Bubble risk for halo regions

Property information website Homes.co.nz has released data comparing the rate of house price growth and population growth in regions surrounding Auckland between 2012 and 2016.

Over that time, Auckland’s house prices have grown by a hefty 69.42% since 2012 - but that has been matched by steady population growth of 9.34%.

However, the data shows that this is not the case for many of the regional markets surrounding Auckland.

Most regions within a couple of hours of Auckland neighbouring areas have seen a huge spike in the last 12 months that has clearly outpaced any pressure from population growth.

For example, Whangarei has seen price growth of 38.06% since 2012, with a significant part of that coming over the last year, but it has seen just 5.80% population growth in the same period of time.

Homes.co.nz spokesperson Jeremy O'Hanlon said there is a risk that the price spikes in regions surrounding Auckland are due to speculation rather than housing shortage due to population growth. 

“While there has been population growth in almost every area, what is alarming is the significant jump in pricing that doesn't correlate in a significant jump in population growth.

"If there is no fundamental change in the demand for something and prices start sky rocketing, it's reasonable to assume that speculative investment is the culprit."

For such markets, this presents a problem as it means they could be at risk of being in a bubble and it means they could be facing price reductions should a downturn kick in.

Even a market like Hamilton, which has emerged as one of the star markets of the current housing boom, is at risk, O’Hanlon said.

“Prices in Hamilton are growing exponentially with prices increasing by 7.8% in 2014, 11.7% in 2015 and 25.6% in 2016. But population growth has remained steady at 2-3% per annum.

“Tauranga is a little different in that it had its huge push earlier on in 2015, and it has shown aggressive population growth throughout this time.”

For investors thinking of buying in some of these regional markets it pays to tread carefully and do solid research into the area before jumping in.

"If you're investing in areas where fundamentals aren't supporting price growth, be sure to do your due diligence and find properties with long term yield,” O’Hanlon said.

Read more:

Watch out with regional bargains 

Following the halo