Patchy Recovery in NZ Property Market and High Mortgage Rates Contribute to On-going Affordability Challenge

Date Published: 19 February 2024

Key Facts

• In January, property market sales volumes only increased by 2% compared to the same month in the previous year, with major markets like Auckland, Hamilton, and Dunedin experiencing a sales drop.
• Property costs have become less overwhelming than they were at the peak in the first quarter of 2022, yet it still takes 9.3 years to save a 20% house deposit.
• Mortgage payments as a percentage of gross average household income remain high at 49%.
• Rents rose by 6.8% in the year up to January, more than double the long-term average rate of 3.2%, predominantly due to wage growth, high demand, and limited rental properties.
• Currently, only 6-7% of loans are based on high debt to income ratios, which are well below the proposed 20% cap.
• Recent data indicates that New Zealand might have circumvented a recession in the final quarter of the previous year.

Article Summary

The property market in New Zealand has seen only a minor upturn in sales volumes of 2% in January, highlighting a hesitant recovery. Key markets such as Auckland, Hamilton, and Dunedin experienced a drop in sales. The high mortgage rates may be accountable for this sluggish recovery. Despite a slight relief in property costs compared to the first quarter of 2022, it still requires 9.3 years to save for a 20% house deposit, underscoring the persisting housing affordability problem.

The issue of housing affordability is further emphasised by a high cost burden, reflected in mortgage payments consuming 49% of gross average household income. The situation could be improved by imposing caps on debt to income ratios and building more houses to meet demand. Nevertheless, housing still remains considerably costly for New Zealanders.

Meanwhile, tenants have not been spared from the rising housing costs either, with rents soaring 6.8% in the year leading up to January. This was triggered by wage growth and demand exceeding the limited number of rental properties available. At present, high debt to income lending is low, only comprising 6-7% of first home buyer loans. These figures remain far below the proposed 20% caps.

Despite the slow property market recovery and high housing costs, recent data suggest that New Zealand may have avoided a recession in the final quarter of last year. This conjecture will become clearer with the release of more economic data. A robust economy could bolster employment and the housing market, but it also risks inflating prices and maintaining pressure on mortgage rates.

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