Whanganui's property market is currently one of the strongest in New Zealand but a leading economist says the district needs a big step up in economic performance for long-term sustainability.
Cameron Bagrie, of Bagrie Economics, said Whanganui was currently playing catch-up after being "pretty late to the housing party".
"Whanganui underperformed for a very extensive and long period - and to be fair that's how things tend to go in some of the regions such as Whanganui," he said.
"The way it generally works is it tends to be Auckland off to the races first and then it takes a long time for it to proliferate down into the regions.
"Now what we've got across New Zealand is that, generally speaking, the more expensive end of the market – this is Auckland, Queenstown, parts of Tauranga – we're seeing price resistance so markets are actually starting to come back a little bit.
"Conversely, if I look around, where we're seeing the strongest price growth across New Zealand at the moment is generally in the cheaper regions. If I look at affordability, such as a simple measure of ratio of house prices to incomes, I see Invercargill going gangbusters, Palmerston North is going well, Dunedin – and Whanganui's in that bunch as well.
"Typically Whanganui will tend to go through about a four-year spurt and then it'll be a dead duck for about a decade. That's sort of been the historical tendency. They could break out of that rut, that historical pattern, if they could get a little bit more of a self-sustaining economic story."
With interest rates continuing to move down, high yielding regions "where the numbers stack up a little bit better" were likely to be the outperformers, Bagrie said.
"You're going to see both capital from within Whanganui and capital from outside the Whanganui region is going to be looking at the region because they've probably got prospects for a little bit more capital gain but the yields just stand out. There are not too many other prospects at the moment where you can walk in and get a 7 per cent yield - and you're still seeing 7 per centers in Whanganui.
"There's a limit to how high Whanganui prices can continue to maintain the current performance levels in the absence of a big step up in economic performance. When Whanganui springs into life, boy it goes hell for leather, but when it goes to sleep it sleeps for a very long time which is why you do need to get those yields because prospects for capital gain at some stage are going to be seriously diluted.
"There's a real important story here in regards to getting the brass tacks support for the economy coming through."
Bagrie said developments with the New Zealand International Commercial Pilot Academy and tourism, plus some population growth, were positives for Whanganui. He was also keeping a close watch on what was happening with the port redevelopment.
"If they can get something down there that's pretty dynamic, that could be a big driver of growth across the region. There's a strategic asset down there that has opportunities."
Whanganui & Partners chief executive Mark Ward said the Whanganui Chronicle and OneRoof stories (September 2) about the district's growth reflected "a positive story about Whanganui's emergence in recent times".
"People have been attracted to the lifestyle, particularly families. And it's great to hear that 20 per cent of property sales have been to first home buyers. In terms of house price versus income, Whanganui still offers a hugely favourable economic proposition versus other centres across the country and, once coupled with the delights our city offers, is proving attractive.
"We also know amongst this there is a point about supply. So it's great that a response is well underway with the urban boundary recently extended northwest of the city and further expansion proposed at Springvale. This growth planning provides for over a thousand homes, readily meeting the district's foreseeable housing demand. Crucially, this will allow residential capacity to increase and ongoing interest in our city to be sustained."
Business and income growth were needed and the signs were promising, Ward said.
"GDP is ahead of the national average, unemployment rates are dropping at encouraging levels. At a time of global uncertainty, we still remain in a window of opportunity for our community and the business fraternity. Examples like the potential port redevelopment will stimulate further growth. The expanding, more diverse population will offer possibilities we've not known before."
A regional growth adviser, funded through central government, would soon be based at the Innovation Quarter in Whanganui.
"The Provincial Growth Fund could enable once in a lifetime projects to be under way. And a multi-faceted regional economy allows us a broad base of opportunities. These are exciting times for everyone that touches our regional economy."