De-gentrification – Should You Invest in New Brighton, Christchurch? | Ep. 213

Ed McKnight

Ed McKnight

Economist, property investor and host of the Property Academy Podcast
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Show Notes

What's Covered in the Show?

In this episode, we discuss the concept of de-gentrification, where an area with significant economic activity begins to lose it.

We apply this concept to New Brighton and discuss what investors could look for within suburbs and areas to invest.

We also mention our property investors webinar, which is coming up on 14th April at 7pm. During this webinar, we're going to cover how Covid-19 will impact the rental market in NZ.


Transcript of the Podcast

Ed McKnight: Hello and welcome along to the Property Academy podcast. I'm your host, Ed McKnight, and I'm Andrew Nicol, and today on the show we're talking about is New Brighton a good area to invest in Christchurch.

Now this is quite a niche topic. It was actually comes from a question that was asked on last Tuesdays webinar, and the question was is New Brighton which is a specific suburb in Christchurch, is it a good area to invest? And as Andrew and I were chatting back and forth about it, we realised there were quite a few lessons that can be learned when evaluating this specific suburb because some things have changed about New Brighton over the last 20 years.

So just for instance, if I look at the rankings in terms of how expensive suburbs are in Christchurch, which there are about 60 suburbs that I've got 20 odd years of data in, and you brought in his fallen from the 10th most at, sorry, the 10th cheapest, to the six cheapest suburb in Christchurch.

So it's fallen a bit in terms of where it's sits against all the other suburbs. Now, Andrew, just walk us through about some of the things that have happened with that suburb over the last 20 years cause you actually grew up there.

Andrew Nicol: So, yeah, I spent, uh, some of my childhood living in New Brighton, in Brook Street, I think it was, and 68 Brook Street if my memory is right. And, um, at the time it was, it was an area which wasn't fancy at all. But it probably wasn't as bad as it is now, because it has got a lot rougher. And so just thinking back about what might have changed in that time, one of the major factors that changed because this is 25 years ago, there was a big strip mall down the middle of New Brighton.

Now, one of the advantages that New Brighton had back then is that the strip mall was open at the weekends, whereas other shops typically in town weren't and you didn't have malls back then. And so at the weekend, people would come out to New Brighton and spend their money, and so you had a lot of it, like the whole, the whole of the mall was open. You had lots of little niche shops, and there was a lot of activity at the weekend, people go to the beach and everything like that, because it's a really nice beach suburb.

Now what's happened since then is malls have started to open up, and actually I went to New Brighton maybe last year some time to look at a project or have a look at some land there. And walking around the mall, the one thing that stood out to me is the number of for lease signs lots of the stores were all locked up and had for lease signs. And it was obviously really suffering from a retail perspective. And it would be fair to say that business is a lot rougher now than it used to be.

So because of this big shift away from you know people going out there at the weekend spending their money, you now got a lot of poorer families living in some of those areas. And with that comes an increased level of crime, maybe the houses if they're being rented aren't being looked after as well. It really didn't feel like the old New Brighton that I remember growing up. And it could be that there's been 25 years of my memory loss, but it's probably that there's actually just based some significant changes there.

For example, even right in the central part of New Brighton, right next to the shops you had a really big school there central New Brighton school, which I went to for a few years. And that's all been locked up now I noticed before, actually it was even locked up they had big chicken wire fences all around it for security. And it looked more like a jail cell than it did a school. So those kinds of changes you know, don't sit as well, but that lands actually been bought now by a department of the Christchurch City Council.

So DHL, which is a development part of the Christchurch City Council, they now own that land. And so that kind of lends itself to thinking that if there's going to be some on money spent around these areas, maybe there is some opportunity for it to change going forward, and again, you are paying significantly less value, money for a property in that area as you would in say Sumner, which is again a beach suburb of Christchurch. But very affluent and a much, much nicer, but much more, much higher values for essentially what are the same thing. A three bedroom house, which is within walking distance with the beach.

Ed McKnight: And look, the other thing I want to talk about is the kind of opposite phenomenon we talked about a couple of episodes ago, which was gentrification. We talked about areas that previously weren't as nice but have grown in terms of their affluence and have grown in terms of the people who tend to live and work there in terms of house prices and the affluence of the area.

Now New Brighton's kind of gone the other way a little bit over the last 20 years, which is kind of what we're talking about. And it's the opposite of that. We're kind of calling it de-gentrification because I don't think there's actually a term that's been used to describe it and what I just want you to think about, is what is the source of competitive advantage for a specific area.

So what was really different about New Brighton in this instance was the fact that shops were open over the weekend. It's got a lovely beach, of course, as well, which hasn't changed, but the factors that other malls have propped up and have been built, trading hours have been changed, which means that, that source of competitive advantage, that thing that was making New Brighton different is no longer there. So when you are, I think the lesson here as well is, when you are evaluating a suburb and you've got your list of reasons why, look, I think this is a good suburb because of X, Y, Z reason.

Just test what would happen or what would cause that to change. So when I'm looking at suburbs in central Auckland, I see their proximity to the city. That's not going to change. I see that there is an entrenched value of property in central Auckland, Auckland suburbs as well, because of the types of houses and the people that tend to live there. Look, I don't think that's going to change if something's based more on a specific business, just test, could that change? What would that take to change?

If I think about Mangere in Auckland, which is right next to the Auckland international airport. Now, one of the reasons we recommended, and I think it was about episode 57, we said, Hey, look, there's some big developments happening at the airport that are probably going to benefit Mangere. Now the, the airport is unlikely to move. But what's happened with Covid19 is that the $2 billion infrastructure project has been delayed. Now it is highly likely that project's going to go ahead. It's just going to be a delay delayed a bit. Now that will have some benefits still to come for Mangere, but they will be slightly delayed.

Now, we could have tested that a little bit and said, well, what would it take in order for that project to be delayed? And it's taken an epidemic that nobody actually foresaw. But these are some of the things you can start to just test what, what would happen if the port moved? What, and I'm talking about Lyttleton in that instance, what would happen if XYZ happened and you can just test or how entrenched is that source of differentiation or there that source of benefit that one suburb is able to draw on.

Now the other thing just in terms of New Brighton as well that I want to talk about is, even though we're kind of talking about this sense of de-gentrification, we're calling it over the last 20, 20 and a quarter years, house prices there have still done okay. They haven't done as amazingly as the rest of Christchurch, but it's still growing at a rate of about 5.4% I believe. Uh, let me just pull that exact number 5.04% so over the last 20 point 25 years at the date, Jan, 2000 median house price in New Brighton was 131.7 K. uh, now it's sitting at about 356.6 K, so it's gone up by about 225 K. yeah, about 225 K over the last 20 years, which has a growth rate of just over, just over 5%, which is what we would usually consider a pretty good growth rate.

But having said that, that is on the lower end in terms of how house prices have grown over the last 20 years, because we've had some significant booms happening in the property market because of some, some pretty hefty structural changes, like the decrease in interest rates and the amazing net migration that we have had in New Zealand. Look, Andrew, anything else to add before we wrap it up?

Andrew Nicol: I just want to finish off by just saying, I think this is an area that has some really good potential, but I think I thought they 15 years ago as well, when I started investing, that it had some potential. So if you were wanting to invest there, I'd just be careful what, and where, I was investing. So there are better parts of New Brighton than others.

Some parts that will attract a better quality tenant. There are certainly different types of property there, so there's a lot of old villas, which I think would be very maintenance heavy, attract a lower end tenant, who is maybe not going to look after quite the same as a nice young professional couple, for example. I think that there could be some good growth in the future if some of these projects get off the ground, but probably somewhere that you just want to treat with caution.

Ed McKnight: Fantastic. Well, let's wrap it up there, but please don't forget to rate, review and subscribe to the podcast. It really does help us get the message out to more people and hey, if you're interested and are wondering, how is this Covid19 induced shutdown going to impact the rental market in terms of median rents and my tenants actually paying me rent, then why not check out our webinar that we're holding this Tuesday the 14th of April at 7:00 PM.

I'm going to drop a link to that in the show notes, so just tap or swipe over that cover art. It'll take you straight there or just head along to our website You can sign up there. It's going to be very data focused, but it is going to be a whole heap of fun.

Thanks for listening to the Property Academy podcast. I'm your host, Ed McKnight, and I'm Andrew Nicol, and we're going to be back again tomorrow with even more daily strategies, tactics, and insights to help you get the most out of the New Zealand property market.

Until next time.

Ed McKnight

Ed McKnight

Ed McKnight is the host of the Property Academy Podcast – NZ's #1 business podcast. He is an economist, having studied at the University of Auckland and the University of Waikato. He's a frequent writer for Informed Investor Magazine and has contributed to NewsHub, Stuff, OneRoof and Property Investor Magazine.