New Zealand’s housing market has seen its fair share of ups and downs over the years, with the most recent drop in property prices linked to interest rate rises and cost of living pressures. But the tide may be turning, and there’s growing evidence to support a property rebound sooner than anticipated. Buyers choosing to wait for property prices to go lower should consider the impact that decision could have on borrowing power once property prices go up.

Demand vs. supply
Demand for housing in New Zealand continues to grow, driven by a shortage of affordable housing and a surge in net migration.

Across the country, real estate agents are reporting an increase in buyers at open homes, in particular first home buyers, while at the same time, auction clearance rates in Auckland are showing early signs of an upward trend, suggesting this market is coming back to life far quicker than anticipated.

In his recent monthly survey, economist Tony Alexander reports that buyers are becoming less worried about property prices falling and the fear of overpaying – FOOP – and more concerned about missing out, as the level of FOMO is starting to creep up.

Property investors re-entering the market.
The housing market could see strong interest from property investors anticipating a change in government in the upcoming election, further increasing competition and driving up property prices.

Legislative changes would make it more attractive for investors to return to the market, with National pledging to reinstate a key tax advantage for investors that Labour is currently phasing out.

Prior to 1 October 2021, mortgage interest deductibility allowed investors to subtract mortgage interest payments from their rental income for tax purposes. But this is being phased out to incentivise property investors to build new homes in an effort to fix the housing crisis.

Additionally, National has pledged to reduce the bright-line test from between five and ten years to two, effectively removing any capital gains tax for most investors.

A pause on the OCR
Another factor that could drive the housing market upward is the Reserve Bank of New Zealand’s (RBNZ) recent indication that it won’t be lifting the official cash rate (OCR) higher than 5.5 per cent. This follows an increase of 25 basis points earlier in May 2023.