(Bloomberg) -- Even with its mold-streaked bathroom and kitchen without a sink, the duplex in bayside Auckland attracted a frenzied bidding war. Now it’s one of the city’s newest million-dollar government-built houses.
The two-bedroom, brick cottage on Kerr Street on the city’s inner north shore fetched NZ$1.04 million ($685,000) at an auction in September, netting the vendor, New Zealand’s government, double avaluation used for taxes.
Long symbols of economic disadvantage, homes built by the state last century for low-income tenants are on a tear, thanks to their typically generous land sizes and proximity to the city.
The changing fortunes of these modest dwellings — loved and derided by New Zealanders for their functionality over style — reflect a fervor that’s spurred Auckland’s biggest property boom in two decades. The average house price in New Zealand’s largest city is now higher than London’s.
“It’s like the supermarket before it closes on Christmas Day — everyone thinks they’d better get in or they’ll miss out,” said Carol Wetzell, a realtor at Barfoot & Thompson in Devonport, the agency that sold the 82-year-old Kerr Street home.
State homes, particularly those built from local timber in a wave of government-led construction in the 1940s, are regarded as iconic — products of a time when the government was determined to ensure no one lived in squalor.
Prime Minister John Key was raised in a state house in Christchurch by his widowed immigrant mother, and the Auckland municipal government plans to create a NZ$1.5 million sculpture of one on the city’s waterfront.
Now, with house prices up 24 percent in Auckland in the past year alone, the government can count more than 650 state homes, or “staties,” worth at least NZ$1 million in its Auckland property portfolio, according to data obtained by Bloomberg News via a freedom of information request.
Among the most valuable listed by property researcher CoreLogic Inc.: a two-bedroom home in the leafy, inner-city suburb of Westmere with a rotting clapboard facade. With the prospect of sea views if renovated, plus space for a tennis court and swimming pool, it’s valued at NZ$2.2 million.
Nestled around two large harbors near the top of the North Island, Auckland is New Zealand’s economic powerhouse and home to almost a third of the South Pacific nation’s 4.5 million people. With a mild climate and abundance of parks and beaches, the so-called City of Sails routinely ranks among the world’s 10 most livable cities.
Add to that a housing shortage and an historic lack of barriers to property speculation and the result: average house values in the city have jumped 70 percent to NZ$1,079,473 ($711,000) in the past four years, according to CoreLogic. In comparison, house prices advanced only 9.9 percent to NZ$553,291 in the capital, Wellington, and 50 percent to 443,399 pounds ($678,000) in London in the same period.
Auckland house prices are now the second-highest relative to incomes among developed economies, prompting the central bank to flag the prospect on Nov. 11 of a “damaging correction” in the market that puts the New Zealand economy at risk.
“This boom that we’ve had has been huge, it’s just been extraordinary in terms of the scale of the price increases,” said Shamubeel Eaqub, an independent economist in Auckland, who co-authored Generation Rent, a book on the decline of home ownership in New Zealand. “For a young couple to buy a modest home in Auckland, it’s 60 percent of their income on mortgage payments. We’re going to run out of fools to buy houses — it can only be the landed gentry.”
Housing New Zealand Corp., the authority providing residential services to the needy, owns about 65,000 houses — or 4.5 percent of the country’s residential properties. With a third of the agency’s NZ$18.7 billion portfolio deemed in the wrong place or of the wrong type, state homes are regularly liquidated to fund new properties.
Since 2010, 21 in Auckland have sold for more than NZ$1 million, including a dozen in the past two financial years, according to the Housing New Zealand data obtained by Bloomberg.
In a city where commuting by car is the norm, those in convenient locations — and on larger-than-average blocks — are especially prized, said Tony Tang, a property agent in central Auckland with real estate firm Ray White.
Tang secured the NZ$1.102 million sale in June of a three- bedroom former state house in Mount Albert, less than 8 kilometers (5 miles) from Auckland’s central business district. The investor-owner made NZ$344,000 in 15 months, without having to lift so much as a paint brush. Like many state houses, the home was “valued on the land only,” Tang said.
“People are sick of seeing these people in the paper who made a million after just mowing the lawn three times,” said Wetzell, the realtor in Devonport.
Juliette Hogan says the value of her two-bedroom state apartment in Freemans Bay, less than 2 kilometers from Auckland’s center, has increased at least 50 percent since she bought it four years ago.
Still, capital growth wasn’t what attracted her to the flat — built in the 1970s, when the harbor-side suburb was still home to the ‘Destructor,’ a giant incinerator that carbonized the city’s trash.
“I like the idea that state houses are solid and dependable builds,” said Hogan, a fashion designer who has a clothing store down the street from her apartment. The neighborhood has a “mixed bag” of residents and properties, she said.
“Most are still owned by Housing New Zealand and tenanted,” Hogan said. “I love the diversity.”