Owning a home is significantly less expensive compared to renting than it has been in recent years, but how long is that likely to last?
BNZ chief economist Mike Jones has compared the annual cost of entering a new rental tenancy with the annual cash cost of purchasing and running a median-priced home.
He said, on the high levels numbers, it was still more expensive to service a new house purchase than it was to pay rent on a roughly equivalent house but the gap had narrowed significantly over the past two-and-a-half years.
"Home ownership costs have declined as a share of income as flat to falling house prices and lower mortgage rates have offset higher costs from rates, insurance and maintenance."
He said BNZ's current estimates put the annual cash ownership costs for a new house purchase at about 35 percent of median household incomes, compared to a peak of 50 percent in 2023.
"Rent costs, by comparison, have held close to 25 percent of household incomes, or a little lower once deposit earnings are allowed for."
The gap was biggest in Auckland, reflecting higher house prices and the extra debt servicing required.
"Wellingtonians might be bemused to see their new ownership costs being estimated as below those in Canterbury. Contributing to this is the fact Wellington house prices have fallen by more than elsewhere but it is, in fact, Wellington's relatively higher incomes doing the work here - on a pure cash basis, ownership costs for Wellington are the second highest in the country."
He said the gap could be starting to widen again.
"In that first home buyer category, that's obviously been one of the cohorts of the market where we were seeing demand come through and pick up over the past couple of years and so I think that's because we're seeing house prices kind of flat to falling, mortgage rates have been lower and the relativities between buying and renting which had really widened out in favour of renting have narrowed significantly.
"But then if you look ahead, interest rates are rising, that's really the factor that tends to separate those cost comparisons. So, with interest rates rising, potentially pushing housing costs back up again, it might just temper some of that first home buyer demand that we've seen."
He said capital gains would be part of the consideration for some buyers. Rising values could sometimes make up for a house being more expensive to own.
"Indeed, for large chunks of history strong house price appreciation has done just that. It's impossible to know whether those days will return but our suspicion imply it will be much more of a close-run thing than in the past. For example, in the current environment, a 2.3 percent increase in the median house price would, again on paper, offset the relatively higher cash costs of purchasing and running a house relative to renting.
"When the market starts to turn you might get a bit more demand come through ... You get the corelation happening in both directions in that respect. The economy is improving, demand's starting to pick up. I would expect housing demand to lift a little in time."
He said extra demand was not likely to push up prices very much because of the additional supply in the market. "That seems to be the thing in the market that's really changed if you step back and look back over the past five to 10 years, the ability of supply to respond to demand and that's what's keeping house prices in check and I don't really see that changing."
Jones said rents might start to creep up slowly after a period of being flat.
"I would expect rents or new rents to start lifting but we're still picking rates of rental inflation below average and, again, that links back to that extra supply that is out there in the market. So, even if you get a bit more demand coming through, that supply will nullify a bunch of that, I think."
