Treasury flags North-South divide as higher mortgage rates squeeze buyers
New Zealand house prices fell for a fourth straight month in September, as borrowing and living costs weighed on buyers. Building consents, however, point to a slow recovery in residential construction, according to the Treasury’s Fortnightly Economic Update.
The Real Estate Institute of New Zealand (REINZ) house price index dropped a further 0.5% in September on a seasonally adjusted basis, leaving prices 1.5% lower than a year earlier. Fewer homes are selling, and listings remain high. Westpac now expects national house prices to fall 1.4% in 2026, after previously tipping a 0.6% rise.
The Treasury said national prices have been flat since 2024. Buyers have been squeezed more recently by higher mortgage rates, cost pressures linked to the Middle East conflict, weak wage growth, and elevated unemployment, which reached 5.6% in the June quarter.
That squeeze shows up in household caution more broadly. The ANZ-Roy Morgan survey showed the net share of households who think it’s a good time to buy a major item at -7%, though that’s an improvement on recent months.
A two-speed market
The national figures hide a sharp regional split. North Island cities are recording annual price falls, while South Island regions are holding up better, helped by strong export earnings and people moving there from other parts of the country.
The same divide shows up in construction. New dwelling consents rose 5.6% in August, ending a three-month slide, and were 21.1% higher than in August 2025. Canterbury drove much of that growth, with consents up 35% on a year earlier, while Auckland’s rose 19%.
The Treasury cautioned that “the pace of recovery is not yet entrenched”. It said the factors that had supported demand, chiefly low interest rates and construction costs, “are beginning to fade”.
Consents don’t always mean building
Despite the strong consent numbers, construction firms told the Treasury and the Reserve Bank of New Zealand (RBNZ) in September that strong growth was largely confined to Queenstown-Lakes, with activity across the North Island still weak.
Firms also reported that some developers “had been issued consents with no intention of building in the next few months”, because house prices were growing so slowly.
Rate decision ahead
For advisers, the outlook for mortgage rates is the key factor to watch. The official cash rate (OCR) stood at 2.75% in mid-October, following the RBNZ’s 25-basis-point hike at its September Monetary Policy Statement, its second rise this year.
RBNZ chief economist Paul Conway said that the 28 October decision is completely open between a hold and a further hike, with the OCR still more likely to rise than fall. September quarter inflation figures are due on 22 October. Annual inflation was 4.1% in the June quarter.
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