An economist compares the Australian and NZ markets
House prices skyrocketed in both New Zealand and Australia during the COVID-19 pandemic, then plunged last year as interest rates surged. Australian house prices now, however, are on the rise, while New Zealand continues to see declines. Does this mean house price increases are just around the corner in New Zealand as well?
Nerida Conisbee (pictured above), chief economist for Ray White, talked about what Kiwis can learn from the rebound in the housing market across the Tasman.
RBNZ’s monetary policy tightening has been more aggressive
New Zealand’s central bank has been far more aggressive than the Reserve Bank of Australia on monetary policy in trying to put inflation under control.
“RBNZ has moved a lot faster at raising rates than the RBA,” Conisbee said. “As a result, price falls have been greater in New Zealand than what has been seen in Australia. Like Australia, New Zealand is likely close to its interest rate peak. This will be positive for house prices.”
Discover the average historical monthly mortgage interest rates for the RBNZ with this article.
Population growth is less strong in New Zealand
In both New Zealand and Australia, population fell due to pandemic-related border closures. Australia’s population growth has gone back to pre-pandemic levels since then, driving price and rental growth as there were now too few homes for buyers and renters.
“In comparison, New Zealand’s population growth has been more subdued in comparison,” Conisbee said. “Migration to New Zealand however is starting to pick up again and is expected to accelerate more this year. While this will put pressure on housing demand, it will also assist some businesses that are struggling to find workers.”
New Zealand economy is easing
Compared to Australia, a more aggressive monetary policy has had a much greater impact on slowing the economy in New Zealand, putting it at risk of a recession.
“If this is the case, ideally the Reserve Bank of New Zealand will be able to move quickly to reduce interest rates and avoid large rises in unemployment,” Conisbee said.
“It, however, may not be possible if inflation remains high. There is a lot of uncertainty around this, but it is the main factor that has the potential to keep house prices subdued longer.”
Construction costs remain high in both countries
It’s tough to build a home in New Zealand and Australia right now, due to construction costs hitting record highs, driven by both supply chain issues, building material cost rises, and labour shortages. And while supply chains are improving and building material costs are declining, labour is still a challenge, particularly in New Zealand.
“These construction challenges are leading to a shortage of homes being built,” Conisbee said. “This has become very clear in Australia where rents are skyrocketing, and price growth is on the move.
“It is yet to show up in New Zealand because migration has been comparatively a lot lower. With population growth set to pick up however, New Zealand is set to have a home shortage in the next 12 months.”
New listings are dropping in both countries
In both New Zealand and Australia, there is a shortage of new property listings, as fewer vendors wanted to go to market due to interest rate hikes and lower buyer activity.
“In Australia, this has been a key to price growth starting up again,” Conisbee said. “There is simply a shortage of properties to buy, particularly given the rate of population growth. With New Zealand population increasing again, it is likely to be a similar challenge in New Zealand, pushing up prices as a result.”
New Zealand rents remain steady – for now
Australian rents are rising at an incredible pace, reflecting a shortage of housing compared to the level of population growth. This imbalance is reflected in house price rises. In New Zealand, rents have remained comparatively stable, primarily due to population growth returning to positive only recently.
With New Zealand tipped to see much higher levels of population growth this year, this will lead to more demand for housing, higher rents, and higher prices, the Ray White economist said.
“Based on what has happened in Australia, and what is set to happen in New Zealand, house price growth in New Zealand is imminent,” Conisbee said.
“In particular, population growth is back, driving up demand for housing. Soon, it is likely this will outweigh the aggressive monetary policy that has been implemented in New Zealand.
“A key risk factor, however, is recession. Hopefully policy implemented by both the New Zealand government and the RBNZ will avoid this occurring.”
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