New Zealand's economy causes challenges to the country's property market

Both headwinds and tailwinds persist in New Zealand's economy, causing challenges to the property market

New Zealand's economy causes challenges to the country's property market

With so many conflicting forces impacting New Zealand's economy, the country's property market might be in for a slow recovery. 

"New Zealand’s economy remains fragile, with reduced confidence in the job market and lower tax revenues anticipated under a right-wing government committed to further public sector cuts," Lucia Xiao, founder and adviser at Finax Mortgages, told the New Zealand Adviser.  

Xiao (pictured above) added that Auckland, the country’s largest housing market, faces distinct challenges. 

"The Auckland Unitary Plan (AUP) has unlocked opportunities for development, but also created an oversupply of new builds," she said, adding that the "Auckland Council has coincidentally been balancing supply and demand. This includes publishing Watercare's water and wastewater limitations, imposing restrictions on minimum kitchen, dining, and living areas and introducing new PC 79 [amendments to Auckland's transportation network], although still under appeal. These measures, along with regulations like requiring pedestrian crossings in developments, can reduce the number of dwellings, or make some sites undevelopable.

"Talking to some local real estate agents reveals an oversupply of two-bedroom properties and an abundance of three-bedroom ones," Xiao said. "I believe developers are learning the importance of conducting thorough market research before building, as the market is no longer a simple 'build it and it will sell.'"

Headwinds and tailwinds persist

The formula for New Zealand's economic turnaround isn't clearcut, especially with so many conflicting forces. While New Zealand's official cash rate is currently low at 4.25%, the lowest it's been since November 2022, and inflation is within the Reserve Bank of New Zealand's target inflation rate at 2.2%, the country's unemployment rate is also high, at 4.8%. Add that to the fact that many Kiwis are ailing from the rising cost of living. The cost to build a standard home has also fallen – but prices are still high.  

Consumers are also spending less. According to a new report by Westpac, the bank's retail tracker found that spending was up just 2% in December, compared with the prior year. 

"While it’s encouraging that spending is rising, that’s still a very muted gain, especially given the large increases in operating costs that many retailers have faced over the past year," Satish Ranchhod, senior economist at the bank, wrote in the report. "In addition, with New Zealand’s population increasing by about 1% last year, it also points to very limited growth in per-capita spending levels."

Meanwhile, the RBNZ has hinted at another rate cut come February. 

"However, I remain skeptical, as such statements may be intended to influence public behavior," Xiao said. 

Around the world

New Zealand's place on the global stage also has an impact on its own economy, and ultimately the property market. 

"New Zealand is becoming less attractive due to lower interest rates and a weaker New Zealand dollar compared to other countries," Xiao said. "The strong US economy has pushed US government bond yields, with 10-year yields nearing 4.8%. The newly-elected Trump administration could further drive inflation through increased tariffs and events like the recent California wildfires.

"Meanwhile, some countries that once had negative interest rates, such as Japan, have begun increasing their rates and are expected to continue doing so," she said. "Japan’s economic recovery and a weaker yen have also boosted tourism and economic activity."