New Zealand Home Prices: A Modest Recovery in Sight

The New Zealand housing market is poised for a modest recovery in the coming two years, according to a Reuters poll of property market analysts. After a 19% correction following the pandemic, average home prices are expected to rise by around 5% in the next two years, driven by lower interest rates and limited supply.



The poll, conducted between Nov. 12 and 28, 2023, suggests that average home prices will increase by 5.1% in both 2025 and 2026, after an expected 0.3% fall this year. This modest increase is in line with the Reserve Bank of New Zealand's (RBNZ) forecasts of around 4% and nearly 7% house price growth in the same years.

Lower interest rates, expected to fall in 2024, will make mortgages more affordable for first-time homebuyers, boosting demand. However, affordability may still be a challenge, as house prices in New Zealand are around seven times the average household income and 10 times in Auckland, its largest city.

The limited supply of new housing will also contribute to the modest increase in home prices. Building consents peaked in February 2022 and have since declined, failing to keep pace with population growth and demand from both local and international buyers.

Rental prices are expected to rise faster than 5% over the next two years, putting further pressure on the housing market. Population growth and migration, particularly the addition of 118,800 people to the population over the last year, are driving this increase in rental demand.

The government's tax policies and housing market regulations, such as changes to the bright-line test and the Capital Gains Tax (CGT), could have a mixed impact on home prices. While the extension of the bright-line test to 10 years may discourage speculative investing, it could also make it more difficult for genuine homeowners to sell and reinvest in the market. The softening of the CGT could make it easier for first-time buyers to enter the market, increasing demand and supporting modest price growth.

In conclusion, the New Zealand housing market is expected to experience a modest recovery in the coming two years, driven by lower interest rates and limited supply. However, affordability challenges and the impact of population growth on rental prices may temper this recovery. The government's tax policies and housing market regulations will also play a role in shaping the housing market's future.