New Zealand’s Housing Markets
25 Reasons Why House Prices Are Rising – and Counting
Treasury warns that house prices might fall 7% from
their current levels. But chances are they are much
too pessimistic and the recent rise in prices will
continue, though at a slightly slower pace because
there will be some bounce-back effect in price gains
these past three months. Average NZ house prices
now sit 1.5% above levels in March.
Here are 25 reasons why house prices have
surprised us with their strength. Many (not all) of
these factors will continue to apply over the coming
year and beyond.
- Interest rates
The Reserve Bank cut the official cash rate 0.75% in
March and since then floating mortgage rates have
fallen to near 4.5% from 5.3%. The two-year fixed
rate has fallen to 2.65% from 3.55%. Term deposit
rates have also fallen, with the six-month rate going
to 1.3% from 2.3%.
Lower interest rates have made purchasing a home
more affordable, and encouraged investors seeking
higher yield than now offered in bank term deposits
to look at other assets including property.
- Interest rate expectations
It is not just that interest rates are low. The Reserve
Bank have made it clear that they intend to keep
rates low for many years, with assistance from the
US Federal Reserve which has just shifted their
policy stance toward multiple years of low rates to try
and generate inflation above 2% for a number of
years. Also, our central bank has indicated it may
introduce a negative official cash rate next year.
Expectations that interest rates will stay low are
encouraging people to expect that other people in
the future will be seeking higher yielding assets
including property. So, they are buying before this
expected extra demand comes along.
- Migration boom
Even before we had heard of Covid-19, from the
middle of last year a change was occurring in the net
flow of Kiwis across our borders from negative to
positive 2,800 come the end of 2019. By March this
year the net Kiwi flow was +13,000, contributing to a
record net inflow for all countries of 90,000 from
50,000 a year earlier.
We already have in the country the net migration
gain we expected would be recorded by just after the
middle of 2021. This means extra pressure on rental
accommodation, allowing investors to (now) raise
rents, whilst discouraging them from selling and
encouraging more purchasing.
- Migration expectations
Most Kiwis expect that when the borders reopen, we
will see a great number of our expats coming home
– along with many foreigners wanting to shift here.
Expectations of a coming horde which will purchase
property is encouraging extra purchasing now –
especially with people swapping stories of expats
buying property unseen whilst still offshore. The
numbers doing so are however probably very low.
- Migration Data
And third in the migration spot, it is entirely possible
that despite our borders being closed, in a few
months our monthly net migration numbers will be
back above 1,000. Why? Because the chances are
high that inflows into NZ through quarantine will stay
firm (though easing) ahead of the borders one day
reopening. But outflows will peter off as the
government makes it easier for visa holders to
remain here, and long-term foreign visitors will have
This possible yet-to-arrive factor will add to
expectations of a return to high annual net migration
inflows when the borders open.
- LVR Removal
In March the Reserve Bank announced that it was
removing Loan to Value Ratio requirements. First
home buyers have read this to mean that banks will
accept much smaller deposits, and they have
entered the housing market in high numbers.
- Cash Build-ups
During seven weeks of lockdown, young people built
up cash savings through wage income continuing,
but spending on bars, clothes etc. no longer being
possible. They also now have spare cash which had
been allocated for overseas travel. For some this will
have encouraged efforts to build a deposit now
rather than later, and in seeing their deposit grow
they have entered the housing market.
Page | 4
- Travel and Housing Switch
Unable to travel, but still wanting to, it is likely that
some young people have decided to switch their
planned spending timing between travel and
housing. They have changed from planning to travel
then look to buy a house, toward buying a house
first, then later on travelling.
- Expected Reduced Construction
Although monthly dwelling consents have yet to
trend downward, the expectation of most people is
that the Covid-19 shock and tightening of bank
lending criteria will lead to a reduction in house
construction over the next couple of years. Reduced
supply will tend to place upward pressure on prices
unless demand also declines.
- Unemployment of Non-home Owners
The bulk (not all) of the people losing employment
as a result of the Covid-19 shock are in the retail,
hospitality, tourism, entertainment, and
accommodation sectors. They tend to be young,
earning below average wages, and not home
owners. The Household Labour Force Survey says
90% are females, but I have found the belowheadline
numbers in the HLFS to be quite volatile in
the past, with changes that don’t seem to line up with
reality. So, chances are, it is not true that 90% of the
job loss burden is being borne by females.
Unlike previous recessions, we are not seeing many
distressed sellers in the property market.
- A Focus on Home
Around the world people have turned their attention
to their immediate living arrangements. This has
produced a boom for the home renovation sector.
Focussing on improving one’s nest is easier if one
owns the property and can change it around at will,
as compared with renting. Therefore, the Covid-19
shock has probably produced a desire to shift from
renting to owning.
- Listings Shortage
We went into the Covid-19 shock in March with the
stock of property listings around New Zealand down
27% from March 2019 and 64% from March 2010. At
the end of August, listings were still 13% down from
a year earlier. By comparison, in March 2019 listings
were ahead 3% from March 2018. So, we entered
the shock with a rapidly growing shortage of listings.
- Hidden Buyers
It is likely that over the past four years a high number
of people wanting to buy a property had given up in
the face of rising prices and insufficient listings.
Seeing the Covid-19 shock come along, some of
these buyers not active in the market are likely to
have become incentivised to re-engage amidst
hopes of distress bringing many new vendors to the
- Fear of Not Being Able to Repurchase
There is now so much awareness of a shortage of
stock that agents are reporting vendors as being
unwilling to sell because they do not want to run the
risk of bit being unable to quickly purchase a new
suitable property. The listings shortage has started
to feed on itself in a self-perpetuating manner.
- Fear of Missing Out
This is known as FOMO. It has been around forever,
but in past periods of strong house price growth in
New Zealand is not a term which has been in
common usage. It means, in the current context,
people have become concerned that if they do not
make a purchase now, they will miss out on a likely
capital gain or on the opportunity to buy something
This fear of missing out is encouraging people to
make a purchase as early as possible – dragging
future purchasers into the market now, before their
intended purchase timing of perhaps next year or
- High Household Wealth
It is not true that Kiwi households are poor, even
though the common message is that we are. We are
meant to believe that we all live with high levels of
debt which will one day cripple us, house prices, and
our country’s future.
In truth, household debt amounts to some $300bn.
But household housing assets amount to near
$900bn, and financial assets like shares, managed
funds, company ownership, bank deposits etc.,
amount to $1 trillion. Net worth is around $1.6tn.
Some 43% of owner occupiers do not have a
Not everyone passively manages their net worth.
Sensing a need to gain a decent return and perhaps
an opportunity in the housing market, plenty of
people are able to become property investors.
Page | 5
- Giving up on Travel Dreams
Many people have assumed international travel may
not be possible for a number of years. Some of these
people have decided to purchase a second property
to use for holiday purposes in New Zealand, and this
probably helps explain the limited decline which has
occurred in Queenstown Lakes District property
prices (down only 1.9% in the three months to
August from a year earlier, versus a nationwide rise
of 1.3%, and Dunedin City fall of 3.1%).
- Money Printing
This is something new for New Zealand. Overseas
experience shows that central bank buying of bonds
and conversion of bond investors’ bond asset into a
bank cash deposit places upward pressure on asset
prices including shares and property. The Reserve
Bank admitted in May that there is a risk their bond
buying pushes up asset prices, and it is now
commonly discussed that their actions are
contributing to higher house prices – often in the
context of a debate about their contribution to a
widening of the wealth gap in our country.
Growing awareness of the impact of the RB’s actions
is likely to be contributing to a desire by people to
buy before the RB causes prices to rise further.
- Mortgage Deferrals
The introduction of this scheme and its extension to
March next year will have taken away the immediate
pressure on many people to sell their house through
inability to meet mortgage payments. The scheme
has reduced current seller numbers.
- Good Financials Leading into the
Household debt in the five years leading into this
shock grew near 40% compared with 80% in the five
years ahead of the 2008-09 Global Financial Crisis.
More than that, the introduction of LVRs in 2013,
plus the application by banks of high test interest
rates for assessing debt servicing capacity of
borrowers, meant there was little high-risk housing
debt heading into the shock. This has limited
mortgage stress – as these measures were
designed to do.
- Lack of Bank Staff
Banks have not had the staffing resources to handle
many mortgagee sales, with personnel run off their
feet adjusting to working from home and processing
credit assistance applications from businesses and
- Soaring Share Prices
Share prices rose very sharply from late-March and
this may have encouraged a positive view by
investors of other, less rapidly repriced assets – like
- Job Losses for Migrants
Just as many job losses are hitting young people
who do not own homes, they are also hitting the
many migrants on working visas who were present
in the accommodation and hospitality sectors in
particular. Heading into this downturn 8% of jobs in
New Zealand were held by migrants, compared with
4% at the start of the GFC.
To the extent migrants bear much of the burden of
unemployment, this does not produce a hike in the
number of distressed property sellers, because they
will not be property owners.
- Quiet Government
A key point I made many months ago was that calls
by large bodies for house prices to decline in the
interests of social equity would disappear. I noted
that neither the Reserve Bank, banks, Treasury, or
Government would want house prices to be falling
this year. Falling prices would make the economic
It has come to pass that we rarely read of desires
these days for house prices to fall, and lack of such
expressions from senior government members in
particular has removed one factor which might have
stayed the hand of many potential property
purchasers, whilst also potentially encouraging
some sellers. Policy makers want house prices to
- Wage subsidies
Were it not for the three rounds of wage subsidies to
employers to keep staff on there would be a lot more
people unemployed currently. The absence of this
unique employment shock has reduced the number
of property sellers and kept many potential buyers
engaged with the market.