Property Investment
3 min read
Cyclone Gabrielle has wrecked properties and destroyed lives in Auckland and Hawke’s Bay.
Sally, one of my Napier-based investors, called me this week to ask what the Christchurch housing market did after the 2011 earthquakes (which I lived through).
She thought the same thing might happen in Hawke’s Bay. Here’s what we discussed.
Though let me be clear. The effects of the cyclone are genuinely awful. I am not suggesting that investors view the disaster as a chance to profiteer.
Instead, I’m writing this because:
The earthquakes destroyed 10,000 buildings and damaged 100,000. Well over half of Christchurch’s houses were at least partially damaged.
Insurance money poured into the city, and three main things happened:
Property prices took off 6 months after the earthquake. They went up 80% over the following 4 years (compared to their pre-quake level).
The rest of regional New Zealand only increased by 20% over the same time.
So, Christchurch house prices grew 4x faster than the rest of the country (excluding Auckland).
That represents how much pressure there was in the housing market because …
Christchurch's population declined by 3.6% 2 years after the earthquakes.
But, even though the city was 24 months into the rebuild, 6% fewer houses were available (even accounting for newly built homes).
So while demand for housing fell, supply fell much more quickly.
On top of this, the demand for temporary accommodation exploded. People needed a place to stay while their own homes were being repaired.
So, there was a big need (demand) for rental accommodation.
Christchurch rents increased by $92 a week (31%) in the 2 years post quakes. That’s 3x faster than their long-term average.
Over the same time, Auckland's rents went up only 13%.
This was not just due to more people needing to rent (even if temporarily) … but because many people weren’t footing the bill themselves.
Instead, insurance companies were often paying the rent. That extra money caused rents to increase.
These higher prices and rents are symptoms of the pressure the housing market was under. There just weren’t enough warm, dry homes available.
It’s too early to say. It will depend on how many homes are damaged and what it will take to repair those homes.
We still don’t know the full extent of the damage, and there are still thousands of people missing.
But, we will likely see substantial pressure in the housing market, which will cause stress both for homeowners and renters.
And that is where private property investors can play a part in the region’s recovery.
If you are a renovations-focused investor, you could buy and repair damaged properties.
Often devastated homeowners want to move on with their lives but can struggle if no one wants to buy their house.
Purchasing and repairing their homes helps them to move on.
In Christchurch, many homeowners didn’t have the skills, money or inclination to repair their homes.
It also means their home becomes liveable again, and another family can call it home. This increases the housing supply and will help ease pressure on rents and house prices.
If you prefer to invest in New Builds, buying a developer's property helps more homes get built.
This can also help increase the housing supply and keep rents lower.
Again, I’m not saying we should all buy property in Napier right now. The region needs time to find its feet.
But, property investors can play a part in the recovery – helping to ease the housing pressures that will likely come.
Managing Director, 20+ Years' Experience Investing In Property, Author & Host
Andrew Nicol, Managing Director at Opes Partners, is a seasoned financial adviser and property investment expert with 20+ years of experience. With 40 investment properties, he hosts the Property Academy Podcast, co-authored 'Wealth Plan' with Ed Mcknight, and has helped 1,894 Kiwis achieve financial security through property investment.
