RBNZ sees drag, economists highlight affordability and risks
The Reserve Bank (RBNZ) has lowered its outlook for house prices, now expecting a 0.3% fall in 2025, compared to its previous forecast of 7% growth, RNZ reported.
In its latest monetary policy statement, the central bank noted the housing market had not responded as strongly as anticipated to interest rate cuts. It highlighted the importance of property to household wealth and spending.
“Annual house price growth has been lower than annual [Consumer Price Index] inflation since mid-2022,” RBNZ said. “As a result, real household wealth has been declining over the same period. Growth in wealth from other sources is also currently low.”
The bank stressed that housing influences both consumption and new construction.
“Household wealth can be an important determinant of household spending,” it said. “Households tend to spend more and save less when their net wealth increases… Residential investment is expected to begin increasing from late 2025 because of lower interest rates, increasing population growth, and increasing real house prices.”
While the RBNZ looks to 2025 for recovery, NZIER warned the near-term picture is weaker. Mortgage rate cuts are providing relief, but household spending remains patchy amid a soft labour market. With half of mortgages due for repricing, further cuts should help, though global risks – including new US tariffs – add uncertainty.
Westpac: House prices tied to income growth
Westpac chief economist Kelly Eckhold (pictured upper left) said that while higher house prices typically supported the economy, affordability remained crucial.
“When house prices are rising, people who have houses generally feel a bit richer, so they spend a bit more than they otherwise would, that's obviously positive for the economy in a cyclical sense,” Eckhold said.
“The crux of the matter, though, is by how much do they go up, in particular how much do they go up relative to things like incomes?”
He warned of a “have and have not” divide if prices rose faster than incomes.
“One of the challenges we’ve had in New Zealand in the last 20 or 30 years is that house prices have risen substantially in excess of incomes,” Eckhold said. “Now it’s really popped and we've seen those house prices come back.”
He added that stability mattered as much as growth: “We want a happy medium… we would like house prices to be rising because nominal incomes are rising. If that sort of thing is going on that’s probably consistent with a growing economy, but it’s not going to generate an undue amount of inflation.”
Infometrics: Affordability still “awful”
Infometrics chief forecaster Gareth Kiernan (pictured upper right) warned against relying on house prices to drive economic growth.
“If we look at things and go ‘the only way to get our economy going and growing again is pushing up house prices’, that's going to perpetuate that cycle with more and more people priced out of the market. It's short-sighted,” Kiernan said.
Affordability, he noted, was “worse than any time prior to 2020.” He added that this could even push some people to leave New Zealand.
“I often think that people have very short memories and can't remember anything beyond about three to five years. So, we’re talking about sort of 35 years here. It’s almost been the same every time.”
Kiwibank: Build more affordable homes
Kiwibank chief economist Jarrod Kerr (pictured lower left) said boosting supply of lower-priced homes would be a better solution than waiting for prices to rise.
“We need to build a lot more in the $500,000 to $700,000 zone, I’d love to see builders gearing up to build higher-density, affordable homes that first-home buyers are crying out for,” Kerr said. “If I could wave a magic wand, I would have a whole lot more affordable homes hitting the market, I don't care what it means for the median price.”
He added that higher-end homeowners would not be significantly impacted by such a shift.
Reserve Bank should “rejoice” at slower housing
Infometrics principal economist Brad Olsen (pictured lower right) said the Reserve Bank should welcome the slower link between housing and growth.
“The fact we’re not trying to drive the economic recovery by pumping up the housing market is a good thing,” Olsen said.
“It might be tough to decouple house prices from economic growth but it’s a good thing if we can achieve it. It makes me wary that there are parts of the country, institutions, hoping house prices pick up pace for New Zealand’s economic miracle. That’s short sighted.
“I’m genuinely worried people think if we can rev up the housing market all our problems will be solved. Then in a couple of years we’ll say, ‘Why is affordability so bad?’”
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