Are the dynamics of the real estate market changing in New Zealand?


  • Pricing pressures have built up in the New Zealand property market, fueling affordability issues.
  • Property prices have started to show a subtle but significant slowdown, bringing some respite to anxious buyers.
  • While tighter credit restrictions have eased some demand-side pressures, they have driven more first-time homebuyers out of the market.

The New Zealand property market has seen a gradual decline in housing affordability, which has fallen to an all-time low. CoreLogic’s recent report suggests that the average homeownership in the country was valued at 8.8 times the average household income in the three months to December 2021. This puts into perspective the extent of affordability issues in the current climate.

With high inflation as a backdrop, the unaffordability of the real estate market has only compounded consumer woes. At the same time, price pressures have built up in the real estate market and in major consumer goods. However, recent data indicates that a change may be on the way, bringing good news for an average consumer in the market. As the economy progresses in its recovery, the real estate market seems to be taking a well-deserved break.

On that note, let’s look at a few indicators pointing to a slowdown in the real estate market, which can act as a speed bump against soaring prices:

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Acceleration of price growth

Home prices have started to show a subtle but significant slowdown in the rate of growth, bringing some respite to anxious buyers. Reports from the Real Estate Institute of New Zealand (REINZ) indicate that signs of a slowdown were visible in annual price growth in December 2021, compared to previous months. This basically means that while prices continue to rise, their rate of growth slows with each passing month.

Part of this slowdown can be attributed to lending restrictions becoming strict in the country. In fact, recent changes to the Consumer Credit and Credit Agreement Act (CCCFA) in December 2021 helped to ease the demand pressure almost immediately. These amendments relate to the assessment of the financial health of borrowers, aimed at protecting borrowers against loan sharks. Meanwhile, these changes have been in the works for about a year to prevent people from taking on unaffordable debt.

Tighter restrictions have been accompanied by an increase in the number of new homes granted. An increase in housing supply should increase the search for desirable real estate buyers, thereby cooling the pent-up demand created in the real estate market.

Business activity slows down

The Real Estate Institute of New Zealand (REINZ) report shows that the number of residential property sales fell by 28.6% in January 2022 compared to January 2021. This proves once again that the pressure of demand is building up. cooling in the property market, possibly due to tighter lending restrictions. Excluding April 2020, the January 2022 sales data represents the lowest number of sales for the country as well as New Zealand excluding Auckland since January 2011.

According to some experts, the January 2022 sales figures were also affected by the changes made to the CCCFA in early December 2021. Moreover, the decline observed is consistent with the decline in sales figures observed during the holiday season. Generally, buyers are focused on holiday spending in January and property sales are not as apparent.

Notably, property sales in Wellington, Marlborough and Hawke’s Bay bucked the trend and increased in January 2022. However, property sales in Auckland fell sharply by 32.2% annually. It should be noted that the auction was stalled due to less activity from first-time home buyers and investors last month.

Decline in the share of first-time buyers

A significant result of the rise in lending restrictions is the disproportionate decline in first-time buyers compared to real estate investors. On the one hand, credit restrictions have helped to curb strong price growth. However, a closer look at the statistics suggests that more first-time home buyers have had to exit the housing market than other buyers due to these restrictions.

According to CoreLogic, the share of first-time home buyers fell from 26% at the end of 2021 to 24% in January 2022. The real estate consultant mentioned that the new lending rules appear to be driving first-time home buyers away from the housing market. So the policy, which was intended to protect the interests of first-time buyers, inadvertently harmed them the most of all market players.

Notably, the cities of Auckland, Wellington and Christchurch also resonated with the national trend, with the share of first-time buyers declining in these regions.

It can be said that buyers who do not need a loan to buy a property have been significantly better off than those who depend on mortgages. Thus, wealthy investors and buyers, who are likely to own the property, have been able to retain their market share despite the lending restrictions. Experts hope that the declining share of first-time home buyers can remain a long-term trend in the given situation.

While the real estate market might embrace a downturn in prices, one needs to understand at what price the same has been realized. The government can still help rein in the scorching property market by putting in place reforms aimed specifically at helping first-time buyers, as sweeping reforms seem to do little to help this segment of buyers.

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