Following years of sharp increases in prices and rents as a result of the housing shortage caused by the Canterbury earthquakes, the Christchurch residential market is now experiencing a period of moderation. The post earthquake shortage of housing resulted in considerable increases in house prices with median sales values now sitting approximately 40% higher than at their immediately pre-earthquake levels. As at the March 2017 quarter the city’s median sales value sat at $460,000. This latest quarterly value equates to an annual increase of 4.5%. While still rising, the change over the last year marks a moderation within a market which registered growth of 8.4% between the September quarters of 2013 and 2014. The moderation in value gains reflects the fact that significant development activity since 2011 has brought supply and demand back into balance.
While the March 2017 quarterly median remained unchanged from the previous quarter, the monthly median in the month of March hit a new record of $473,750. The continuation of the upward trend is also illustrated by the adjacent graph where quarterly fluctuations are smoothened with the use of 12-month moving averages of monthly medians. While the slope has flattened compared to earlier years, subsequent to the earthquakes, increase in prices clearly continue albeit at a slower pace.
In terms of sales activity, on the other hand, the Christchurch residential market recorded 1,539 sales over the first quarter of 2017, down 15.3% compared with the same quarter a year prior which saw 1,816 sales. The fall in sales volumes can largely be attributed to the regional rebuild as the market transitions from the unique stimulus of the post earthquake housing shortage to more normal conditions. Other factors constraining sales activity are the tighter loan-to-value (LVR) restrictions imposed upon investors and the slight edge up in mortgage rates, making the cost of borrowing relatively higher.
Despite the fall in sales activity, inventory and weeks to sell data indicate that Christchurch residential market conditions remain tight. The inventory data released by realestate.co.nz for the Canterbury region is a good indicator for the Christchurch market as the city makes up more than 60% of the region’s population. The data show that both the inventory for sale and the weeks to sell inventory (based on current sales activity, assuming no further listings are taken on) remain considerably below their historical averages. On the other hand, the number of new listings, which had a relatively flat trend over the recent years, is only slightly above its historical average.
The impact of the value appreciation, witnessed over recent years, is well illustrated by the shift in the number of sales recorded within various value brackets. The comparison of year ending March 2017 and year ending March 2011 sales show a noticeable decrease in the share of lower priced properties in overall sales. The relative share of properties priced $400K and below, which accounted for 68% over the twelve months to March 2011 period, were almost halved, falling to 36% over the 5 year period. On the other hand, the share of sales above $400 doubled over the same period. The continuation of this trend is illustrated by the change between 2015 and 2016. While the shift is less pronounced, it is still significant given the short time period.
Unlike capital values, rental levels within the Christchurch residential market have been experiencing a fall from peak levels. The rush for safe and secure accommodation, post earthquakes, resulted in average rentals increasing by, in excess of, 50% increase by the early months of 2015 compared to their pre-quake levels. This was a considerably higher increase compared with the appreciation in capital values over the same period. As new stock has been introduced to the rental market, average rents have started to soften. As of March 2017, the monthly average rent in Christchurch was 9.3% below the peak, recorded in February 2015. While rental levels are still 37% higher compared to their levels prior to the first earthquake in September 2010, the recent easing has improved affordability for those looking to rent a property.
On the supply side, building activity is slowing, with the number of building consents falling rapidly, as the majority of rebuild projects are either completed or now in advanced stages of development. While stand alone houses remain the dominant property type in new supply, sharp increases in house prices and inflationary pressures in construction costs have resulted in a shift towards multi-unit projects, particularly townhouses. Consequently, future years are likely to witness an increase in the share of multi-unit properties in residential sales as these projects reach completion. A notable example to one of these projects is the East Frame residential precinct which is being developed by the Fletcher Living, in partnership with Otakaro Limited. Situated in the heart of Christchurch’s city centre, the project consists of approximately 900 townhouses and apartments. The project also consists of amenities like cafes, restaurants and outdoor entertainment areas which will bring vibrancy to the area.
Ongoing large-scale projects will be the key driver for the Christchurch residential market over future years. While residential projects will reshape the inner city living in Christchurch, non-residential projects such as the new Convention Centre and the reconstruction of commercial properties will contribute to the amenity value of the city and promote job opportunities as companies start to move back to their new premises. According to the Statistics New Zealand estimates, the 2016 population of Christchurch city is still lower than its pre-quake levels. The difference is more remarkable when the pre-quake population growth trends are considered. The completion of ongoing anchor projects will play a vital role in promoting Christchurch’s ability to attract people back to the city and accelerate the migration inflow needed to return the population of the city to its natural base.
SALES HOT SPOTS (12 months to 2017 March)