Ownership costs still exceed renting as first-home buyer demand may cool
The cost gap between buying and renting a home in New Zealand is starting to widen again as mortgage rates rise, which could take some heat out of first-home buyer demand, according to analysis from Bank of New Zealand (BNZ).
BNZ estimates the annual cash cost of buying and running a median-priced home is now about 35% of median household income, down from a peak of 50% in 2023. New rents have held at around 25% of income.
On those figures, Mike Jones, BNZ chief economist, said “it’s still more expensive to service a new house purchase than to pay roughly equivalent rent costs”.
However, the gap narrowed sharply over the past two and a half years, as stagnant or falling house prices and lower mortgage rates more than offset rising council rates, insurance, and maintenance costs.
Rates and prices hold the key
That narrowing coincided with more first-home buyers entering the market. Jones now questions whether that momentum can last, saying “we wonder if some of this FHB demand might be tempered in future”.
“Higher mortgage rates are the key driver here,” he said.
Jones expects rates to keep rising, widening the gap modestly over the coming quarters, though not to anything like the sharp increase in ownership costs between 2021 and 2023.
The Reserve Bank of New Zealand has signalled the same direction. Its chief economist, Paul Conway, said that the 28 October official cash rate decision is open between a hold and a hike, with the next move still more likely to be up.
BNZ also calculated a breakeven rate of house price growth: the annual increase needed for capital gains to offset the higher cash cost of owning compared with renting. It currently sits at 2.3%, slightly below the long-run average. BNZ noted its calculations leave out non-financial benefits of owning, such as security of tenure.
Current forecasts suggest prices may fall short of that. Westpac now expects national house prices to fall 1.4% in 2026, after earlier tipping a small rise.
Rents stabilise after a long lull
Annual rent inflation across all existing tenancies was effectively flat in September, after hitting 0% in August, the lowest reading since the series began in 2007. Rents on new tenancies, which respond faster to market conditions, rose 0.9% over the year and have been rising since April.
Jones described this as “a case of stabilisation rather than acceleration.” He expects annual inflation in new rents to climb towards 1.5% to 2.5% over the next 12 to 18 months, still below the 3% long-run average.
Rental supply is tightening, as growth in new listings has slowed and the bank’s estimate of rental availability has fallen to 2.3% from just over 3% a year ago. But with population growth expected to stay low and forecast home building more than enough to meet it, BNZ doesn’t expect the market to swing into a shortage soon.
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