No end in sight for New Zealand’s great house price boom

Lalaine C. Delmendo | January 27, 2021

New Zealand’s house price rises continue to accelerate, buoyed by ultra-low interest rates, as well as limited housing supply. During 2020, the nationwide median house price soared by 19.3% to NZ$ 749,000 (US$ 532,656), according to the Real Estate Institute of New Zealand (REINZ), a sharp improvement from y-o-y rises of 12.3% in 2019 and 1.8% in 2018.

When adjusted for inflation, house prices rose by 18.1% in 2020. And during the latest quarter (Q4 2020), house prices increased by 8.7%.

Auckland, which accounts for about 30% of total property sales in New Zealand, saw a strong house price growth of 17.4% during 2020.

New Zealand house prices

The highest price increase was in West Coast, where prices surged by 50% during 2020, followed by Gisborne (43.9%), Manawatu/Wanganui (31.18%), Hawke’s Bay (27.31%), Northland (25.23%), and Marlborough (20%). There were also double-digit house price hikes in Otago (19%), Wellington (18.58%), Waikato (16.88%), Canterbury (16.52%), Taranaki (16.28%), Southland (13.64%), Bay of Plenty (13.39%), Nelson (12.73%), and Tasman (12.21%).

Auckland has average prices of NZ$ 1,040,000 (US$ 739,603) - the country’s most expensive - followed by Wellington, with an average price of NZ$ 812,251  (US$ 577,638), and Tasman, with an average price of NZ$ 735,000 (US$ 522,700).

The cheapest housing can be found in the West Coast, with an average price of NZ$ 285,000 (US$ 202,680), followed by Southland (NZ$ 375,000 or US$ 266,684), Taranaki (NZ$500,000 or US$355,578), and Manawatu/Wanganui (NZ$ 528,000 or US$ 375,491).


Regions Median price y-o-y change
NEW ZEALAND  749,000  532,656 19.30
Auckland  1,040,000  739,603 17.40
Wellington  812,251  577,638 18.58
Tasman  735,000  522,700 12.21
Bay of Plenty  720,000  512,033 13.39
Nelson  682,000  485,009 12.73
Waikato  675,000  480,031 16.88
Northland  675,000  480,031 25.23
Hawke’s Bay  662,000  470,786 27.31
Otago  620,000  440,917 19.00
Gisborne  590,000  419,582 43.90
Marlborough  570,000  405,359 20.00
Canterbury  536,000  381,180 16.52
Manawatu/Wanganui  528,000  375,491 31.18
Taranaki  500,000  355,578 16.28
Southland  375,000  266,684 13.64
West Coast  285,000  202,680 50.00
Sources: Real Estate Institute of New Zealand (REINZ), Global Property Guide

New Zealand saw spectacular house price rises of about 114% (82.5% inflation-adjusted) from 2001 to 2007. Then after a pause, there were nine further years of substantial price rises 2012-2020, supported by strong economic growth. Because of this, housing in New Zealand has become really expensive, for a country with such a small population relative to its landmass.

Despite the pandemic, demand remains very strong buoyed by very low interest rates. Property sales in New Zealand surged 36.6% to 8,935 units during the year to December 2020, according to the REINZ. In Auckland, the number of properties sold soared 66% y-o-y to 3,219 units over the same period.

The limited supply of homes in the market puts further pressure on prices. In December 2020, the number of properties available for sale fell by 29.1% y-o-y to 12,932 units – the lowest level of inventory since records began, according to REINZ.

Worse, the growth in construction activity is slowing, with the number of new dwelling consents rising by less than 3% y-o-y in the first eleven months of 2020, a sharp slowdown from an annual average growth of 14% in the past eight years, according to Statistics New Zealand.

“Currently we have half the inventory levels we had back in December 2018. Therefore, there just isn’t enough choice for people looking to purchase which has meant that there is significant pressure being placed on house prices in most parts of the country,” said REINZ CEO Bindi Norwell. “When you add into the equation the fact that there are record low interest rates, it means that people are more willing to compete to secure the property they want.”

The median number of days to sell a house dropped to just 27 days in December 2020, down from 31 days in the same period last year and the shortest since 2003.

“This lack of choice and high levels of confidence is also causing properties to be sold at the quickest pace we’ve seen in 17 years,” Norwell noted.

New Zealand’s economy was estimated to have contracted by 6.1% in 2020 due to the COVID-19 pandemic, according to the International Monetary Fund (IMF). This is in contrast to its robust economic performance in the past decade, with growth of 2.2% in 2019, 3.2% in 2018, 3.8% in 2017, 4.2% in 2016, 4.1% in 2015 and 3.2% in 2014.

The economy is expected to recover this year, with a growth forecast of 4.4%, based on IMF forecast.

Demand rising strongly

Property sales in New Zealand surged 36.6% to 8,935 units during the year to December 2020, according to the REINZ.

  • In Auckland, the number of properties sold soared 66% y-o-y to 3,219 units in December 2020
  • For New Zealand excluding Auckland, property sales increased 24.2% y-o-y to 5,716 units over the same period

“If 2020 taught us anything, it was that the unusual can happen. Looking at December’s sales data again proves this point, as we saw the highest number of properties sold in a December month since REINZ began keeping records,” said Norwell.

New Zealand house sales

Outside Auckland, West Coast recorded the highest growth in property sales, rising by 55.3% y-o-y in December 2020, followed by Canterbury (45.6%), Waikato (39.5%), Gisborne (31.3%), Taranaki (29.2%), Northland (28.1%), and Southland (25.5%). More modest sales increases were seen Otago (16.8%), Hawke’s Bay (16.8%), Bay of Plenty (15.2%), Manawatu/Wanganui (13.4%), and Wellington (7.9%).

On the other hand, the regions that saw annual sales declines included Marlborough (-14.9%), Tasman (-14.3%), and Nelson (-3.7%).

Nationwide, the number of days-on-market fell by four days to 27 days in December 2020 from a year ago, the lowest since December 2003, according to the REINZ.

The number of properties available for sale in New Zealand fell by 29.1% to 12,932 units in December 2020 from a year earlier – the lowest level of inventory since records began.

NZ bans foreign homebuyers

New Zealand is now facing chronic housing affordability problem. A study by Yale University found that around 40,000 people in New Zealand, or 1% of the population, are living on the streets or in emergency accommodation. This is the highest rate of homelessness in any developed country.

In recent years buying tours by Chinese speculative buyers have caused concern. To address the problem, the parliament finally passed the Overseas Investment Amendment Act, effective in October 2018, prohibiting non-resident foreigners from buying existing homes in the country. There are some exceptions, though. Foreigners with NZ residency status are still allowed to buy houses, as well as people from Australia and Singapore, due to existing free-trade agreements. Foreigners who already own homes in NZ are also not affected by the new law.

“This government believes that New Zealanders should not be outbid by wealthier foreign buyers,” said Trade and Economic Development Minister David Parker. “Whether it’s a beautiful lakeside or ocean-front estate, or a modest suburban house, this law ensures that the market for our homes is set in New Zealand, not on the international market.”

In the past two years since the law was passed, only about 0.5% of total home transfers in the country were to people without NZ citizenship or resident visas, down from 2.6% in 2018 and 2.4% in 2017, according to Statistics New Zealand.

Before the ban, foreign homebuyers accounted for just 2.5% to 3% of total property sales. However, in central Auckland and the southern scenic hot spot of Queenstown, foreigners accounted for about 22% and 5% of total sales, respectively.

Recently, the IMF urged the NZ government to reconsider the ban, as it is unlikely to improve housing affordability in the country. It also warned the move could discourage foreign investment needed to build new homes.

“Is the ban wise or useful? We think it’s neither,” said Dave Platter of Chinese real estate portal “Foreign buying…tends to be focused on new development, making clear again that foreign investment leads to the creation of new dwellings. That’s vital in a market with a housing shortage, like Auckland.”

Residential construction slowing

In the first eleven months of 2020, the total number of new dwelling consents in New Zealand rose by almost 3% y-o-y to 35,669 units, a sharp slowdown from an annual average growth of about 14% in the past eight years, according to Statistics New Zealand.

Regional trends vary considerably:

  • In Auckland consents were up 8.2% y-o-y to 15,067 units in the first eleven months of 2020.
  • In Canterbury, consents increased 9.9% y-o-y to 5,396 units
  • In Waikato, consents fell by 5.7% y-o-y to 3,698 units in Jan-Nov 2020
  • In Wellington, consents fell by 7.9% y-o-y to 2,670 units
  • In the rest of North Island, consents rose by 3.4% y-o-y to 5,628 units
  • In the rest of South Island, consents were down by 10.1% to 3,207 units in Jan-Nov 2020 from a year earlier

New Zealand dwellings authorized

The value of new dwelling consents also increased modestly by 2.7% y-o-y to NZ$13.19 billion (US$9.38 billion) in the first eleven months of 2020, following an annual rise of 14.1% in 2019.

A short history of New Zealand’s housing boom

House prices in New Zealand surged by almost 114% (82.5% inflation-adjusted) during the previous housing boom from 2001 to 2007, including 24.8% in 2003, 12.2% in 2004, 15.3% in 2005, 9.7% in 2006, and 8% in 2007. Big rises - but then, this was a period when the economy expanded by an average of 3.7% every year.

House prices started to fall in early 2008, but the decline was much less than in other countries. After falling by 4.78% in 2008, house prices rose strongly by 9.59% in 2009 – but only to fall again by 2.22% in 2010.

Supported by healthy economic fundamentals, the housing market started to recover in 2011. New Zealand saw another housing boom in the following years, with prices soaring by 111% (89.1% inflation-adjusted) from 2011 to 2020, including double-digit price rises in 2016 (10.97%), 2019 (12.32%) and 2020 (17.3%).


Year Nominal Inflation-adjusted
2008 -4.78 -7.89
2009 9.59 7.48
2010 -2.22 -6.01
2011 0.85 -0.98
2012 9.58 8.55
2013 9.77 8.01
2014 5.39 4.59
2015 3.33 3.25
2016 10.97 9.51
2017 6.59 4.92
2018 1.82 -0.07
2019 12.32 10.28
2020 19.30 18.10
Sources: REINZ, RBNZ, Global Property Guide

Immigration and the housing market

One reason for strong house price rises has been the healthy expansion of New Zealand’s economy.

A second reason was low interest rates.

A third reason was high immigration.

From 2005 to 2012, the country’s net migration averaged only 5,350 people every year, because of the weak economy and low employment opportunities. In contrast, net permanent and long-term immigration was more than 38,000 people in 2002, 35,000 in 2003 and 15,000 in 2004.

New Zealand house prices

International migrant flows have a significant impact on house price movements and construction activity in New Zealand. The housing boom of the early-2000s including the strong house price rises from 2012 to 2019 were strongly associated with strong immigration.

However during the first three quarters of 2020, net migration in New Zealand slowed to 34,513 – down by almost 27% from a year earlier, mainly due to the pandemic, according to the RBNZ.

Are property prices too high? Maybe not - yields are good.

The Economist’s global house price index found that New Zealand house prices were about 40% overvalued relative to income in 2020.

“On a national basis our valuation metrics point to some cause for concern. In Canada, Australia and New Zealand house prices are about 40% overvalued, compared with their long-run relationship with income,” said The Economist.

New Zealand house prices gdp per cap

New Zealand, particularly Auckland, was rated as “severely unaffordable” with a median multiple of 8.6 last year, according to the 16th Annual Demographia International Housing Affordability Survey: 2020. Despite falling from a median multiple of 9.0 in 2019, Auckland actually rose two notches, from being ranked as the ninth most expensive city in 2019 to seventh this year.

Among the eight developed nations covered by the survey, New Zealand was ranked second most unaffordable major housing market in 2020.

However these assessments of overvaluation and severe unaffordability are contradicted by the Global Property Guide’s own research, which suggests that rental yields in New Zealand’s prime cities are reassuringly high by international standards, and that on this measure, New Zealand’s high residential property prices are amply justified (see below).

Rental yields are very good in Auckland and Wellington, poor in Christchurch

For a developed economy, yields in New Zealand are attractive. The rental market is a big deal in New Zealand - about 64.6% of New Zealand dwellings were owner-occupied in 2020, while 32% were rented.

In Auckland, rental yields on apartments range from 6.09% to 7.18%, according to Global Property Guide research. The key to getting good yields is smaller apartments, which earn much more than large apartments.

And rental returns on apartments in Wellington have now moved ahead of Auckland. Rental yields ranged from 6.88% to 8.43%, with smaller apartments earning more.

In Christchurch, rental returns on houses, which are usually lower than on apartments, range from 2.96% to 4.26%.

Rents continue to rise

Nationwide, the median rent for private residences reached NZ$ 520 (US$ 370) per week during the year to November 2020 – up by 4% from a year earlier, according to Trade Me Rental Price Index. Rents are already up by more than 20% as compared to November 2015.

Every region in the country registered a y-o-y increase in residential rents in November 2020.

“It’s rare to see increases across the board but that’s just a mark of the New Zealand rental market - it’s hot nationwide,” said Logan Mudge of Trade Me Property.

“Prices have skyrocketed this year and they’re not showing any signs of slowing down,” Mudge added. “The government did its best to provide tenants with certainty over the lockdown period by introducing the rent freeze and while that helped temporarily the wider issue of supply and demand has continued to see rents climb.”

New Zealand rental price indices

However figures from Statistics New Zealand showed more modest increase in the national rental price index of 1.5% in 2020 from a year earlier.

Wellington City is now the most expensive city in New Zealand to rent after its median weekly rent rose to NZ$ 580 (US$ 412), according to Trade Me Rental Price Index. It was followed by Auckland City with median rent of NZ$ 575 (US$ 409) per week.

Regionally, Southland registered the biggest growth in residential rents of 16.7% during the year to November 2020, followed by Manawatu/Wanganui with a 15.8% rise, according to Trade Me Property. More modest rent increases were seen in Wellington (6%), Bay of Plenty (4.9%) and Auckland (4%).

Mortgage interest rates continue to fall

The RBNZ’s Official Cash Rate (OCR) was cut to 0.25% in March 2020 amidst the coronavirus outbreak.

New Zealand interest rates

As a result, residential mortgage interest rates continue to fall. In December 2020:

  • Floating mortgage rate: 4.51%, sharply down from last year’s 5.45%
  • 6 months initial rate fixation (IRF): 3.9%, down from the previous year’s 4.66%
  • 1 year IRF: 3.34%, down from 4.32% a year earlier
  • 2 years IRF: 3.51%, down from 4.44% a year earlier
  • 3 years IRF: 3.34%, down from 4.5% a year earlier
  • 4 years IRF: 3.7%, down from 4.8% a year earlier
  • 5 years IRF: 3.78%, down from 4.91% a year earlier

Mortgage market continues to expand

New Zealand’s mortgage market has ballooned to about 95% of GDP in 2020, up from just 51.4% of GDP in 1998. In Q3 2020, the total value of outstanding housing loans rose by 6.7% y-o-y to about NZ$ 287.56 billion (US$ 204.5 billion), according to the RBNZ.

New Zealand housing loans

In the first eleven months of 2020, the total value of new residential mortgage lending increased strongly by 8.1% to NZ$66.67 billion (US$47.41 billion) from a year earlier. Loans drawn by owner-occupiers, including first time homebuyers, who accounted for about 80% of new residential mortgage loans, rose modestly by 3.9% y-o-y in NZ$51.28 billion (US$ 36.47 billion) over the same period. On the other hand, loans drawn by investors surged 25.7% y-o-y to NZ$14.61 billion (US$10.39 billion).

The Reserve Bank of New Zealand (RBNZ) to reinstate LTV restrictions

In April 2020, the RBNZ temporarily removed loan-to-value restrictions on residential mortgage lending in response to the pandemic. However during its latest Financial Stability Report released last November 2020, the RBNZ announced the re-imposition of the mortgage curbs to previous levels by March 1, 2021, amidst the increase in higher-risk lending to investors in recent months.

New Zealand dwellings stock

“Despite the large decline in economic activity earlier in the year, housing market activity and housing credit growth have rebounded strongly,” the RBNZ noted. “A growing share of this lending is going to borrowers with low deposits, making these borrowers’ balance sheets more vulnerable to a correction. If this trend were to continue, the stock of low-deposit home loans on banks’ books would gradually rise to a level that would constitute a risk to financial stability.”

“Putting LVR restrictions back in place would improve the resilience of households and banks to a future housing market downturn,” the RBNZ added.

LVR restrictions, which limit how much banks can lend to low-deposit borrowers, have been in place since October 2013 in an effort to curb house price growth and discourage speculative buying. The restrictions have been revised over time and were removed in April last year due to COVID-19.

Pandemic hits NZ economy

New Zealand’s economy was estimated to have contracted by 6.1% in 2020 due to the pandemic, according to the International Monetary Fund (IMF), in contrast to its robust economic performance in the past decade, with growth of 2.2% in 2019, 3.2% in 2018, 3.8% in 2017, 4.2% in 2016, 4.1% in 2015 and 3.2% in 2014. After the Asian financial crisis New Zealand experienced years of unbroken economic growth, growing by an average of 3.8% per year from 1999 to 2007.

During the recent global crisis the economy contracted only briefly and mildly - by 0.4% in 2008. The economy grew slightly by 0.3% in 2009. New Zealand emerged swiftly from recession, after only five quarters of negative GDP.

The economy is expected to recover this year. Growth is forecast to be 4.4% by the IMF.

Inflation gdp inflation

In May 2020, the government unveiled a record NZ$ 50 billion (US$ 35.6 billion) pandemic stimulus, on top of the initial NZ$ 12.1 billion (US$8.6 billion) package announced in March 2020. The package includes building 8,000 new homes to support the construction sector, spending NZ$4 billion to help struggling businesses, creating 11,000 jobs in environmental projects, and extending its current wage subsidy scheme.

As a result, the country is estimated to record a deficit of NZ$ 28 billion (US$ 19.9 billion), equivalent to about 9.6% of GDP in 2020, in sharp contrast to last year’s NZ$7.4 billion (US$ 5.3 billion) surplus. In 2021, deficit is projected to reach NZ$ 29.6 billion (US$ 21.1 billion).

New Zealand’s general government gross debt surged to 48% of GDP in 2020, sharply up from the prior year’s 31.5% and the highest level seen since 1994, according to the IMF.

Unemployment stood at 5.3% in Q3 2020, up from 4.2% in the previous year and the highest in five years, according to the Statistics New Zealand. There were about 151,000 unemployed people in Q3 2020 as the COVID-19 crisis hit the labor market.

Inflation was 1.4% during the year to Q3 2020, slightly down from 1.5% a year ago. The current inflation is within the RBNZ’s target range of 1% to 3% for 2020.

NZ Prime Minister Jacinda Ardern won a second term in office in a landslide victory during the October 2020 general elections. Ardern campaigned on various social issues including housing affordability and homelessness, improved healthcare, and child poverty. She won praise internationally for her handling of two major crises – the 2019 Christchurch mosque shooting, and the 2020 COVID-19 outbreak.


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