Structural shifts point to slower, steadier house price gains for years ahead
New Zealand's housing affordability has improved sharply from 2021 extremes, with house prices now sitting at roughly 6.7 times household disposable income, down from a peak of 9.8, according to ASB's latest economic note, End of an Era.
First home buyers are capitalising on the shift, accounting for 29% of property sales in July — the highest share in more than 20 years.
Yet the bank argues the improvement won't translate into a rapid rebound. While cyclical factors — including high borrowing costs, low immigration and elevated listings — help explain why prices remain roughly 15% below their late-2021 peak, ASB says several longer-lasting forces are also at work, and are likely to keep future gains far more modest than the near-sixfold increase recorded over the three decades to 2020.
Three forces reshaping the outlook
ASB identifies three structural developments reshaping the market.
The first is a likely end to the multi-decade decline in mortgage interest rates that had steadily boosted borrowing capacity and property values.
"There is some risk that the trend direction in mortgage interest rates is up," the report states, pointing to persistent inflation concerns and a less predictable global rate environment than in previous decades.
That risk has already materialised. The RBNZ recently delivered a 25-basis-point hike to 2.75%, with ASB senior economist Jane Turner noting that house price expectations "remain close to average levels and are consistent with relatively balanced housing market conditions." The bank expects rates to keep climbing from here, with an earlier ASB forecast putting the effective mortgage interest rate at 5.3% by mid-2027, up from a trough of around 4.85%.
The second structural force is a slowdown in population growth, with net migration inflows currently running at about 40% of the decade average and New Zealand now past what ASB calls its "demographic sweet spot" for workforce participation.
The third is a more responsive housing supply, with dwelling consents running 20% higher than a year ago and multi-unit construction now making up 55% of total issuance, up from 25% a quarter-century ago — changes ASB says have "shifted the effective housing supply curve outwards."
Gradual recovery, not a rebound
ASB expects no change in nationwide prices for 2026, followed by 3.5% growth in 2027 and roughly 5% annual gains thereafter, broadly tracking income growth rather than outpacing it. On that trajectory, prices may not return to their late-2021 peak in nominal terms until late 2029.
"Those gains, when they do occur, are more likely to stick," the report notes, arguing that a slower, income-led recovery would reduce the risk of the kind of boom-bust cycle seen through the pandemic.
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