New Zealand housing market may be entering slower era

Cotality says New Zealand's housing market may already be shifting into a lower-growth era, with long-term house price gains likely to be slower than in previous decades.

The national median property value remains 19% below its 2021-22 peak, but is still 37% higher than in September 2016. That equates to average annual growth of 3.2% over the period.

Kelvin Davidson, Chief Property Economist at Cotality NZ, said comparing the market only with its most recent peak no longer gives a complete picture of housing performance. Focusing solely on peak-to-current movements can obscure how values have changed over a much longer period.

"Being below the previous peak matters enormously for somebody who bought near the top of the market, particularly if they now need to sell," said Kelvin Davidson, Chief Property Economist at Cotality NZ.

"But most homeowners didn't buy at the peak. When we look over a longer period, the picture changes significantly. Across New Zealand, the median property value is still around 37% higher than it was 10 years ago, despite the substantial correction we've seen since 2021."

Only about 83,000 property transactions took place nationally between July 2021 and June 2022, according to the analysis. That was slightly less than 5% of the country's housing stock.

The regional picture is mixed. Lower Hutt property values remain about 29% below their previous peak, while Wellington City is around 28% below.

Elsewhere, Hurunui, Mackenzie, Central Otago and Gore are at or close to new cyclical highs. The analysis said those differences show that the size of a decline from peak does not necessarily match longer-term growth.

Whanganui and Gisborne illustrate that contrast. Both markets are still about 15% and 19% below their previous peaks respectively, yet property values in each have at least doubled over the past decade.

By contrast, Ashburton and Christchurch are within 1% of their previous peaks. Over the past 10 years, property values in those markets have risen by 48% and 58% respectively.

"Looking only at how far a market sits below its peak risks losing sight of what has happened over a much longer period," Davidson said.

Auckland supply

Auckland was singled out as an example of the effect higher housing supply can have on values. Since 2018, housing stock growth has generally exceeded population growth in the city, apart from the migration spike in 2023.

That has left Auckland toward the lower end of property value growth over the past decade, while also recording some of the largest declines from its previous peak. Davidson said changes to planning settings had helped expand development in established areas.

"Auckland is a powerful reminder of what increased housing supply can achieve," Davidson said.

"Previous land-use restrictions have loosened considerably, enabling more intensive development in well-connected parts of the city. Greater housing supply is now playing an important role in Auckland's market dynamics."

Long-term shift

The analysis also suggested a broader structural change may be under way across New Zealand. The rolling 10-year growth rate for the national median property value has recently slowed to a historically low level.

While Auckland has played a significant role in that slowdown, Davidson said other factors could also hold down long-term house price growth. He pointed to greater housing supply, the long decline in mortgage rates from historical highs, debt-to-income restrictions, and the possibility of less favourable tax treatment for property.

Taken together, those factors could mean future gains are more closely linked to household incomes than in previous cycles. That would imply a lower underlying rate of price growth than the 6% to 7% annual pace often seen historically.

"None of this means periods of stronger house price growth won't occur again," Davidson said.

"But we need to consider whether the assumption that property values will consistently grow at the rates seen in previous decades still holds. If house price growth becomes more closely tied to household incomes, the long-term trend could potentially shift from the 6% to 7% rates seen historically toward something closer to 3% to 5%. It's possible the transition to that lower-growth housing market isn't something that lies ahead of us. We may already be experiencing it."