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The economics of home ownership

Oscillating economic conditions have established a volatile backdrop for residential real estate over the last 18 months. However, the dynamic rhythm of the property cycle is empowering buyers and sellers to take action. Bayleys looks at the economic factors poised to drive residential decision-making in the second half of 2023.

Following record-breaking value growth during the pandemic and almost equal regression over the recent tightening cycle, house prices are stabilising, driven by factors enticing both buyers and sellers back to the market.

Finding that seasonally adjusted house sales lifted 2.1 percent month-on-month in May, Real Estate Institute of New Zealand (REINZ) results note that increased transaction volumes and a soft supply of new listings are cause for cautious optimism that a housing rebound is on the way.

“Days to sell continue to decline well below their February peak, which suggests buyers and sellers are becoming more decisive and forthright with their purchasing decisions,” says Bayleys National Director of Residential Johnny Sinclair.

He says buyers and sellers are returning to the market for various reasons, with the tide turning on previously depressive market factors.


While it may be some time before trends emerge, recent easing in restrictive policy measures continues to support positive consumer sentiment.

“Any policy changes that impact borrowers’ access to credit, allowing more access to finance, has the potential to affect housing inflation,” Sinclair says.

From June 1, the Reserve Bank of New Zealand (RBNZ) eased Loan-to-Value Ratio (LVR) restrictions for both owner-occupiers and investors, increasing the proportion of funds lenders could advance to borrowers with small deposits.

Just the month prior, the Government also assuaged the Credit Contracts and Consumer Finance Act (CCCFA), allowing lenders to take a more flexible stance when assessing borrower suitability for mortgage lending.

“These changes are significant, particularly given the restrictions have proven to have a powerful dampening effect on buyer appetites.

“LVR changes might seem small, but they mean a greater proportion of house hunters can purchase properties with smaller deposits, while CCCFA tweaks create a broader scope for income consideration – it all increases borrowers’ buying power and ability to pay more for quality homes.”


Perhaps the single biggest influencer on buyer behaviour in recent years, mortgage lending rates remain a primary concern for those looking to trade up under current market conditions.

“Debt servicing costs as a share of income are relatively low, but retail offerings have tracked higher on average during the last month, following the RBNZ’s latest (and hopefully last) raise to the Official Cash Rate (OCR),” says Sinclair.

“Despite this, and after acknowledging we have now hit the height of the tightening cycle, mortgage lending data from the RBNZ suggests consumers may now expect retail lending rates will fall.

“Sentiment is a powerful thing, and across the Bayleys network, we see evidence that buyers and sellers expect mortgage lending rates will be less of a handbrake to market activity in the next 12 months, than they have been over the last year.

“It’s important to remember those refixing existing mortgage structures are often not in the market for new homes, so we look at would-be borrowers encouraged by recently improved affordability metrics.”


Sinclair says there’s been a lot of speculation about the influence of migration on our economy and the housing market. But, the overarching factor is that new arrivals – whether they rent or buy – have a presence that culminates in increased physical demand for housing and, by proxy, its value.

“Economists from ANZ Bank have estimated it could take up to one year for surging migration to have the maximum effect on house price inflation, meaning we are only at the beginning of this road.

“There remains a high level of uncertainty around migration’s impact on demand, but we are watching out for ripple effects, including upward pressure on rents encouraging more first-home purchasers to buy, improved rental yields attracting greater investor activity, and demand outstripping current levels of supply amid a construction slowdown,” he says.


Commentators once saw New Zealand’s recent building boom put us at risk of over-supply, and while the current construction pipeline remains strong, forecast activity is significantly less assuring.

New dwelling consents have fallen at least a quarter between February and June 2023, and according to estimates from Statistics New Zealand, we are 3,500 dwellings behind what’s required to meet current net migration levels.

“Restrictive planning measures, a lack of critical infrastructure, poorly capitalised construction firms and a lull in market activity has been blamed for New Zealand’s supply woes. However, these aren’t historical issues, and we only need to look at Auckland Council’s recent rejection of a Private Plan Change to enable more housing in West Auckland’s Riverhead as evidence of ongoing challenges facing developers bringing new initiatives to the market.

“Unless we can find inventive solutions to old issues, I suspect housing demand will continue to outstrip supply across New Zealand over the next decade, with an upward effect on values.”

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