Why house price growth in New Zealand is imminent

27 June 2023
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Australian economist on what Kiwis can learn from the rebound in the housing market across the Tasman.

During the pandemic, both New Zealand and Australia saw very fast increases in house prices. And last year, both countries saw prices fall as interest rates started to rise. Australian house prices however are now on the rise, with New Zealand continuing to see declines. Does this mean that New Zealand house price increases are just around the corner? Or is there something fundamentally different to New Zealand property markets that will hold back a turn in market conditions.

1. The Reserve Bank of New Zealand has been far more aggressive on monetary policy

Central banks around the world have taken varying approaches to controlling inflation. A key difference between the Reserve Bank of New Zealand (RBNZ) and the Reserve Bank of Australia (RBA) is the level of aggression in trying to tame inflation. RBNZ has moved a lot faster at raising rates than the RBA. As a result, price falls have been greater in New Zealand than what has been seen in Australia.

Like Australia, New Zealand is likely close to its interest rate peak. This will be positive for house prices.

2. Population growth is less strong in New Zealand

In both New Zealand and Australia we saw population declines during the pandemic, driven by very strong restrictions to entry. Since then, Australia’s population growth has gone back to pre-pandemic levels. This has been a key driver of price and rental growth - there are now too few homes for buyers and renters. In comparison, New Zealand’s population growth has been more subdued in comparison.

Migration to New Zealand however is starting to pick up again and is expected to accelerate more this year. While this will put pressure on housing demand, it will also assist some businesses that are struggling to find workers.

3. New Zealand economy is contracting

More aggressive monetary policy has had a much greater impact on slowing the economy in New Zealand compared to Australia. There is now a real risk that New Zealand will go into recession. If this is the case, ideally the Reserve Bank of New Zealand will be able to move quickly to reduce interest rates and avoid large rises in unemployment. It however may not be possible if inflation remains high. There is a lot of uncertainty around this but it is the main factor that has the potential to keep house price subdued longer.

4. Construction costs are high in both countries

Trying to build a home right now in New Zealand and Australia is really difficult. Construction costs have hit record highs, driven by both supply chain problems, building material cost increases and labour shortages. While supply chains are improving and building material costs are coming down, labour is still a challenge, particularly in New Zealand.

These construction challenges are leading to a shortage of homes being built. This has become very clear in Australia where rents are sky rocketing and price growth is on the move. It is yet to show up in New Zealand because migration has been comparatively a lot lower. With population growth set to pick up however, New Zealand is set to have a home shortage in the next 12 months.

5. New listings in both countries are falling

In both New Zealand and Australia, there is a shortage of new property listings. While interest rate increases have led to lower buyer activity, it has also meant that vendors are less likely to want to go to market. In Australia, this has been a key to price growth starting up again. There is simply a shortage of properties to buy, particularly given the rate of population growth. With New Zealand population increasing again, it is likely to be a similar challenge in New Zealand, pushing up prices as a result.

6. Rents in New Zealand remain steady, for now

Australian rents are now increasing at their fastest rate ever recorded. This reflects a shortage of housing compared to the level of population growth. This imbalance is now showing up in house price increases. New Zealand rents have remained comparatively stable, primarily because population growth has only recently returned to positive.

This year, New Zealand is expected to see much higher levels of population growth. This will lead to more demand for housing, higher rents and higher prices.

Based on what has happened in Australia, and what is set to happen in New Zealand, house price growth in New Zealand is imminent. In particular population growth is back, driving up demand for housing. Soon, it is likely this will outweigh the aggressive monetary policy that has been implemented in New Zealand. A key risk factor however is recession. Hopefully policy implemented by both the New Zealand Government and the RBNZ will avoid this occurring.


- Nerida Conisbee is chief economist for Ray White

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