Dunedin experiences country's biggest house price growth in the past year

Dunedin teacher Harriet Love doesn't mind renting a room but her dream is to become a home owner, something those in the Otago city are finding extremely difficult to do.

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1 NEWS reporter John McKenzie finds out what’s behind the surge. Source: 1 NEWS

"We put in a bid for mid-$400,000s, they wanted over $400,000, so we thought we were potentially over-shooting then, but we didn't mind. It went for in the $500,000s, so someone really wanted it!" Ms Love told 1 NEWS.

It's a scenario now backed up by the latest figures, with Dunedin's average house price rising to more than $500,000 for the first time in the city's history, placing it ahead of much larger Christchurch.

Dunedin's also well up on second-placed Wellington - showing 8.6 per cent growth - and Tauranga on 5.9 per cent growth, with a flat Auckland market dipping slightly.

The pressure on housing in Dunedin is coming from population growth of 8000 people in recent years, coupled with fewer houses on the market.

The average house price in Dunedin five years ago was $292,000 and it's now nearly $515,000.

The rebuild of Dunedin Hospital, as well as several other upcoming city developments, may mean the Dunedin property market may not yet have reached its peak.