Dunedin has experienced a meteoric rise in house prices over recent years but remains a more affordable option than many North Island centres.

In common with markets around the country, Dunedin has seen rapid strong price growth in the wake of last year’s lockdowns.

CoreLogic’s latest data shows its average property value was up by 15.4 per cent over the year to March, at $620,990. That’s an increase of $82,965 on the same time last year.

The March data from the Real Estate Institute puts the increase even higher. It has Dunedin prices up by 21.5 per cent year-on-year to a record of $650,000.

While that growth has been starting to slow in recent months, the city has been the stand-out performer among the main centres in recent years, Homes.co.nz chief data scientist Tom Lintern says.

According to Homes.co.nz’s data, Dunedin’s median price has increased by 40.5 per cent over the last two years. In April 2019 it was $413,000 and it is now $580,000.

“For comparison, the other main centres have grown by 24.8 per cent (Auckland), 21.2 per cent (Christchurch), 26.7 per cent (Hamilton), 27.7 per cent (Tauranga) and 36.8 per cent (Wellington) in the same two-year period.”

Lintern says Homes.co.nz’s data also shows Dunedin’s prices surpassed Christchurch prices in November 2019, and this remains the case.

Homes.co.nz puts Christchurch’s median price at $530,000 in April, while the Christchurch average price is lower than Dunedin’s in both CoreLogic and the Real Estate Institute's March data.

For a city long regarded as able to offer more affordable options to property buyers, it’s quite a change and it’s left the market under pressure due to a major lack of supply.

Nidd Realty owner Joe Nidd says March was a fairly quiet month. The Real Estate Institute recorded just 125 sales. But it wasn’t due to new Government housing policies prompting a pullback, but the extremely low level of housing stock for sale.

Properties spend an average of only 21 days on the market and there continue to be multiple offers in many sales, he says.

“It’s just that demand far outweighs supply.The number of properties available can’t keep up with the number of people looking to buy. There’s been a huge supply injection in Christchurch, but that hasn’t happened here.”

At the same time, Dunedin is a growing city with lots of new people moving there, in part attracted by prices that remain affordable compared to the likes of Auckland, which had a median price of $1.12 million in March’s Real Estate Institute data.

Nidd says that is putting pressure on housing supply and, in turn, prices. “I can’t see the situation changing until more development is enabled and lots of new builds come on to the market.”

While the Government moves to incentivise new builds and the council’s adoption of a new district plan allowing for more greenfield development and urban intensification will help eventually, it is a long-term fix. Until then, the lack of supply will keep a floor under prices, he says.

Ray White Dunedin’s John Murphy agrees the market is being driven by high demand which far exceeds supply. That is making for continued growth across all segments of the market.

“The Government’s new housing policies might dampen investor enthusiasm a bit, but many are likely to raise their rents, which isn’t great for people trying to save a deposit for a house, and shift their focus to new builds.

“But there were just 300 properties for sale on Trade Me Property earlier this week. That’s very low for a city the size of Dunedin. With supply so limited, I think we will continue to see a strong, busy market.”

There is no real reason for the situation to change, he says. “Especially as there is currently a lot of commercial development and infrastructure work, like the $1.4 billion hospital rebuild, taking place and that’s attracting even more people to move here to live.”

There’s another reason the experts are picking the city’s market is set to remain busy. Dunedin is the archetypal Kiwi university town and student housing is a distinct, and key, sector of the market.

Student rental properties are provided by investors and Otago Property Investors Association president Kathryn Seque says that is not going to change, even in the face of the Government’s new housing policies.

While the need to upgrade student rentals to Healthy Homes standards might prompt some landlords to sell, such properties are likely to be bought by another investor and upgraded, she says.

“A few owner-occupiers might buy a student rental if it goes on the market, but most never will. Most are just not family homes, but there’s still investor demand there for that sort of stock, particularly as the yields are reasonable.”

This means the Dunedin student market will remain attractive to investors, and, when the new district plan does come into play, it will also make for some attractive changes for those wanting to develop new properties.

Seque says the supply the plan will enable is desperately needed as the city is seeing an influx of new residents, which has pushed up both house prices and rents.

“Dunedin’s price growth had been insane over the last few years, but I suspect prices still have room for further increases as buyers from up North see a median price of less than $600,000, and it looks relatively affordable to them.”