QV data out earlier this week showed Queenstown had the highest current average value property at more than $1million.
Now, the Massey University Home Affordability Report identifies the region as surpassing Auckland as the most unaffordable region in New Zealand.
The report, which covered the period from December 2016 to February 2017, showed an improvement in national affordability in the three months. It was driven by a fall in house prices in seven regions, including Auckland.
But over the last quarter, affordability declined in Central Otago Lakes by 8.2%.
Report author Associate Professor Graham Squires said the fall in the Central Otago Lakes district was in contrast to a "considerable" 7.5% improvement in Auckland’s affordability.
Central Otago also had the largest fall in affordability in the year ended February. That was a reflection of tourism industry demand in Queenstown, a shortage of housing supply, speculative investment demand, a focus on high-end lifestyle living in the area, and largely stagnant wage increases.
Auckland’s median house price dropped by $51,944 over the last quarter, or 6.1%, leaving Auckland to become New Zealand’s second most unaffordable region after Central Otago Lakes.
"These two regions are the least affordable by a clear margin. Auckland still sits at 55% less affordable than the rest of the country and Central Otago Lakes is now 68% less affordable than the rest of New Zealand."
Despite the improvement in affordability in seven regions in both the report’s annual and quarterly figures, Dr Squires said the ratio of median house price to median wage remained very high in both those regions.
In those two most expensive regions, that would continue to place strain on first-home buyers, especially in Central Otago Lakes where the median house price was nearly 14 times the median annual wage. Improvements in affordability in the rest of the country had been driven by slowing house prices and continued low interest rates but there were indications interest rates were on the rise, he said.
A steady official cash rate unchanged at 1.75% had helped to keep borrowing costs low. It was important to note the quarterly interest rate used to calculate the index was a weighted average of all loans and was currently 4.85%.
New customers’ rates for January were now higher, generally between 5% and 6%, depending on the type and term of the loan.
"It is possible more stringent deposit and bank lending requirements and interest rate rises could make it more difficult for home buyers in the future."
New Zealand property prices also needed to be viewed from a global perspective, Dr Squires said.
A slowdown in house price rises in some global cities, plus the nature of global flows of funds, could affect bank lending and demand for house purchases in New Zealand.
The first quarter in New Zealand usually experienced seasonally slow market sales due to holidays.
Key points
• Nationwide, the median sales price shows a 10% year-on-year increase, although there was a 4.8% fall in the February quarter.
• Central Otago Lakes, including Queenstown, now surpasses Auckland-Coromandel in the index as the most unaffordable region in New Zealand.
• Evidence of a slowdown in house prices continues as seen by the regional drops in median house prices in the last quarter.
• Southland is the most affordable region in the country.
