Story: Real estate
Page 1 – The real estate market
The residential market
In the early 2000s most New Zealanders lived in stand-alone, single-family homes in towns and cities. Two-thirds of households were owned by the occupiers, so residential sales dominated the urban real estate market.
In 2007 there were around 1.5 million dwellings in New Zealand, including houses, flats, townhouses and apartments. These changed hands at the rate of 7–10% each year, depending on market conditions. The urban housing market is driven by factors such as location, views, and neighbourhood type.
Homes in the private-sector residential rental market were usually owned by small investors with one or two rental units. Dwellings owned by central and local government made up around 5% of all housing stock.
The rest of the urban real estate market consisted of vacant residential sections and industrial and commercial properties. Large industrial and commercial properties were generally owned by institutions, while smaller ones were often owned by individual investors and owner-occupiers.
The rural market
The rural property market is split according to the main types of land uses – dairy farming, grazing, arable farming and horticulture. The price of rural land is influenced by export commodity prices for pastoral products (milk, meat and wool), horticultural crops (mainly apples and kiwifruit), wine and forestry products.
In 2007 there were approximately 100,000 rural units (blocks of land), and 2,500–3,000 real estate sales. Only slightly more than a quarter of rural units were classified as ‘economic farms’ (farms that can make a profit). Most of the rest was farmed in combination with other rural units, or the owners had another source of income. Most economic farms were on dairy land.
Lifestyle (rural residential) blocks accounted for around 9,000 sales in 2007. The lifestyle-block market is driven by the same factors as the urban housing market. Building size, age and quality are also important.
The number of sales and the average length of time each property is on the market are used by property analysts to predict changes in house prices. For example, decreased sales between 1997 and 2000 led house prices to flatten or even drop. Between 2000 and 2003 sales volume nearly doubled due to demand caused by low mortgage interest rates, increased migration, tax benefits for housing investors and lack of confidence in other investments. Economic conditions that influence population shifts, and the cost and availability of mortgage finance, also contribute to changes in the property market.
On average the length of the housing market cycle is 7–10 years, but each cycle is different.
Queen City versus Queenstown
In the early 2000s the Auckland property market, which previously had the highest average house prices, was surpassed by the Queenstown Lakes area. Queenstown Lakes was also the least affordable when local wages were factored in. This is because the Queenstown district is an international tourist destination and a high proportion of properties belong to wealthy overseas owners.
Local supply and demand results in house prices varying widely across locations. From the 1970s until the early 2000s (when it was surpassed by the Queenstown Lakes district) the Auckland area was the most expensive housing market in the country. According to migration projections, people are likely to continue moving to Auckland and the Bay of Plenty, and away from Southland and the West Coast of the South Island.
Effects on the building industry
Housing market fluctuations affect the wider economy, especially the building industry. In most years new housing made up about a quarter of sales. Builders are susceptible to changes in demand. They may end up with unsold houses in periods of economic downturn, and have to lay staff off. On the other hand, in buoyant times builders may not be able to keep up with demand, leading to house price increases.