Southland has displaced Otago to take first place in the latest ASB regional economic scoreboard, underpinned by growth in tourism, house prices and a strong rural economy.
Otago dropped from first place to seventh-equal, out of 16 regional council areas across the country, while Southland shot up from eighth place to first, ASB chief economist Nick Tuffley said.
"The Southland housing market is hot, with the highest annual sales growth in the country," he said.
The result was not so much that Otago had taken an economic nose-dive, but it had increasing capacity constraints when it came to accommodating tourists, which spilled over into housing for people, he said.
"The issue is tourism capacity constraints around Queenstown; that is causing an overall drag in Otago," Tuffley said.
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Underpinning Southland's improved performance was its growth in house sales, the highest in the country, and in house prices and guest nights.
Southland's guest nights grew 10 per cent for the year to September, while Otago had notched up just 1 per cent growth, Tuffley said.
"Tourists are obviously discovering the region's hidden gems, such as Te Anau, with the region also leading annual guest-nights growth."
It might be that Southland had benefited from an overflow of tourists seeking accommodation there, after finding it difficult in Queenstown or elsewhere in Central Otago, he said.
Several aspects of Southland's economy were "definitely playing out in its favour".
There had been good spring growing conditions, the Mycoplasma bovis situation was looking more positive over time and lamb prices had been setting record highs.
"There was no holding Southland back this quarter, with the rural sector outlook also improving," Tuffley said.
According to one Queenstown-based tourism operator, accommodation in and around Queenstown had become a "pinch point" this year that had stymied growth.
Tuffley said not only was there a lack of tourism accommodation growth, but also a lack of affordable houses to buy and rentals, which was making it difficult for the local workforce and families.
"There's a pocket of expensive property radiating out from Queenstown ... some people are making a decision to commute from Cromwell."
He said Otago was still doing well in several areas: employment growth was "strong", house prices were "good", and a 2.2 per cent population gain was second only to that of Auckland.
Conversely, Tuffley highlighted that Otago building consents had "fallen considerably" and were second only in percentage decline to Canterbury, where applications were easing off as the earthquake rebuild comes to an end.
Canterbury slipped two places to come last of the 16 regions and Auckland was second last, its economic "rebalancing" continuing to be gradual.
Mr Tuffley said while Canterbury had a "healthy" 2 per cent rise in population, it was the only place in the country with declining job numbers and CBD construction was "lumpy", given differing finishing timetables.
"The outlook for the region's export sectors remains healthy and, with the exception of Akaroa, the tourism sector in particular has ample capacity to grow," Tuffley said.