NZ House Prices Likely to Rise

NZ’s favourite investment, residential property, should resume its upward price trajectory as the economy bounces back

New Zealand’s housing market is still struggling to recover from its steep post-lockdown slump.

Several major forces could be about to drive a more positive result for the New Zealand economy, which should also boost New Zealand house prices, according to most reputable sources.

While house price growth is forecast, most sources caution that it will be modest and not a return to the "boom" seen during the pandemic-era.

Let’s dive a little deeper.  

New Zealand’s Economic Recovery

It’s hard to picture a strong housing market without a strong economy to back it up.

A predicted upturn in the New Zealand economy and an improvement in the labour market (including lower unemployment) are expected to boost household confidence and encourage new household formation, including migrant households.

Crucially, this is the time when householders start to feel more confident about their employment and income growth. Optimistic people will spend more, including on housing, but also on things which will help drive New Zealand’s economic recovery. There are early signs of businesses planning to hire more people.

Falling Interest Rates Usually Equals Higher House Prices

Most people borrow to invest in property, so mortgage interest rates are a key consideration. 

The expected further cuts to the Official Cash Rate (OCR) by the Reserve Bank of New Zealand (RBNZ) are anticipated to lower mortgage rates, which should improve housing affordability and unlock demand.

This is after interest rates, including for mortgages, experienced New Zealand’s steepest ever spike in the wake of the pandemic. We can now be sure inflationary pressures are easing off, which means lower interest rates.

Independent economist Tony Alexander specifically highlights the lagged effect of initial interest rate cuts, which are expected to fully impact the market by early to mid-2026. At the end of 2023 interest rates were still increasing. And at the end of 2024, interest rates were falling but it now seems there was an over-confidence in thinking that relief would immediately appear. It can take 18-24 months for a substantial change in interest rates to take effect.

For people who already own or are thinking about buying an investment property, a big drop in interest rates could make a huge difference. Currently, many investment properties rely on negative gearing. This is when the total cost of owning the property is more than the rental income it brings in. These costs include mortgage interest payments, council rates, insurance, and management fees.

If interest rates fall significantly (which isn't guaranteed), many properties that were negatively geared may switch to being positively geared. This means the rental income is now higher than the ownership costs. This is particularly true for investors using interest-only loans. This change would make property investment much more profitable. If property investment becomes more profitable, more people will want to buy. This increase in demand will likely lead to higher property prices overall.

As mortgage interest rates fall further and mortgages become more affordable, even more new home buyers can be expected to enter the market, which should also increase the demand.

The Backbone of the Nation: Farming

Farm incomes have been tracking well.

Tony Alexander remarked, “When rural incomes surge, the effects ripple out from Southland, then to Otago, and soon after to Canterbury, Taranaki, Manawatu-Wanganui, Bay of Plenty and Waikato. The boost may take a year to show up in Auckland, and two years to show in Wellington.”

The weak exchange rate (weak New Zealand Dollar) has been good for farmers, as they can charge more for their exports. It also may have brought in a few extra tourists, to further help the economic recovery.

A Range of Other Factors May Support House Prices

A range of lesser factors may also provide support to house prices:

• Upside potential is strong for foreign student numbers (highly relevant to Auckland CBD and Christchurch) as Australia curbs international student numbers to stem housing market tightness.
• Infrastructure spending is ramping up. That said, picking timelines for a boost can be difficult given the long lags between announcing a plan and actually doing it.
• Prospects for house construction are looking better, at least for standalone housing. Multi-unit developments might take longer to kick into gear given the current over-supply and financier wariness of still over-stretched developers.
• First home buyers remain dominant and have been the dominant market force for some time. Young people have been taking advantage of the plethora of listings, lower prices, little competition, and accumulated savings to make purchases, perhaps long delayed by the previously rampant market.

House Prices Do Have Headwinds, Too

On the other hand, negative impacts are still being felt in the housing market. ASB noted:

“The NZ household sector faces a number of headwinds, including ongoing increases in the cost of living and weak labour earnings.”

“Population growth has slowed dramatically over the past year… people continue to leave NZ and the number of arrivals has stagnated. Declines in rents suggest there may be excess supply in the housing market.” ASB added.

There are also reasonably high levels of housing supply, in the form of new construction activity. As noted earlier, this is especially the case for some townhouse developments.

Cost of living pressures remains a real concern for many New Zealanders. This leaves less money in people’s back pocket to spend on a house of their own, or even on rent.

What Do the Latest Property Price Predictions Mean for You?

Despite all the best intentions and intellectual horsepower, nobody can predict the future. So, any forecast, including all the well-researched and well-intentioned comments made above, should be taken with a ‘grain of salt’.

Also, despite whatever the latest forecast or forecasts say, hardly anyone buys a piece of real estate hoping for the value to go up within a year or two. But over longer timeframes such as 10-to-20 years, expecting an increase in value becomes a realistic belief. This, coupled with tax advantages and the ability to borrow to fund property investment with a mortgage (i.e., borrow to invest), means that property is likely to continue to be a favourite type of investment for Kiwi investors.

According to the billionaire industrialist Andrew Carnegie:

“Ninety percent of all millionaires become so through owning real estate. More money has been made in real estate than in all industrial investments combined. The wise young man or wage earner of today invests his money in real estate.”

For investors thinking many years ahead who can borrow (get a mortgage), it’s nearly always a great time to invest in property for the long-term. This sentiment holds true for first-home buyers as well.

Learn more:

• Get a bigger home deposit
• How to buy your first home
• Is property investment still worth it?
• What to do if you can't afford a house
• Why do cities become unaffordable?
• NZ house prices versus the world

The Bottom Line: New Zealand House Prices to Lift

When looking across all data and expert opinion, it is likely that New Zealand house prices are set to resume an upward march, even if at a slower pace than some might have been accustomed to during the boom years around the pandemic. Additionally:

• There’s still a great deal of uncertainty with any financial forecast. The New Zealand economy is a little one. It is still adjusting to a ‘new normal’ post-pandemic era, after experiencing substantial financial disruption including closed borders, money printing (quantitative easing), assorted taxpayer-funded stimulus, and locked down businesses.
• If there was another major issue such as a natural disaster, that could negatively impact the property market.
• Over long enough timeframes, those who think ahead and act will always do well.
• Investors of all kinds, including property investors and first-home buyers, must always make decisions based on incomplete information. The future is always uncertain!

Well-positioned investors and first-home buyers can still get some great deals. If you would like to get in touch, it would be our pleasure to explore your situation and see if property investment, or another solution, might be best to achieve your aim of financial freedom.