Christchurch – a Magnet City: What it Means for Property Investors

Christchurch- -Property-Investment-NZ

Why is it that some cities seem to grow and thrive, while others seem to wither and are on the decline?

In 2015 KPMG UK conducted a study and found that cities are much like magnets – they either have a positive pull that seems to attract the right type of residents and businesses to the city, while others have a magnetic push, that puts the city in decline. 

Within the study, KPMG identified 7 cities across the world that had changed their magnetism from push to pull – i.e. they turned their negative magnet into a positive one. 

Christchurch was included as one of the case studies along with other great second-tier cities like Bilbao (Spain), Denver (Colorado, USA), Oklahoma City (Oklahoma, USA), and Tel Aviv (Israel).


But, what does this mean for property investors in NZ who may be deciding what city to invest in?

The first thing is to understand what being a Magnet City means in this context. 

At the heart of it – a Magnet City doesn't just attract any type of people – it attracts a specific type, what KPMG calls Young Wealth Creators

These are young, entrepreneurial people who start companies and create new jobs within the city. 

As these Young Wealth Creators build their companies and create new jobs, more people are attracted to the city in order to fill those jobs. This increases both the population and the strength of the city's economy. 

As the city's population and economy grow, the city can invest in renewing its infrastructure, and make it a better place to live, which .... makes it even more attractive for Young Wealth Creators to move to and start new ventures.


What this means for property investors

Property prices are driven by two key things – population growth and the ability for that population to afford houses (i.e. income). 

The Magnet City concept is important for property investors to understand because a Magnet City will  trigger both population growth, and the right type of population growth – people with reasonably high incomes. 

On top of that, because a Magnet City attracts Young Wealth Creators, it means that if these people set down their roots in the city, they will be there for the next 30, 40, 50 years. So, attracting these types of people sets the city up for long term growth .... exactly what property investors should be looking for. 

Remember, when you are investing in a property, you are actually investing in the long term prospects of the city the property is in. 

Even if you were to buy a great house on a fantastic piece of land, if the city is in decline and people don't want to move there, the property market within that city will soften and your investment will not deliver the returns you would hope for. 

Fundamentally, in property investment you've got to invest in the right market, and by extension, the right city.


How can you tell if a city is a positive magnet?

KPMG listed seven principles that make a magnet city:

  1. Magnet cities attract young wealth creators
  2. Magnet cities undergo constant physical renewal
  3. Magnet cities have a definable city identity
  4. Magnet cities are connected to other cities
  5. Magnet cities cultivate new ideas
  6. Magnet cities are fundraisers
  7. Magnet cities have strong leaders

To explain each of these, it may be useful to directly apply them to Christchurch and show how Christchurch has applied these principles:


How Christchurch became a Magnet City

Christchurch changed its magnetism in a different way to the other cities identified in the report. The harrowing 2010 and 2011 earthquakes meant that the city had to change, it had to rebuild. This was the trigger that has turned it into a Magnet City:


Principle #2 – Christchurch undertook (and is still undertaking) constant physical renewal

There has been significant physical renewal in Christchurch. There are new bars and restaurants, there is the new library and soon the convention centre. New buildings are constantly opening, and this makes for an exciting city to live in where there are always new things to do. This helps to create a culture that attracts Young Wealth Creators to the city.


Principle #3 – Christchurch has always been the Garden City and has a marketable city identity

Christchurch has always been known as The Garden City, and over recent years it has doubled down on promoting the city as the gateway to the South Island. This has attracted tourists to the region, ensuring a steady stream of economic activity for the tourism sector.


Principle #4 – Christchurch is Connected to other Cities

High on the Christchurch Earthquake Recovery Agency's (CERA) plans to revitalise the city was both the Christchurch Airport and the Lyttleton Port. This means that Young Wealth Creators can easily build businesses in the city, then travel easily or ship their products to their customers anywhere in the world.


Principle #5 – Christchurch Cultivated New Ideas

According to the report –

"Encourag(ing) greater ... innovation across Canterbury’s private and public institutions was viewed as essential in the city’s transformation. The health, innovation, and justice and emergency services precincts are being developed with this specifically in mind."

On top of this, a large part of the recovery centred on crowd-sourcing ideas from city residents, finding out what they wanted the city to become. This is helping to create a vibrant city that is exactly what residents want.


Principle #6 – Christchurch Got Money In

Christchurch City Council has invested heavily in the rebuild, and money has also come into the city through Central Government and insurance companies. The city has leveraged this investment and promoted the rebuild as a major opportunity for private investors. This has helped to fund the physical renewal discussed in Principle #2. 


Principle #7 – Christchurch Had Strong Leadership

If you do take the time to read the report, you will proud to read about the leadership displayed by Mayor Bob Parker, Prime minister John Key, Gerry Brownlee, and Mark Solomon. All four played a large part in making the recovery successful.

For all these reasons, we believe that Christchurch has great long term prospects as a city, and therefore represents a compelling opportunity for residential buy-and-hold property investors. 

However, even if you weren't to invest in Christchurch (or New Zealand), KPMG's Magnet City framework can be used a qualitative 'checklist' when analysing a city to invest in, or considering your investment options. 

When looking at property, consider:

  • Does the city have a positive 'pull' magnetism, or does it have a negative 'push' magnetism?
  • How closely does the city display the seven key principles identified in the Magnet City report? and specifically:
  • Does the city attract Young Wealth Creators (Principle #1) that will create new jobs in the city and spur further economic activity and population growth?

If the property you are looking at satisfies these criteria – you can have a reasonable level of confidence that the property market is going to do well over time, and will likely lead to successful property investment.

Sources: KPMG Report – Magnet Cities