substantial market growth from January 2020 to 2022 pushed what was already one of the highest median house price regions to above $1m for Tauranga and Western Bay.

"Tauranga being one of the most desirable areas to live in, accompanied by our growth and popularity as home base for many sectors of business, has brought capable competition for local residential property into the area, outstripping supply in the traditionally higher value suburbs and increasing value in the lower."

Eves said the percentage of property in the upper end of the market grew steadily over the past two years to the point where most of Tauranga's market now sits above the median house price.

"Given $1m, generally speaking no longer has the buying power or significance it once had, it begs the question whether this arbitrary number represents a meaningful threshold between the ordinary and the aspirational."

Managing director of Tremains Bay of Plenty Anton Jones. Photo / George Novak

Tremains Bay of Plenty managing director Anton Jones said the million-dollar market was now "normal" in Tauranga.

"It used to be unheard of in some respects and it's now the norm, unfortunately a lot of people simply can't afford that.

"Obviously that means everyone pays more somewhere along the line."

Chief executive of the Realty Group, which operates Eves and Bayleys, Heath Young said there was no doubt Rotorua and Tauranga had experienced significant price growth in the past two years.

"This has been fuelled by cheap borrowing costs and the inability ... [of] new build housing to match supply for those moving into the regions."

Young said the government had an opportunity to be smarter about how it addressed some of the recessionary risk in response to Covid-19.

Chief executive of the Realty Group, which operates Eves and Bayleys, Heath Young. Photo / Andrew Warner

"The Government not only spent large sums, they released printed money and quantitatively eased billions of funds into the banking system at record low funding rates to give the economy confidence, which in reality had the indirect and unintended impact of priming and causing a large component of the recent two-year housing growth."

Young said what Government could have been done was allocate part of its funds to local councils for infrastructure to partner with local private developers to open up new housing supply.

"This would be done on the proviso that some of this new supply would be restricted to first home buyers.

"This would've gone a long way to unlocking the new housing supply that these regions so desperately need, along with providing first home buyers with some good quality, cost-effective options, and effectively producing more normalised housing price growth."

The data showed the city most affected by the boom was Wellington, where the share of suburbs with an average property value of less than $1m fell from 78 per cent (44 suburbs) in January 2020 to 12 per cent (seven suburbs) in January 2022.

The number of sub-$1m suburbs in Auckland fell from 123 (44 per cent) to 26 (9 per cent) over the same period, while the number of suburbs in the $1.5m-plus band exploded from 57 to 149.

The least changed by the boom was Dunedin, where the overall average property value grew 33.4 per cent over the two-year period from $568,000 to $758,000 and the number of sub-$1m suburbs fell 14 per cent.

Valocity head of research Wayne Shum. Photo / Supplied

Valocity head of research Wayne Shum said the growth over the two-year period was fuelled by record-low mortgage rates and the suspension of the loan-to-value ratio restrictions after Covid-19 hit in March 2020.

"The rate of house price growth over the last two years was highly unusual. Before Covid, it had taken New Zealand's property market almost five years to achieve the same amount of value growth, with Canterbury and West Coast taking more than a decade to match their growth levels."

However, Shum said the housing market was unlikely to see the same amount of growth in 2022.

"As inflation begins to bite and mortgage rate rises, we are likely to see the growth rate moderate to the level seen pre-Covid. And expect to see some value softening in some locations or within some property types."