Housing supply rises as population growth slows in NZ – BNZ economist
New Zealand’s housing market is experiencing a shift as population growth slows, tilting the balance towards increased supply.
According to Mike Jones (pictured), BNZ chief economist, population growth is now trailing behind the growth in the dwelling stock, easing pressure on housing demand. This change is contributing to rising real estate and rental listings, impacting overall market dynamics.
Population growth slows dramatically
In the final quarter of 2024, New Zealand’s population increased by just 11,400 people, marking a significant decline from the 3% growth rate recorded a year earlier.
The annual growth rate fell to 0.9%, largely due to a rapid slowdown in net migration. Annual net inflows dropped to about 30,000 in the fourth quarter, compared to 130,000 a year prior.
This slowdown in population growth is directly impacting housing demand.
“Whatever your view of the current housing demand/supply (im)balance, it points to a reduction in pressure from here,” Jones said.
As population growth lags behind housing stock expansion, supply is beginning to outpace demand, easing pressures in both the rental and real estate markets.
Rising listings and easing rental market
With supply increasing, listings in the rental and real estate markets are on the rise.
Available rental listings on Trademe have surged to 12,400, a 60% increase from the previous year. Similarly, unsold housing inventory remains at 10-year highs, with a 20% increase compared to last year, particularly in Otago and Wellington.
This surplus in housing stock has tempered price growth, with rental prices stabilising after a 10% increase from late 2022 to early 2024.
Meanwhile, the housing market continues its two-year-long sideways trend as increased inventory limits price gains.
Cost gap narrows between renting and buying
The gap between the cost of purchasing a home and renting has narrowed, although buying remains more expensive, Jones said.
Currently, purchasing a median-priced house consumes 43% of household income, compared to 25% for renting.
The decline in buying costs is largely due to lower mortgage rates and stable house prices, though increased expenses for rates, insurance, and maintenance have somewhat offset these savings.
This shift in relative costs is expected to stimulate housing demand, with signs already emerging as new lending flows increase and sales activity recovers. However, the ample supply of housing stock is likely to moderate any significant rise in house prices.
Outlook: Supply to cap price increases
Despite a slight increase in housing demand, the abundant supply is expected to cap price growth.
BNZ, the last of the big four banks to adopt aggressive rate cuts following RBNZ’s latest OCR move, anticipates a 5-7% rise in house prices over the year, driven by recovering demand but tempered by the elevated housing inventory.
Meanwhile, a Reuters poll expects home values to climb by 5% in 2025 and 6% in 2026.
“The expected extra demand may not produce a notable lift in house prices due to the starting position of ample supply,” Jones said.
The supply side remains a key area of uncertainty in BNZ’s forecasts, influencing the housing market’s trajectory through the remainder of the year.
