Residential housing prices

IBISWorld forecasts the price of residential housing to rise by 12.4% in 2024-25, to 105.4 index points. Residential housing prices in New Zealand have spiked after a temporary decline in 2023-24. House prices are soaring in the current year after a major surge in demand and the slow-moving nature of housing supply. During the pandemic, migration collapsed when the international border was shut. Migration has gradually rebounded, which is intensifying pressure on the housing supply. In addition, the RBNZ is forecast to start reducing the official cash rate, which will further stimulate a rise in demand, contributing to an expected steep rise in residential housing prices in 2024-25.

The pandemic was a major driver of volatility in residential housing prices over the past five years, upending both supply and demand for housing in New Zealand. For much of the past decade, an extended period of very low interest rates drove investment in housing, putting upward pressure on prices. In the early stages of the pandemic, interest rates were reduced to record lows in an attempt to offset the negative economic effects of the pandemic. Investment flooded in from both owner-occupiers and property investors. At the same time, pandemic-related restrictions to both labour and material supply heavily undermined housing supply and put further upward pressure on prices in the residential property market. These imbalances in supply and demand caused a major surge in residential housing prices in 2020-21 and 2021-22.

Prior to the pandemic, strong demand for residential property from overseas buyers and high net migration numbers were major factors behind a consistent rise in residential housing prices. Low interest rates on mortgages and the lack of a capital gains tax on investments also contributed to the attractiveness of the New Zealand residential property market for private investors. Policy changes have shifted this dynamic, particularly since 2021-22. The volume of foreign investment is increasingly constrained by the foreign buyer ban that passed through the New Zealand Parliament (Paremata Aotearoa) in 2018. Migration also collapsed during the pandemic after New Zealand shut its international border from March 2020 to August 2022. Migration has only slowly recovered from this major shock, which constrained demand for residential housing in New Zealand. Moreover, the RBNZ responded to a surge in inflation with its fastest hiking cycle in history. The Official Cash Rate (OCR) soared in 2022-23 and 2023-24, which heavily constrained domestic investment into the residential property market, resulting in a major slowing and subsequent decline in residential housing prices over the period. As migration reverts to pre-pandemic levels and interest rates start to ease in the current year, these trends are expected to reverse. Overall, IBISWorld forecasts the residential housing price index to increase at a compound annual rate of 8.4% over the five years through 2024-25.