Cool Little Capital City
Surrounded by nature and fuelled by creative energy, New Zealand’s compact capital features a compelling mix of culture, history, nature and cuisine, writes Sally Lindsay.
31 July 2023
Perched on the water’s edge and surrounded by tree-covered hills, it’s no surprise Wellington often ranks as one of the most liveable cities in the world. In fact, Deutsche Bank’s list of liveable cities had Wellington right at the top twice in a row.
Famous for its film studios, locations and creative workshops, Wellingtonians are also hugely proud of the city’s prestigious title as a UNESCO City of Film.
At the centre of the capital’s creative heart are huge cultural and film festivals, music, Te Papa, the country’s national museum, art galleries and colourful annual pride parades. There are always Wellington bands playing at a local bar, student art exhibitions, and pop-up events.
A city of about 230,000, Wellington is also small enough to navigate easily as it doesn’t have the traffic or crowded places like in many other capital cities around the world. With the CBD only two kilometres wide, locals take advantage of walking to work or taking a central city lunch break.
Size also allows the city to retain a friendly feel.
Supporting the pride movement: Cuba Street’s popular rainbow crossing.
Plenty of typical suburban homes are for sale around Wellington Central, but prices have taken a significant hit, presenting uncertainty amongst buyers, sellers and investors.
The latest CoreLogic data shows some of Wellington Central’s suburbs have taken a big price hit over the year to June 1.
Mt Cook has been the hardest hit with a 17.3 per cent drop from $827,100 to $684,300, followed by Wellington Central declining 16.8 per cent, from $576,100 to $479,100. Other suburbs to suffer are Te Aro, down 16.4 per cent, from $753,900 to $630,550; Aro Valley dropping 15.5 per cent, from $1,085,500 to $917,750; and Mt Victoria, declining 15.1 per cent, from $1,316,050 to $1,117, 650.
Shift to Sellers
Adding to market woes are incredibly tight listings. Lowe & Co’s managing director Craig Lowe says few people are listing their houses for sale. That means the supply and demand imbalance has shifted back a little bit towards sellers.
People deciding to hold off selling has caused things, ironically, to bottom out. Over the past 20 years, through all the booms and busts, the long-term average number of listings for a financial year has been 4,000. This year to March 31, it was only at 2,500.
Since the market started to tank in late 2021 and was at its absolute worst at the start of this year, it has started to stabilise. Lowe is, however, expecting sale volumes this winter to be the lowest as far back as records go.
As the market starts to slightly improve there have been more competitive sales results in the past six weeks. A city fringe three-bedroom property recently had 25 offers with enquiries sought from $695,000. It sold for $880,000. “We haven’t seen that sort of activity since 2021 and it is a good example of the market returning, although slowly,” Lowe says. “That kind of demand doesn’t exist for $2 million houses, though.”
As a result of recent interest there is a bump in open home viewings. The average number of people at open homes across the whole of last year was three at any viewing. This year it is averaging about seven to eight – almost two to two-and-a-half times more people at open homes leading to multi-offer situations.
For investment properties, Lowe says the market is the worst he has seen in 23 years. “I’ve never seen more variables stacked up against the investment property market and that is making it difficult to sell investment stock, even multi-flat properties.”
Mr Go’s serves regional Asian dishes.
He says for landlords access to credit is difficult, the cost of credit is higher, regulation has increased and mortgage interest deductibility is being removed – changing the economics of property investment.
“On top of that there is a view pervading the upcoming generation that being a landlord is a greedy activity – it’s a bit dirty somehow,” he says. “It sounds harsh, but it’s kind of like it’s become a little bit socially unacceptable to be a landlord.
“So, all of these things are playing a role and making it incredibly unpopular to buy rental properties. And they’re not just unpopular but also difficult. When you add difficult and unpopular together, it’s made that sector of the market really tough,” Lowe says.
Flipping has all but disappeared in the Wellington Central market. Lowe says if a house was renovated, say five years ago, and is still looking fresh, the property is far more popular than a do-up. Buyers are more conscious about the cost of building and doing interior renovations.
In this market Lowe believes, on average, people lose money from flipping houses, but they just don’t realise it. “A rising market hides a multitude of sins. In most cases it was actually the capital gain that really gave them the big lift, not the flipping.”
Another area of the investment market that has disappeared is buying off-the-plan. “It’s logical why it would be because in a declining market, people worry if they buy off the plan now and put a deposit down, the deposit could be wiped out by the time they have to settle on the property.”
In his opinion the best economics of a good property investment are cash flow and holding long term.
CLOCKWISE FROM TOP LEFT Hannah’s Laneway, cruise ships at Aotea Quay, the iconic bucket fountain in Cuba St, Brunch at Oriental Bay’s Beach Babylon.
Decent rents are the backbone of landlords being able to hold their investment properties long term. Wellington is in the unfortunate situation of being the country’s only city where rents are going backwards.
Not only are rents not growing, but it is taking longer on average to rent some properties.
Just Property Management general manager James Moran says the slow rental market is reflected in price being a big factor for tenants.
“We have certainly noticed people are a lot more concerned about rent levels. They are a bit more selective and being a bit more conscious of what the rent does to their overall household costs,” he says.
Tenants in Central Wellington struggling to get a property for $600 a week or less are a lot more picky when it gets to the $800-a-week plus range.
Moran says there’s no doubt people have more questions about the Healthy Homes standards and are doing more research when they are looking at moving into a property. “Some potential tenants are even asking how much the electricity bills are. The cost of living is definitely at the forefront of people’s minds,” he says.
While Just Property Management has 460 rentals on its books, mainly in Central Wellington, with a few further out, Moran says some of the properties are taking longer to rent. “We are having to look at all different options about how we can try and make these properties more appealing, whether that’s the marketing side, making external or internal improvements, or even dropping the rent, which we have done on a number of properties.”
Rents are looked at intensely every week when the company reviews what rentals it has on the market, what interest there is and what can be done to attract tenants. “Price is definitely up there in terms of that discussion.”
This was demonstrated by a two-bedroom in Mt Victoria. The previous tenants were paying about $950 a week a year ago. When they left, the property was given a spruce up and is now back on the market for $550 a week, but Moran says even now it’s a bit of a struggle to find a taker.
If rents have to be dropped they are usually down between 5-10 per cent, depending on what the property is and where it is located.
CLOCKWISE FROM TOP LEFT Cocktails at Crumpet, Zealandia Wildlife Sanctuary in Karori, time to refuel at Egmont Street Eatery, Te Aro’s Solace in the Wind sculpture, Takina Wellington Convention and Exhibition Centre, family fun with Weta Workshop’s orc sculpture.
When Moran’s team is looking at rent reviews or renewing tenancies in many cases they are recommending the rent stays the same. “If you’ve got good tenants who are looking after the property and are happy, then they’re worth their weight in gold.”
Recent new clients on Just Property Management’s books are tending to be “mum and dads” with two properties, who have wanted to sell one but couldn’t get the price they wanted, so have decided to put it in the rental pool. Last year, this situation led to a glut of rental properties and not enough tenants.
As legislation and the price of keeping a rental has risen over the past two years, Moran has noticed a definite shift in landlords taking over the management of their own properties.
“I know from talking to investors and other people that university numbers are down, the international market is not what it used to be, and there have been investors who have missed tenanting their property in the student market cycle and now they’re stuck with a student-type property which no-one is looking at,” he says.
“They and other investors have been slammed with additional costs over the past year or two, and we’ve had clients that have had to stop using our services because they need to look at their cash flow. One thing they can cut is obviously the cost of a property manager.
“I’ve definitely had clients talking about the expenses that they’re incurring and indicating they are not making loads of money off their rentals, which is what a lot of people seem to think they’re doing.”
If investors with a longer-term view can hang on, then inevitably at some stage values will start to level off and hopefully start to rise again. Most investors still see the value in owning properties as an asset and if there’s a bit of short-term pain they can weather, then it’s worthwhile.
Moran says investor clients definitely see the value in the service, but for some battling with interest deductibility being phased out, higher interest and utility costs, it’s either a choice of trying to keep the rent up, or look at cutting costs.
Moran says it doesn’t help when landlords or property managers are painted in a negative light in terms of charging tenants high rents in sub-standard housing. “But landlords can only charge what the market dictates and particularly at the moment if a landlord is trying to charge over market rents they are going to really struggle to find tenants.”
Corelogic Wellington Central
Kelvin Davidson, Chief Property Economist
Rental data is sourced from the Ministry of Business, Innovation and Employment based on rental bonds lodged. This data is supplied to us grouped into geographic areas based on statistical area units used by Statistics NZ for the census and as a result do not always match well with common usage suburb names.
The rental data for each area is matched to property price information from our database to determine property prices and therefore yield. The yield is calculated as the annualised rental income divided by the median property value calculated using our E-Valuer.
The rental market across Wellington Central has a high proportion of apartments, with a reasonable presence for houses too, and a smaller market for flats. Of the 1,398 properties recently on the market available for rent, 813 have been apartments (58 per cent), 420 houses (30 per cent), and 165 flats (12 per cent).
Focusing on apartments, Te Aro has recently been the largest market, with 333 properties listed, followed by Mt Cook (150), and Lambton (132). Te Aro has also had the highest concentration of apartments amongst all properties recently available for rent, at 87 per cent. Lambton is at 70 per cent.
For flats, the largest market lately has been Kelburn/Aro Valley (51), although the concentration rate is highest in Mt Victoria/Roseneath (26 per cent). Finally, for houses the most have been in Mt Cook (102), Kelburn/Aro Valley (93), and Wadestown/Thorndon (78). The latter has had the highest concentration rate for houses, at 50 per cent.
Apartment Size, By Bedroom Count
Looking specifically at the 813 apartments, none recently available on the market for rent across Wellington Central have had five bedrooms, and only 39 with four (5 per cent of all apartments listed). There have been 105 three-bedroom apartments, mostly in Te Aro, or 13 per cent of overall apartments.
As such, the biggest categories for apartments in Wellington Central are clearly the two and one-bedroom brackets. There have been 273 two-bedroom properties (34 per cent), with Te Aro (96) and Lambton (60) the largest markets. The latter also had the highest concentration, at 45 per cent, only just ahead of Mt Victoria/Roseneath at 44 per cent. Kelburn/Aro Valley has comparatively few two-bedroom apartments.
And for the largest one-bedroom category – which has had 396 properties (or 49 per cent) of apartments listed for rent – most were in Te Aro, at 177. Lambton, Mt Cook and Kelburn/Aro Valley have all been around the 50 mark, although by far the highest concentration rate is in Kelburn/Aro Valley, at 84 per cent. Te Aro also tops 50 per cent.
Rent And Yield
By matching average value to rent we can look at gross yield for one-bedroom apartments in each area.
Median weekly rents for one-bedroom apartments in Wellington Central range from $370 in Kelburn/Aro Valley up to $505 in Mt Victoria/Roseneath. For the sub-markets where estimates of median values are available for this property type, there’s also quite a wide range, from around $300,000 in Lambton up to more than $400,000 in Te Aro.
The net result is a wide range for gross rental yields for one-bedroom apartments, from 6.2 per cent in Te Aro, up to 8.2 per cent in Lambton.
Of course, even the lowest 6.2 per cent gross yield is still pretty healthy compared with other property types in other parts of NZ (albeit they may carry higher costs and risk).
There have also been divergent trends for actual rental growth lately, with one-bedroom apartment rents falling sharply over the past year in Kelburn/Aro Valley and Mt Cook, but “ticking over” in Mt Victoria/Roseneath, Te Aro, and Lambton, and rising strongly in Wadestown/Thorndon.