Rising Costs Prompt Wellington Residents to Consider Leaving

High living costs in Wellington are causing many residents to reconsider their future in New Zealand’s capital. As housing prices remain under pressure, an increasing number of individuals, particularly retirees and those aged over 50, are questioning whether they can afford to stay.

Real estate agent Andrea Skews has observed a notable trend among her clients. While first-time home buyers express less concern, older residents are contemplating their options. “I’ve had a lot of people in their 50s think about whether they want to stay in Wellington, and some who have moved out,” she stated. The stress of rising costs, including rates and insurance, weighs heavily on potential buyers and those looking to maintain their homes.

The Wellington property market is expected to face challenges for the foreseeable future. Skews reported that many prospective buyers are merely “window shopping,” with some properties being withdrawn from the market due to a lack of demand. The city is experiencing an oversupply of available properties, contributing to a sluggish housing sector.

According to ANZ’s latest Property Focus report, New Zealand’s housing market appears to have steadied after a tumultuous period. However, Wellington continues to experience sluggish growth, primarily due to high ownership costs and declining rental demand. The report, authored by Sharon Zollner, senior economist Matthew Gault, and senior strategist David Croy, highlights the ongoing relationship between home ownership costs—such as mortgage interest, council rates, insurance, and maintenance—and the housing market.

The report noted, “House prices have been flat overall in recent months. Areas with strong rural economies have seen modest price growth, while prices in Auckland and Wellington have lagged.” As of now, the median home value in Wellington stands at $789,505, while Auckland’s median value exceeds the million-dollar mark at $1,051,796.

After enduring several years of high interest rates, ownership costs are beginning to decline. This shift, coupled with a faster-than-expected reduction in the Official Cash Rate (OCR), has led ANZ to adjust its short-term house price outlook slightly. Previously anticipating zero growth for the year, the bank now forecasts a modest increase of 0.5% to 1.0% year on year by the fourth quarter of 2025. Nationwide, house prices have risen by 0.3% over the past year, with a projection of a 5% increase in house prices by 2026.

The report indicates that average house prices remained stable in September, suggesting that the period of declining prices may have ended. However, the growth remains minimal, with prices only up 0.3% compared to last year. In Wellington, the loss of high-paid central government jobs has dampened demand, and the city has faced significant increases in both council rates and insurance costs. Together, these factors have made home ownership less appealing and kept prices subdued.

The analysis from ANZ suggests that when the costs of home ownership in Wellington exceed the national average, the city’s house prices tend to underperform in subsequent years. This trend appears to be continuing, as the report predicts Wellington will struggle to regain momentum in the housing market for the foreseeable future.

In contrast, areas further from Auckland and Wellington are showing more robust housing markets. Compared to a year ago, prices in Auckland and Wellington have decreased, while regions such as Southland have seen a 4% year-on-year increase in prices. The central regions of the North and South Islands have experienced modest price growth of 1-2%.

Despite the challenges in Wellington’s housing market, the overall sentiment in the ANZ report is cautiously optimistic. Inflation in housing-related costs—such as rents, insurance, and construction—continues to ease, indicating that significant headwinds may be subsiding.

As for the most recent data, there are signs that property values may be beginning to recover. The Cotality NZ Home Value Index reported a national increase of 0.2% in property values in October, marking the second consecutive rise following five months of decline. The national median property value now sits at $811,662.

In the main centres, Auckland saw a slight decline of -0.2%, while other cities like Wellington and Tauranga both experienced a modest increase of 0.2%. Christchurch increased by 0.4%, and Dunedin led the pack with a rise of 0.7%.

Despite these small gains, Kelvin Davidson, chief property economist at Cotality NZ, cautioned that the market remains favourably inclined towards buyers, with a wide selection of listings available. He noted that the subdued economic climate and lack of consumer confidence continue to impact Wellington’s housing market. “The hints of growth in Wellington City could be something to watch in the next few months,” Davidson commented.

As the Reserve Bank prepares for its final OCR decision of the year on November 26, 2023, speculation suggests a likely decrease of 0.25% in the OCR. ANZ has also predicted a similar cut, indicating that the landscape may shift further, potentially affecting future housing market dynamics.