Sharp increase in prices after a short break
The Wellington residential property market has been one of the country’s stand out performers over the last year with value gains outpacing those of all other regions.
The value gains reflect the fact that market conditions within the region are the tightest in the country with inventory at historically low levels. The tight market conditions are being exacerbated due to the fact that the development sector has been slow to respond with Wellington City Council recently reporting a housing shortage estimated at approximately 3,600 units.
It is likely therefore, that a lift in development activity will be witnessed in the near term future. Development will, naturally, be influenced by changing dynamics within the market. A growing desire to live within the City has already resulted in a lift in apartment development while another growth area has been in retirement villages reflecting the ageing population trend.
Residential property values reached new record levels in Wellington in the final quarter of 2016 as prices accelerated again after a softer September quarter, thereby resuming an upward trend which has been evident since mid 2015.
Median house prices in the Wellington market, which encompasses the City and Lower Hutt reached $595,000 over the December quarter of 2016 according to Real Estate Institute of New Zealand (REINZ) statistics. This was a very strong increase of 10.2% or $55,000 compared to the previous quarter. The median price was up 18.6% or $93,500 from the corresponding three months in 2015. With the recent surge in prices, Wellington was the top performing region in the country in terms of percentage price increase over the year.
Sales activity has slowed over recent months, falling by 15.6% in the December quarter versus the corresponding period in 2015. The slowdown however, reflects a combination of, tighter lending conditions for investors and also a shortage of stock being made available to the market as opposed to lack of demand. Low levels of new listings in the face of high levels of purchaser interest has, resulted in a substantial fall in the average days on market figure in hitting their lowest levels at 27 days in both the September and December quarters, which is a fall from 41 days in the September 2015 quarter and 31 days in the December 2015 quarter.
These local trends are also reflected by the figures from realestate.co.nz which indicate that the number of total new listings in the entire Wellington region in December 2016 were down 20.2% compared to the same period a year earlier. On the other hand, the inventory for sale shrunk by 29.6% over the same period, resulting in buyers lining up for a lower number of properties available for sale. When the 9 year historical averages are considered, tightening in the residential market is more apparent with a fall of 59.6% in the number of new listings and a 66.1% fall in total inventory. The signs of it being a seller’s market in Wellington are also reflected in the weeks to sell the total inventory figures, based on current sales activity, assuming no further listings are taken on. The latest figures indicate that it would take just 6.5 weeks to sell the total inventory of the Wellington region as at December 2016, which fell from 7.4 a year earlier. The 9 year historical average is 19.1 weeks.
Central Wellington taking the lead
Whilst strong value gains have been evident across the Wellington area, figures can be skewed by the sales profile within various submarkets with, for example, a large proportion of apartment sales lowering the overall figure. In order to compare value movements across the various areas therefore, analysis has been limited to the sales of residential houses. This analysis shows that Central Wellington experienced the highest percentage of increase over the last year with a 27.1% rate of appreciation. Central Wellington was followed by Western Wellington and Southern Wellington which recorded 25.8% and 19.8% median price increases in the last quarter of 2016 when compared to the same period a year earlier. Central Wellington also had the highest residential house median price over the December 2016 quarter at $891,000, which was followed by Western Wellington and Eastern Wellington which recorded a median of $802,500 and $778,500 respectively over the same period.
Share of apartments in sales increasing
Like the rest of New Zealand, Wellington’s future housing will be shaped by an aging population. The medium population projections of Statistics New Zealand indicate that the population aged 65 and over in Wellington will increase by 38.2% between the census year 2013 and 2023, while the total population will grow by 9.4% over the same period. Coupled with smaller family sizes, change in life-styles as well as housing affordability all resulting in an increasing demand for smaller property types.
This trend is reflected in the relative share of property types in overall sales in which the share of apartments has been increasing steadily over recent years. Apartments accounted for 14.2% of all sales completed in 2016. This is a 50% increase in four years from the 9.5% apartment share recorded in 2013.
Despite the surge in the share of apartments in sales, which typically have relatively lower sales prices, the price bracket breakdown of 2016 sales indicates that overall, the share of sales within higher value bands continues to rise. The number of sales in value bands of over $400K accounted for nearly 72.6% of all sales in the year 2016, up from the 64.3% recorded in 2015. At the higher end of the market, the share of properties sold above $1 million constituted 7.9% of 2016 Wellington sales, marking a significant increase from the 4.5% share recorded just a year earlier.
Limited supply response
Unprecedented price increases have not, as yet, resulted in a significant response from the development sector. In 2016, the number of new building consents in Wellington City and Lower Hutt wards remained unchanged from the previous year and were only slightly above the 25 year historical average which is unlikely to alter the current market dynamics. The supply of standalone houses has been falling over the last three years and increases are mainly in the construction activity of apartments and retirement units. While the development of apartments is concentrated in the Wellington City area, Lower Hutt is housing the majority of the new retirement unit projects. As the ongoing developments get completed, the increasing weight of smaller sized properties in sales is likely to strengthen in the Wellington residential market.
SALES HOT SPOTS – Wellington City and Lower Hutt Residential Sale Prices (2016 HY2)