Which NZ Region Should You Invest In?

The NPR (Nicol Property Report) Regional Rich List

Introduction

Why Is It That Properties In Some Regions Increase in Price 2x Faster Than Others?

If you were smart enough (or lucky enough) to buy a house in Auckland in 1999, you would have made $610,000 over the next 20 years.

 

If you had bought just an hour north, in Northland, you would have made only $325,000. That's just over half of what you would have made in Auckland.

 

The region (and city) you choose to invest in can drastically impact your future returns.

 

That's why, once you decide to invest in NZ's property market, your next step is to question which region you should park your money in.

  

To answer this question, we've created the NPR (Nicol Property Report) Regional Rich List.

 

This metric combines four economic indicators to give a single number so you can see which region comes out on top.

 

This number signifies which region may generate the highest returns over the next 20 years. (Scores out of a possible 100).

The NPR Regional Rich List

The NPR Regional Rich List In Order

In order:

#1 – Auckland 74.17/100

#2 – Canterbury 64.17/100

#3 – (equal) Wellington 60.83/100; Waikato 60.83/100

#5 Otago 60/100

#6 Taranaki 59.17/100

#7 Bay of Plenty 58.33/100

#8 Nelson Tasman 55.83/100

#9 Gisborne 50/100

#10 Southland 48.33/100

#11 Marlborough 46.67/100

#12 (equal) Northland 45.83/100; Hawke's Bay 45.83/100

#14 West Coast 40/100

#15 Manawatu-Whanganui 35.83/100

What is the measure?

What The Rich List Measures and How It Is Calculated

The order of the NPR Regional Rich List indicates the likelihood that a region will achieve in capital growth over and above the other areas.

 

How we calculate this measure

The NPR Regional Rich List takes into account four economic factors:

 

·   Population Growth (50%)

·   Unemployment (12.5%)

·   GDP per capita (12.5%)

·   Consents issued per person (25%)

 

We rank the 15 regions on each of these factors. They are then assigned points for each category.

 

Regions receive full points for coming out as the top region. 14/15 points are assigned for second, 13/15 points for third, and so on. The last-placed area receives 1/15 points.

 

For instance, Auckland came out on top for projected population growth (30.75%) over the next 20 years. Therefore, for this indicator, the region received 50/50 points.

 

Canterbury came out second and therefore received 46.67 points (14/15 x 50).

 

Important to Note: To be clear, the rankings in the list do not indicate the likelihood that the region will achieve capital growth over time. 


For instance, Auckland received a score of 74.17. That does not mean Auckland is 74.17% more likely to achieve higher capital growth than other regions over the next 20 years.

 

The Future of This Measure: The NPR Regional Rich List is a blunt measurement, which is why we plan to develop over time to include other economic indicators.

The Metrics

Population Growth 

Population growth makes up half of our algorithm because: as people move into new cities, they need places to live. This increases demand in the property market, which helps push prices up.

Auckland is expected to achieve the highest increase in population over the next 20 years. 522,800 people are expected to move into the region, which is a 30.75% increase.

 

This is followed by Canterbury, which anticipates a 19.67% increase of 122,600 people to 745,800.

 

In contrast, the West Coast is the only region expected to decrease in population. Statistics NZ predicts that within 20 years, the number of residents will fall 3.69%. The current population of 32,500 would, therefore, diminish to 31,300 people – a 1200 person decrease. 

The Metrics

Economic Strength 

For house prices to increase the resident population also needs to be able to afford these price increases. There are two factors we have included to give a sense of each region's economic strength: GDP per capita and unemployment.


GDP Per Capita 

GDP measures the total output of each region's economy for a year. It is an indicator of the incomes and wealth of each region's residents.

In 2018, Wellington had the highest GDP per capita of any region, at $71,622. This is likely due to the strength of the region's government, finance and professional sectors.

 

Taranaki follows at $68,427 per person, thanks to the agriculture, and oil and gas industries.

 

Gisborne came in with the lowest GDP per person, at just $41,209 - 42.5% lower than the top-performing region.

 

Unemployment

The NPR Regional Rich List also factors unemployment in as an indicator of economic strength. With higher unemployment pointing to, potentially, a mediocre property market. 

Four regions share the lowest unemployment rate. Marlborough, Nelson Tasman, Otago and West Coast each have just 3.3% unemployment, according to the latest Statistics NZ figures.

 

This is a good indicator for each region's economy, and gives a higher level of confidence in the property market.

 

Whereas Northland and Manawatu-Whanganui have the highest and second-highest levels of unemployment, respectively. Northland with 7.1% of unemployment and Manawatu-Whanganui with 6.5%.

The Metrics

Consents Per Person

As well as measuring the anticipated demand each region will have for property in the future, it's also essential to consider the supply.

 

The number of building consents for new dwellings gives a sense of how many houses are being developed to keep up with each region's demand.

 

The algorithm used to calculate the NPR Regional Rich List includes the number of consents issued per person in a region between Jan 2014 - Dec 2018 (using the 2018 population). 

Over the five years used in the measure, just 390 consents for new dwellings were issued in Gisborne. For a population base of 48,500 people, that's only 0.008 consents issued per person.

 

Unsurprisingly, Canterbury had the most consents issued per capita – 29,473 for 623,200 people. This is caused by the need for new houses following the Canterbury earthquakes.

 

It should be noted that consents per person won't predict whether there will be a housing shortage or housing glut in the future on their own.

 

For instance, the number of consents issued in Canterbury is likely a correction of the housing shortage that was created by the earthquakes.

 

Nonetheless, it is still useful to include some measure of the supply of houses within the model.

Conclusion

So, Where Should You Park Your Money?

The NPR Regional Rich List should not be used as a be-all and end-all that tells you which region you should personally invest in.

 

However, it is useful because:

 

  • It gives a single measure from a basket of economic indicators. When we invest we weigh up the various factors in our heads and make a judgement call. This is often difficult as some regions will perform well on one metric, and poorly on another. This has the potential to cause analysis paralysis. Creating a single measure (even an imperfect one) helps weigh the factors and cut through the noise.
  • It reminds us that choosing 'where to invest' is a complex decision. It should take multiple factors and economic indicators into account. That's why it is best to seek advice from professionals who are experienced in considering these factors.


So what does the NPR Regional Rich List tell us? 


If you are deciding where to park your capital, the main centres are likely to make a better investment than smaller regions.

 

Although it is still possible to make money in smaller regions, the first port of call for first-time and conservative investors should be Auckland, Christchurch and Wellington. 


The NPR Regional Rich List also suggests staying away from investments in Manawatu-Whanganui, West Coast and Hawke's Bay.

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