New Zealand’s Housing Market Struggles Economic Volatility

The latest Knight Frank global residential cities index has ranked Auckland as having the third-slowest rate of house price growth in the world. In the year ending June, house prices in Auckland fell by 10.5%, placing the city at number 105 out of 107 cities in the index. Only Gothenburg and Stockholm in Sweden ranked lower, with price declines of 11.7% and 14.3%, respectively. However, just two years ago, during a housing market boom, Auckland was ranked 30th out of 150 cities, with a price growth of 18.6% in the year ending June 2021. Since then, Auckland’s prices have fallen by 20%, aligning it with 25 other markets that have experienced declines of over 5% since their market peak. This article delves into the factors behind this change and discusses the prospects for Auckland’s housing market.

Market Dynamics and Outlook

Auckland’s recent poor performance in the housing market can be attributed to several factors. While the city was previously characterized by robust price growth, the current slowdown is a reflection of reduced rate uncertainty, a limited housing stock, demographic shifts, and significant price corrections in various markets, including Auckland. Despite this, there are signs of hope for the city’s property market.

In a recent Knight Frank report, Auckland was identified as one of the prime global city markets poised to experience significant price growth in the coming year, with a forecasted increase of 5%. Sales volumes are strengthening, and recent domestic housing data indicates that the Auckland market has reached a trough and is beginning to recover. Quotable Value’s figures show modest monthly price growth, and six out of seven former territorial authorities in the region recorded small monthly and quarterly price increases. CoreLogic’s data also demonstrates an increase in prices in several Auckland regions.

New Zealand’s Housing Market Challenges

The pandemic has disrupted housing markets worldwide, with New Zealand experiencing one of the most significant swings. Over the last 18 months, homeowners and investors have seen substantial fluctuations in housing prices, primarily due to the pandemic’s impacts on jobs, wages, and living conditions. House prices in New Zealand surged nearly 50% during the pandemic, driven by low mortgage rates and relaxed lending rules. However, since November 2021, rising inflation prompted the central bank to embark on an aggressive rate-tightening cycle, resulting in a 17.5% price decline and erasing more than $6 billion in household wealth.

New Zealand’s housing problems have been further exacerbated by inadequate construction, poorly constructed housing, and interest rate increases. The lack of affordable housing options has become a pressing issue, affecting both public housing applicants and renters who struggle to enter the property market. Additionally, affluent investors who bet on property are witnessing a decline in their investments’ value. The median price for a home in New Zealand stands at 780,000 New Zealand dollars, or about $480,000, significantly higher than the median price in the United States.

The Way Forward

Addressing New Zealand’s housing crisis has proven challenging for successive governments. Most New Zealanders own homes, and household wealth is significantly tied to land and property. While there is no capital-gains tax on property sales, it remains a hot-button issue in the country. A rare moment of bipartisanship in housing policy, which aimed to encourage urban development and curb suburban sprawl, now faces uncertainty as political parties adopt differing approaches to housing issues.

Conclusion

The housing market in New Zealand, particularly in Auckland, has undergone a turbulent period, with significant price fluctuations due to the pandemic, interest rate hikes, and market dynamics. The challenges faced by homeowners and potential buyers are emblematic of broader issues with housing affordability and construction in the country. The fate of New Zealand’s housing market, and whether it can rebound, will depend on government policy, economic conditions, and the ability to balance the needs of various stakeholders in the housing sector.