Still some gold to be had in scarfie Dunedin

23:02, Jul 21 2013
SOLD: Property prices in Dunedin are lower than in Auckland, although capital gain is far higher up north.

In a Tale of Two Cities, the metropolises in question were London and Paris. My choices are less grand - Dunedin and Auckland. In a re-working of Dickens's opening lines - "It was the best of prices, it was the worst of prices", with Dunedin tops for the home buyer, Auckland a distant second.

So, why compare Dunedin to Auckland? Because our fair southern city was mentioned in glowing terms by the Sydney Morning Herald as a fine investment prospect. The story appeared in response to articles in our media claiming Australians were the biggest foreign buyers of New Zealand houses. Based on some BNZ research, our newspaper articles pointed out that Australians bought 22 per cent of the homes sold to foreigners, followed by Chinese with 20 per cent and British 13 per cent. The stories also suggested foreigners be prohibited from buying in New Zealand.

This prompted the Sydney Morning Herald's property reporter Toby Johnstone to write a follow-up story with the headline - "Call To Ban Australian buyers from NZ Property". It was a fascinating piece, in particular this statement by Johnstone. "Houses in New Zealand are significantly cheaper than in Australia and there is no stamp duty or land tax on property purchases".

Michael Wilson
Sunday Star-Times columnist and business commentator Michael Wilson.

He then went on to write of one Aussie buyer who bought a block of flats unseen for NZ$290,000 in Dunedin. "It rents for $780 a week - a gross rental yield of more than 13 per cent."

A revealing article I thought. One, it does back up the claims that we make it relatively easy for home buyers, with no stamp duty or additional taxes. Although the counter is that having these "penalties" does not seem to have stopped Australia having many a property boom, especially in cities like Sydney, Melbourne and Perth.

The second revelation for me was that Dunedin offered such high returns. Forget Auckland, why aren't local speculators piling into Dunedin if there are such big returns to be had?


A little research into the relative growth paths of the two cities does shed some light. Thanks to the gold rush in the 1860s, Dunedin was once the largest and most dynamic city in the country. But the 20th and 21st centuries have seen minimal growth down south. In the early 1960s Dunedin had a population of 105,000. It has grown just 21 per cent in the past half century to around 127,000.

Contrast this with Auckland's growth. Its population has gone from 440,000 in 1960 to 1.5 million now, a rise of 250 per cent.

Such a strong growth rate means land and home prices in Auckland have inevitably outstripped those of Dunedin. So Auckland has offered up healthy capital gains, while Dunedin provides just a solid rental return.

If you go online to see what $400,000 or so can buy in Dunedin, it does seem outstanding value compared to Auckland. On I spotted a solid brick home of six bedrooms at 156 Queen St, North Dunedin, on 506 square metres offered up for $439,000. It has a rental return of $31,000 a year.

Or a house at 307 Stuart St, with a rental return of $33,000, which was on sale for $379,000. Now these are student rentals, so they look like they need a bit of work to counter years of scarfie lifestyle. But they are within jogging distance of the CBD and university, so they are remarkably cheap when compared to Auckland.

An equivalent price and location in Auckland would get you a one, maybe two-bedroom apartment with a view of the motorway if you were lucky.

So why isn't everyone moving down south to snap up a bargain in beautiful Dunedin? Is it the lack of jobs?

If you believe the man who knows most things, Gareth Morgan, it's something more sinister. This is how he explained it in an opinion piece in the NZ Herald on June 20. "Akin to Manchester or Sheffield of the South Pacific, this factory city [Auckland] is press ganging employees into its factories and stacks of office blocks and condemning them to endless hours of commuting to those sweat shops". So, "press ganging" is the real reason Auckland's population growth is running amok.

Being an Aucklander, I naively thought the dramatic growth reflected the attractiveness of the city. After all in Mercer's 2012 Quality of Living Worldwide City Rankings, Auckland came in third, after Vienna and Zurich. And in Monocle, a London-based magazine of global affairs, Auckland was ranked ninth on a list of the world's top 25 most liveable cities. Number one was Zurich with Sydney coming in eighth.

Now I used to think if Auckland could be made to appear a little less attractive, then perhaps that would stop people moving here and so relieve the pressure on house prices. So it is wonderful to see Dr Morgan doing everyone a great service with his Dickensian descriptions of Auckland.

It's time to leave the Bleak House of the north and strike gold in the Buck House of the south.

Michael Wilson is TV3 business correspondent for Firstline and 3News@12. Rod Oram is on leave.

Sunday Star Times