Sitting within the Pacific Rim of Fire, Rotorua is a geothermal wonderland with bubbling mud pools, clouds of steam, and natural hot springs for bathing and relaxing.

The Rotorua urban area covers 48.04km2 and in the 1880s a “special town district” was created to promote Rotorua’s potential as a spa destination known for its special mud qualities.

Rotorua is one of only a few New Zealand cities built next to a lake. Not just one lake but 18 and three major rivers, all mainly formed as a result of volcanic eruption. Each lake has its own beauty and favourite local hang-out spots to take in the surrounding hills, volcanoes and forests.

The “little town”, with a pungent sulphur smell, has an estimated population of 58,400, and despite its reliance on tourism, which has been decimated by border closures and domestic lockdowns, the property market surrounding its major attractions is strong and thriving, although there is a dearth of houses for sale or rent.

Ongoing Problem

REINZ data for September shows Rotorua District’s median house price was $650,000 in September – up 24.8 % – from $521,000 in the same month last year. Seventy-four houses were sold compared with 132 in September last year.

First National Rotorua owner Ann Crossley says the drop in the number of houses for sale has been an ongoing problem for the last couple of years. Her company has about six weeks of supply. Across Rotorua’s medium-sized population there are only about 200 houses on the market – a drop in the bucket.

“First home buyers are competing with each other and will look at properties in any suburb because there are so few for sale.” However, that market is about to ease as restrictions on the number of mortgages banks can lend to people with less than a 20% deposit tighten. Banks are also changing lending policies to get ahead of the RBNZ’s possible introduction of debtto- income ratios, making it difficult to secure bigger mortgages.

Tied to this are the Auckland and Waikato lockdowns impacting sales to investors, says Crossley. “Added to this, vendors are not listing their properties until they find somewhere else they want to buy. Because there is a shortage of listings it becomes a vicious circle.”

She says five years ago there were a significant number of new subdivision developments. “This has stopped and because there is no new development at any level, there are now waiting lists even for retirement villages. The housing blockage at the top end jams everywhere else.”

This hasn’t deterred the inexorable rise of Rotorua house prices and in the past year 10 suburbs have increased by 23-35% just as listings have plummeted. The biggest rise of 35.6% has been in Fordlands where house prices accelerated to $380,800 on October 1 from $280,850 at the same time last year.

Following this, although at lower rates, have been Selwyn Heights which rose 27.3% to $523,600 from $411,200; Sunnybrook up 26.5% to $666,800 from $527,250; and Mangakakahi up 26% to $531,300 from $421,500.

Although Rotorua is one of the more affordable urban areas to buy a house, it is still difficult to get into a home. “People are buying with friends, extended family or using the bank of mum and dad,” says Crossley. “They are finding creative ways to own a home.”

Crossley estimates Rotorua is short of at least 2,000 houses, while the number of homeless people is rising. Rotorua Lakes Council and Te Tatau o Te Arawa released a strategy last year to identify land and infrastructure to establish and enable the development of up to 2,000 homes, but it has yet to get underway.

For a while 1,000 houses were taken out of the general housing pool and used for short-term Airbnb stays, but this has reversed a little as some have reverted to long-term tenancies and several investors have opted to sell, she says. Adding to the woes are the number of derelict state houses.

Much of the land inside Rotorua’s town boundaries, Crossley says, belongs to Maori trusts and is not sold. “Some has been developed into attractive housing with the trust retaining title to the land. The city needs to find more creative solutions with iwi to build more homes to increase the levels of stock.”

Rentals Slump

Renting in Rotorua is not easy. The number of rentals has plummeted caused by landlords selling, moving back into their houses, or installing family members.

The last straw for many landlords after the introduction of the Healthy Homes standards and new tenancy laws, making it more difficult to evict unruly tenants, was the Government’s decision to remove mortgage interest as a tax deduction, says Rotorua Rentals director Maree Passier. “Many threw their hands up in the air and said ‘I’m done’. They have left the industry and sold, leading to good tenants being displaced and rising homelessness.”

Such is the shortage of rentals, Passier says her company receives massive enquiries on any property that is advertised and they are usually rented within eight to 10 days.

The company is seeing more families already in rentals joining forces with other family members, who are not on the rental agreement, but are living at the property. There is also a significant uptick in unwell tenants and family members moving in to look after them, without being on the tenancy agreement. These scenarios then become a legal process and a discussion is needed with the tenant to sort it out.

A couple of years ago Rotorua Rentals would have 25 properties advertised on any given day, whereas that number has now dipped to an average of eight. “It is a diminishing game and I can’t see it changing any time soon,” says Passier, who makes a point of getting back to every person who has asked about a rental. “It makes us feel more comfortable about who we rent to, particularly with the tenancy law changes.”

The idea of renters looking in particular suburbs for a home has gone out the window, she says. “The market is so tight renters will consider anywhere as they don’t have the luxury of choosing one or two suburbs and concentrating their search there.”

Passier says the pandemic has exacerbated an already struggling market. “In general, if renters don’t have a specific reason to move they are staying put. There are, however, an increasing number of rental applications from people in Hawke’s Bay, Hamilton and elsewhere who have secured jobs locally. We do try to help these people.”

Rents are rising slowly and $600 a week for an ordinary three-bedroom house is regarded as the top end of the market.

“It is hard to find renters who will pay $650-$680 for executive-style homes. Rents seem to have been rising in $50 a week increments, which is a lot considering Rotorua does not have head office wages and food is outstripping wages,” says Passier.

The company is resolute in not letting “crazy rents” take a hold. “My rental managers are constantly trying to convince landlords to take lower rents for good tenants.”

Investor Demand Steady

Many of these landlords have only one or two rentals. Some landlords have moved their properties to Kainga Ora or other social housing providers because they won’t be hit by the new tax rules, says Sally Copeland, president of Rotorua Property Investors’ Association.

“Social housing providers have paid a premium to secure rentals and landlords have seen this, which doesn’t help the pool of unsubsidised rental housing.”

Investors are still active in the market, though, with some turning towards new builds. There is uncertainty in the new build and construction sector with materials and labour shortages and some developers using sunset clauses to pull out of pre-signed contracts with buyers only to put the properties back on the market at higher prices because of surging building costs.

Many investors are re-evaluating their portfolios and resetting goals in light of the mortgage interest tax changes, some are dumping their older properties and reinvesting in better houses, and some are taking the opportunity to sell on a good market to free up capital for retirement, says Copeland.

Most houses for sale are being recycled to first home buyers and taken out of the investor market. While investors are interested in new builds, Copeland says land and house packages are few and far between and although there is a new iwi-led housing project for whanau and shareholders at Owhata, which will include affordable housing, it is not enough. There is also a dire shortage of zoned and ready-to-bebuilt- on sections. Helping keep investor interest in Rotorua alive are virtual tours of houses for sale. Inquiries have been steady, says Copeland. “It is still a good place to invest compared to the main centres. Three-bedroom properties in suburbs, such as Western Heights, Koutu and Fordlands, still attract yields of 5-5.5%. While two-bedroom investment properties are popular, yields are not quite as strong,” she says.

Rotorua Property Investor’s Association holds monthly meetings and welcomes all new members. See https://rotorua. nzpif.org.nz for details.