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All Eyes on the Regions

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Why country life is scoring top marks with lenders


For far too long the spotlight has been on our main centres: Auckland, Wellington and Christchurch. The rampant property markets in these cities have created a decade of headlines, driven speculation and pushed up housing unaffordability. But as urban prices come off the boil, it’s the regions that are taking centre stage. Government spending and economic growth in our key industries – tourism, dairy, horticulture and forestry – mean the regions are booming. And as regional population numbers grow, and more investment pours in, it is creating a healthy and vibrant housing market – one that’s increasingly popular with lenders, too. So why are buyers in the regions earning such high marks on their report cards from the banks?

Price Fundamentals

Apart from stuntmen and teenage boys, few people enjoy taking silly risks, especially not banks, and especially not in the current financial climate. Due to stricter regulations concerning mortgage serviceability and limits on the size of loans, lenders are becoming more risk averse. So faced with fewer customers and a more cautious lending market, the banks are having to compete strongly for the best borrowers – and those in the regions have the edge.

Over the past five years, house prices across the country have skyrocketed, but the regions have always lagged behind the powerhouses, particularly Auckland and Wellington. And now house prices are falling, the gap is widening. Tighter investor lending has further cooled prices – especially in Waikato, Bay of Plenty, Tauranga and Queenstown – meaning the regional house-price fundamentals are even more attractive to the banks. Buyers don’t need to borrow as much, and are less likely to struggle with their repayments and generate financial stress, earning them an A+ mark from lenders.

Unlike our major urban areas, the regions are also better able to absorb future growth. There’s plenty of land to develop and the construction industry isn’t so constrained. As the ASB Bank’s Chief Economist Nick Tuffley says: “In the regions, construction is better able to play catch up – unlike Auckland, which is still chronically underbuilding.” This is sure to take further heat out of price growth in the regions, and make buyers there an even more attractive proposition for the banks.

Economic Growth

Of course, any regional growth is dependent on a robust wider economy. And thanks to the government’s Provincial Growth Fund, the regions are getting a fiscal shot in the arm. Three billion dollars has been committed over the next three years, with Northland, the East and West Coasts, Hawke’s Bay, Bay of Plenty and Manawatu-Whanganui singled out for early investment. This spending is being used to create new jobs, and fund the associated infrastructure projects that lift productivity and sustain growth, from ports to road and rail.

Of further benefit to the regions was the decision by the recently appointed governor of the Reserve Bank (RBNZ), Adrian Orr, to hold the official cash rate (OCR) at 1.75%. New regulations mean the central bank must now take employment into account when formulating policy, and Mr Orr stated his OCR decision was the best contribution he could make for “maximising sustainable employment and maintaining low and stable inflation”.

By keeping the OCR low, the RBNZ is pinning local interest rates beneath those of many of our major trading partners. This is good news for our exporters and booming tourism sector – who are hurt by a strong dollar – and, ultimately, for our regions.

Over the past few years, we’ve already seen a steady stream of migrants turn their backs on the urban rat race for a better life in the regions – and it’s obvious they were on to something. A great lifestyle, cheaper houses, easier commute times, plentiful jobs, and wide open spaces tick a lot of boxes for people. Only now, as lending restrictions bite, is life in the regions earning the seal of approval from the banks, too.

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