Running costs return to balance as market stabilises
ANZ’s latest Property Focus report highlights how the balance between ongoing homeownership costs and rents has re-emerged as a key anchor for house prices nationwide.
ANZ economist Matt Galt (pictured) says understanding this balance is essential for assessing where the market may head next.
“There are many drivers of house prices through time,” he said, “but the balance between the running costs of owning a home over time (interest, council rates, insurance, etc.) and rents is one of the main anchors for house prices, to which they gravitate.”
When the cost of owning falls below the cost of renting, both owner-occupiers and investors tend to buy, pushing prices up. When homeownership becomes more expensive, the pressure reverses.
Galt noted that this relationship is widely supported in RBNZ and RBA research.
High homeownership costs held prices back in 2022–24
The recent cycle demonstrated this clearly, saud Galt.
“The costs of owning a home were high between 2022 and 2024 due to high interest rates and other costs, and this put downward pressure on house prices,” he says. “Homeownership running costs have since eased as interest rates have fallen and overall are now more or less back in line with their historical relationship with rents.”
However, he cautioned that falling mortgage rates were partly offset by rising council rates and insurance premiums.
The shift coincides with expectations of further short-term rate cuts, with advisers urging borrowers to wait for next week's RBNZ decision.
One-year rates have “room to fall” and could slip below 4% after the anticipated 25 basis point OCR cut. Major banks expect the OCR to reach 2.25% and hold there through 2026, keeping short-term ownership costs contained.
Measuring true homeownership costs
To capture the typical running cost of a median New Zealand home, Galt used a proxy based on interest on a 50% LVR loan at the five-year fixed rate, plus insurance, rates, maintenance, and other expenses.
“Interest is the dominant cost and also the main source of variation,” he said. “The homeownership running costs proxy has dropped over the past month due to a sizable fall in fixed mortgage rates over October.”
He noted that rising prices also influence the calculation.
“Changes in interest costs reflect not only changes in interest rates but also changes in house prices, as the proxy is for buying a house now," Galt said. "Over 2021, both were rising, which explains the particularly sharp increase in homeownership costs over that period.”
Ownership costs and rents finally back in balance
Over time, Galt said ownership running costs and rents generally track together, but major divergences occur.
“Homeownership running costs were well below rents in 2019–2021, fuelling the sense among renters that you might as well buy... They were above their historical relationship with rents from 2022–24 and have largely now come back in balance.”
Several recent developments have helped close the gap.
“Homeownership costs have decreased as both house prices and interest rates have fallen, but this has been partly offset by increases in other ownership costs such as council rates and insurance," Galt said. "Rents have fallen a little, meaning home ownership costs have had to fall further to close the gap.”
He added: “The combination of falling rents and high council rates and insurance costs has been a significant drag on house prices in recent years, which has dampened the impact of falling interest rates.”
What comes next
Looking ahead, Galt expects a small gap to re-emerge next year "as five-year mortgage interest rates rise slightly from where they are now, driving up the home ownership cost index more than rents. If things play out this way, it suggests more downward pressure on house prices could emerge".
But he warns against over-interpreting model outputs.
“Given the uncertainties inherent in any model, not to mention the uncertainties regarding the forecasts of its inputs, we aren’t going to draw any strong conclusions but rather settle for saying that as the economy undergoes a cyclical recovery, this model doesn’t suggest house prices are going to race away."
ANZ’s broader economic outlook supports that view, with the bank forecasting only a modest 5% rise in house prices in 2026 as employment strengthens and interest rates ease. Debt-to-income restrictions, however, are expected to cap the pace of any upswing.
Bottom line for advisers
For Galt, the ownership–rent balance is a useful guide.
“The balance between homeownership running costs and rents doesn’t explain everything happening to house prices, but it does explain a lot of it,” he said.
“Homeownership running costs have eased from their 2022–2024 highs as interest rates have fallen and are now more or less back in line with their historical relationship with rents.
“Our forecasts anticipate homeownership costs and rents staying in balance over the next couple of years, which points to broad stability in house prices, potentially with a modest increase in prices as the economy experiences a cyclical recovery next year. The current balance of these costs and benefits of home ownership certainly doesn’t suggest that house prices are likely to race away.”
Read the full ANZ New Zealand Property Focus here.Stay informed with the latest housing market trends and mortgage insights – subscribe to our free daily newsletter.
