With the ocean on its doorstep, and the mighty Mount Taranaki rising majestically in the distance, New Plymouth is a city celebrated for its natural beauty. But despite these attractions, the wider Taranaki region hasn’t had a good year when it comes to house prices. As opposed to the vertiginous growth found in other regions, the region as a whole has seen a drop of 2.5% year-on-year to September 2019, with New Plymouth itself rising by just 0.2% according to REINZ data.
There’s also a storm brewing over changes to short-term accommodation under the city’s wide-reaching Proposed District Plan. Under this plan any property investor who rents their home as short-term holiday accommodation for more than 90 days per year will have to apply for resource consent. This has come about after pressure from moteliers, who see their business being eaten away by the likes of Airbnb. Needless to say, the city’s property investors are seeing red.
“If this happens the properties will be viewed as commercial and have to meet all the requirements of commercial properties, which will have huge financial impacts on the investors,” says Richard Woodd, president of the Taranaki Property Investors’ Association (TPIA).
“It means that they will be subject to the same rates and regulations as commercial motel and hotel operators.”
Feelings around this proposed change have been so high that the owner of a local property management company that specialises in short-term rentals gained 3,000 submissions (mainly from property investors) opposing it.
“There were about 20 of us protesting with placards outside the council offices as she delivered it. It’s not something you often see property investors doing,” says Woodd.
Short-term accommodation issues aside, New Plymouth still has plenty of opportunities for investors. As mentioned, capital growth hasn’t been sky high: REINZ data from October 2019 has the median value at $440,000 up from $425,000 in October 2018. (However, QV data paints a slightly different picture, with a 3.3% average value rise to $481,139 over three months.)
New Plymouth is the headquarters for the New Zealand oil and gas industry, and although the Government has banned future offshore mining, the current contracts will remain in place until 2030. This industry employs many of the people who live in the city, as does Tegal and Fonterra.
Due to these industries, there is strong rental demand, and currently not enough housing stock, according to Nicki Smith, member of the TPIA executive committee.
Smith explains that a lot of investors have exited the market in the past year, due to the financial pressure of getting their properties up to the new Healthy Homes standards. This has meant that many renters are scrabbling for a diminishing amount of housing stock, with some lower income families living in emergency accommodation such as motels.
“I own a number of multi-block dwellings and I’d say that 50% of the people who apply for rentals say they are moving because their houses are being sold.”
She says that when she advertises her flats (which are located in the central suburbs of the city) it’s not uncommon to get 25 applicants within a day. “We recently cut off applications after getting 70 in three days.”
Smith, formerly from Auckland, says people often come to New Plymouth for work “but stay for the lifestyle”.
The central suburbs are particularly popular with such renters: key areas are Westown, Lynmouth, and Vogeltown, which are close to galleries, such as the celebrated Govett- Brewster Gallery/Len Lye Central and an ever-expanding choice of eateries.
“For a three-bedroom home in these suburbs you could expect to pay between $400,000 and $450,000, with an average rent of about $450 a week. I would expect investors to get around 5-5.2% yield on their investment.”
CoreLogic data reveals that the median weekly rent for New Plymouth central is $430 for a three-bedroom property, with a gross yield of 5.4%. Further out, in the suburbs, the same properties are valued higher ($485,100) with a lower median rental of $420.
On the up?
Greg Clarke from TSB Real Estate believes that, despite the unimpressive stats, New Plymouth is on an upwards trajectory.
“Prices are going upwards and demand for property is exceeding supply and a definite shortage of property coming on the market. With such historically low interest rates, there is no expectation that the market will reduce in the foreseeable future.”
Realestate.co.nz data reflects Clarke’s assertion. Figures from the website show the wider Taranaki region to be at the lowest point for total homes for sale in 13 years in November, with only 379 places available for sale – a 36.2% decrease compared to November 2018.
Clarke agrees with Smith around the drop off in rental stock, saying that over the past 12 to 15 months, a lot of medium-to-lower valued properties have been sold because of all the new regulations. Much of this stock has been sold to first home buyers, with investors having to compete for bargains.
“Investors are having to compete strongly to purchase and many properties are attracting multiple offers.”
He says that they are finding a lot of people wanting to move to New Plymouth for employment or lifestyle reasons, and the property prices are proving to be very attractive, particularly to buyers from Auckland.
“Section prices are reasonable and the new home building industry is creating new volumes of new homes, but even so, they cannot keep up with the demand that the market shows.”
New Plymouth, like so many of New Zealand’s regions, is moving outwards. Bell Block, which is accessed by an expressway and sits between the city and the airport, has been developed recently and the new homes in “The Links” subdivision are selling for upwards of $600,000.
Grant Carter from Quinovic property management in New Plymouth (which deals in middle and higher end of the market) says that properties in this area always rent quickly.
“We usually see them renting in under a week,” he says.
He says that rentals here will usually command $550-plus plus for three-bedroom, two-bathroom dwellings and the demand is increasing.
“We are finding a lot of people are moving here from places like Auckland and Bay of Plenty, and this is driving the prices up.”
Carter says there is usually a limit on what can be charged for rentals in New Plymouth, however. “The highest you could expect to go would be $750 a week,” he says.
In the market he specialises in, the demand for good quality rentals is high. At this time of year in particular, a lot of the demand comes from the junior doctors who move to the area to spend a year working at Taranaki Base Hospital. He says that higher end rentals are also in demand from people who work at the New Plymouth District Council, Austrian oil and gas energy company OMV, and TSB Bank.
He says that two-bedroom mid-range townhouses in the central suburbs would rent for between $360-$410; three-bedroom homes for between $410-$500; and three-to-four-bedroom homes with two bathrooms upwards of $480.
Most of the housing stock in the New Plymouth market was built between the 1950s and 1970s. This older stock is unlikely to meet Healthy Homes standards, and the prohibitive cost of bringing it up to standard makes new properties a more attractive option for investors, according to Clarke.
“We would recommend that investors purchase the moderate to high-end homes, so they won’t have to worry about these compliance issues.”
With the prices relatively low for such stock, and the ongoing demand for these properties from both locals and people moving in from elsewhere in the country, investors are pretty much guaranteed to secure tenants.