Wanaka, New Zealand’s latest suburbia

My image of Wanaka, formed during occasional visits over the past 25 years, is of an up-market, orderly retreat for those wanting to enjoy the fresh alpine air and superb views while escaping the cosmopolitan rumble and tumble of Queenstown. But the times they are a-changin’ at Wanaka on several fronts. Wanaka is developing its own hustle and bustle and its own version of suburban sprawl. Wanaka (including Albert Town) has been one of the fastest growing places in the country, with the usually resident population increasing a massive 51% between 2001 and 2006 and the total number of dwellings increasing 35%. Wanaka is a popular holiday-home market, with 38% of the dwellings in the 2006 census being unoccupied largely reflecting holiday homes vacant at the time of the census. However, 76% of the increase in the total number of dwellings in Wanaka between 2001 and 2006 was occupied dwellings, so it is the growth in the permanent population that is behind much of Wanaka’s stellar performance.

On our brief fact finding trip to Wanaka we didn’t get a deep understanding of what is driving its popularity, but we found a few projects in the pipeline that will help drive the local economy. But even with ongoing healthy growth in demand for dwellings in Wanaka-Albert Town it is quite likely it faces near-term indigestion in dwelling market and medium-term indigestion in the section market. We found that the percentage of the total stock of dwellings advertised for sale had increased from 8% last November to almost 12% at the end of March, which rings warning bells that the supply of housing has got well ahead of demand. Based on the 16 subdivisions we inspected in Wanaka-Albert Town we counted a total of 986 sections yet to be built on which implies there are enough sections either currently available or planned to be available over the next several years to meet around seven years of demand.

While Wanaka-Albert Town is not facing a devastating level of oversupply that is now evident in some coastal and resort markets (devastating in terms of the implications for property prices), it does face oversupply and is unlikely to avoid some of the fun and games on the section price and dwelling price fronts that we have identified in our Housing Prospects and Building Barometer reports.

Rodney Dickens

Managing Director and Chief Research Officer

Strategic Risk Analysis Limited

09 437 6699 (Whangarei) 027 2882209

rodney@sra.co.nz

© 2008 Strategic Risk Analysis Limited. All rights reserved. April 2008

The times they are a-changin’ at Wanaka

“The township of Wanaka is in Central Otago, 120 kilometres north-west of Queenstown [much less via theCrown Ridge road that passes through Cardrona shown on the map]. Wanaka is situated on Lake Wanaka, facing north, blessed with an incomparable alpine panorama. The expansive open lake frontage supports thousands of summer holiday-makers, who enjoy swimming, boating, trout fishing and waterskiing.

Mount Aspiring National Park, with its world-renowned hiking trails, has its headquarters in Wanaka. The Mount Cardrona and Treble Cone ski resorts lure domestic and international visitors during the winter months.” (Source: http://www.wanaka.com/)

My image of Wanaka is of a retreat, an up-market, orderly place for those wanting to enjoy the fresh alpine air and views while escaping the cosmopolitan rumble and tumble of Queenstown. Wanaka even has its own glacier, Rob Roy. The weblink below has details about visiting the glacier. When I hiked to the glacier in around 1991 there wasn’t a soul in sight and you could walk on it and risk life and limb without the interference of OSH-type signs forbidding such activity. But the times they are a-changin’ at Wanaka on several fronts.

While Strategic Risk Analysis Limited will use all reasonable endeavours in producing reports to ensure the information is as accurate as practicable, Strategic Risk Analysis Limited, its employees and shareholders shallnot be liable (whether in contract, tort (including negligence), equity or any other basis) for any loss or damage sustained by any person relying on such work whatever the cause of such loss or damage.

Saturday night entertainment in downtown Wanaka, at least on the Saturday night we were in town, was ahandful of Police, obviously accustomed to trouble in town on Saturday night, confiscating the cars of two groups of young hoons. The final act of which was the young hoons walking out of town cussing and making a general nuisance of themselves. At least, that was the final act we observed, the real final act was probably bodies slumped in semi-conscious states wherever they happened to fall. Wanaka has surely reached the big time.

But jibes aside, Wanaka is developing its own hustle and bustle and, more noticeably, its own version of suburban sprawl. In the greater Wanaka area, which includes Albert Town, we inspected 16 recent and planned subdivisions during our brief fact finding trip late last year.

Wanaka is top of the class when it comes to population growth

Wanaka (including Albert Town) has been one of the fastest growing towns in the country, with the usually resident population increasing a massive 51% between 2001 and 2006 and the total number of occupied dwellings increasing 48% over the same period. This is relative to respective national increases of 7.8% and 8.1%. Reflecting the popularity of Wanaka as a winter tourist destination as well as a summer destination, the June 2006 census night population in Wanaka was 35% higher than the usually resident population.  Wanaka is a popular holiday-home market, with 38% of the dwellings in the 2006 census being unoccupied largely reflecting holiday homes vacant at the time of the census, while the number of unoccupied dwellings increased 19% between 2001 and 2006. 

However, 76% of the increase in the total number of dwellings in Wanaka between 2001 and 2006 was occupied dwellings, so it is the growth in the permanent population that is behind much of Wanaka’s stellar performance. While Strategic Risk Analysis Limited will use all reasonable endeavours in producing reports to ensure the information is as accurate as practicable, Strategic Risk Analysis Limited, its employees and shareholders shall not be liable (whether in contract, tort (including negligence), equity or any other basis) for any loss or damage sustained by any person relying on such work whatever the cause of such loss or damage.

Assisting the population growth has been growth in the industrial/semi-industrial area on Ballantyne Road, which we understand is partly driven by overflow from Queenstown as well as being a natural consequence of the growth in the population and increased demand for a range of commercial services. In the industrial areas there was one sizeable development underway, involving 14 two-storey “live and work” units. A resource consent application has gone in for a 125 villa retirement village on the corner of Cardrona Valley and Golf Course Roads, including assisted care apartments, retail buildings and hospital. This could provide a major boost to the local economy, although when we checked the website listed on the site plan the Wanaka development was not included in the company’s list of current projects, so this may not be a starter at least for a while. And golf may be hitting Wanaka big-time. “Parkins Bay Preserve has applied for resource consent to build an 18-hole championship golf course at Glendhu Station, owned by Bob and Pam McRae. The 200ha development, on the shores of Lake Wanaka, will include 50 homes for visitors and permanent residents, as well as 12 villas. [And] will allow Wanaka to tap into the lucrative golf travel market.” (Source: The Press, 8 November 2007) Visit the website for more information: http://www.parkinsbay.com/.

Our one-night visit to Wanaka was too brief because we just dropped in on our way to Queenstown to do acontract research job, so there will no doubt be some other projects in the pipeline that we didn’t find out about (e.g. there may be an extension of the Oakridge Resort underway or a development adjacent to the resort). And it always takes a while for services to catch-up in a place experiencing strong population growth, so there will most likely be some positive economic multipliers working through the local economy (i.e. more retailers, professional and personal services, and police services).

The two charts at the top to the next page show REINZ data on dwelling sales and section sales for the Central area of the Central Otago Lakes District which includes Wanaka-Albert Town and may provide some insight into recent developments in the Wanaka residential property market. The left chart shows the number of dwellings sold in the Cental area (black line, left scale) and the median number of days dwellings are reported by REINZ to be taking to sell (blue line, right scale – although subscribers of our Housing Prospects reports know that the days to sell data will most likely materially under-state how long properties while Strategic Risk Analysis Limited will use all reasonable endeavours in producing reports to ensure the information is as accurate as practicable, Strategic Risk Analysis Limited, its employees and shareholders shall not be liable (whether in contract, tort (including negligence), equity or any other basis) for any loss or damage sustained by any person relying on such work whatever the cause of such loss or damage.

In the face of rising mortgage interest rates and slowing national population growth the number of dwelling sales in the Central area have remained remarkable buoyant over the last couple of years, while until late last year sections sales also remained more buoyant than the national market. Again, this may provide insights into the Wanaka market, for which we do not have isolated data, but some caution is warranted because in addition to Wanaka-Albert Town the Central area also includes Alexandra, Bannockburn, Cardrona, Clyde, Cromwell, Ettrick, Glendhu, Hawea, Lake Hawea, Luggate, Makarora, Naseby, Nevis, Omakau, Oturehua, Paerau, Ranfurly, Roxburgh, Roxburgh East.

Maybe the threat of global warming and/or global terrorism are driving part of Wanaka’s popularity, maybe it is a latent and well overdue recognition of what the area has to offer, maybe it partly reflects overflow from Queenstown which has become too cosmopolitan for some, and maybe it is partly driven by the changing lifestyles of the baby-boomer generation who are now keen to get a better work-life balance. And maybe I’m just making stuff up because I’ve got no real idea what the key driver(s) of Wanaka’s popularity is/are. But what I do have some idea about is that it is not all one-way traffic in terms of the local property market. The percentage of the local dwelling stock that is advertised for sale at any one time gives useful insights into the supply side of the local housing market as well as providing some insights into the pressure on property prices. In November of last year when we did a report on Kaikoura we sampled a selection of places, including Wanaka, to see what the supply side of the dwelling markets looked like. We found that in November it was common in the smaller resort markets, like Hanmer Springs,

Mangawhai and Wanaka, to have around 8% of the stock of property advertised for sale with real estate agents at any one time (left chart below), which is high compared to the Canterbury region and the national average, most likely partly reflecting these being thinner markets and partly reflecting the resort markets facing a greater risk of oversupply. When we updated this sample at the end of March we found that the percentage of the stock of properties advertised for sale had increased in all markets, while in Wanaka’s case almost 12% of all properties were advertised for sale, which rings warning bells that the increase in the supply of housing had got potentially well ahead of growth in demand.

Based on the 16 subdivisions we inspected in Wanaka-Albert Town we counted 334 sections yet to be put up for sale, 173 currently for sale on the primary market, 31 for sale on the secondary market (based on the for sales signs at the subdivisions), 13 for sales as house and land packages by builders (again based on the signs) and, most importantly, a total of 986 sections yet to be built on although around half of these have already been sold by the developers. In these subdivisions we counted 40 houses under construction, which reflects a pretty high level of building activity, 17 spec houses for sales (including spec houses under construction), and seven of the 97 completed and occupied houses advertised for sale.

This does not include any sections still for sale in earlier subdivisions, while it can’t be ruled out that we overlooked some planned subdivisions (e.g. we didn’t include in the numbers above the sections planned for the golf course development because we have no idea when this will proceed) and possibly some out of-the-way subdivisions we didn’t find. It also doesn’t include the significant number of sections in the new subdivision at nearby Lake Hawea (the 96 section Timsfield subdivision still had 89 empty sections and 27 sections for sale on the primary market when we inspected it), nor at Luggate will involve 200 sections of which 93 are in stages 1A and 1B that the developer is currently selling with only 12 left to sell as at 10 January 2008).

While Strategic Risk Analysis Limited will use all reasonable endeavours in producing reports to ensure the information is as accurate as practicable, Strategic Risk Analysis Limited, its employees and shareholders shall not be liable (whether in contract, tort (including negligence), equity or any other basis) for any loss or damage sustained by any person relying on such work whatever the cause of such loss or damage.

If we assume the annual number of new houses constructed in Wanaka in the future is around 142 per annum, as guestimated above (but with reasons why the actual number could be either lower or higher than this), it implies there are enough sections either currently available for construction or planned to be available over the next several years to meet almost seven years of demand. Again, that seems to be more than enough to be going on with and potentially sufficient to put some significant downward pressure on sections prices, especially if some weakness in demand unfolds on the back of recent increases in mortgage interest rates.

When viewed in the context of the massive oversupply of new sections we have identified in some coastal and resort markets, Wanaka-Albert Town is not facing a devastating level of oversupply (devastating in terms of the implications for property prices). See, for example, the reports on Mangawhai, One Tree Point-Ruakaka, the Far North, Whangamata-Waihi Beach-Whiritoa, and Kinloch (on Lake Taupo). However, Wanaka does face oversupply and is unlikely to avoid some of the fun and games on the section price front that face several regions, as covered in our Housing Prospects and Building Barometer reports.

There are two big-time subdivisions in the pipeline in Wanaka-Albert Town, both by Infinity Investment Group of Pegasus Town fame north of Christchurch. While Strategic Risk Analysis Limited will use all reasonable endeavours in producing reports to ensure the information is as accurate as practicable, Strategic Risk Analysis Limited, its employees and shareholders shall not be liable (whether in contract, tort (including negligence), equity or any other basis) for any loss or damage sustained by any person relying on such work whatever the cause of such loss or damage.