Property market decline has not made housing more affordable for residents
After a steep housing boom in 2020-2021, New Zealand recorded a property market decline in 2022. However, by the early months of 2023, experts are already talking about a slowdown in price falls.
In April this year, the average cost of a home in the country was around US$558.5 thousand, more than 13% lower than in the same month in 2022. Overall, house and apartment prices are 22% higher than pre-pandemic levels. And since the beginning of 2023, the downward trend has slowed.
During the pandemic, house prices were 10 times the national average income. At that time, the rate of increase in house prices was 43%. In 2022, however, prices fell sharply, one of the most significant market slumps since the 2008 crisis. The fall in prices was due to rising inflation and measures to curb it. The cost of living in New Zealand began to grow, and increasing interest rates exacerbated the situation. As a result, many potential buyers decided against buying property, and the fall in demand caused prices to fall.
The biggest fall in house prices was in Auckland (-18%), which accounted for 30% of all sales in the segment. In Wellington, house prices fell by 17.4% last autumn. Meanwhile, values continued to rise on the West Coast and in the Southern Territory.
According to The Economist, the average house price is 40% overvalued relative to people’s incomes. Demographia also ranked the New Zealand market as highly unaffordable.
Despite property market decline, prices are high
Despite the fall in prices over the past year, property in the country remains overvalued. As for the rental sector, prices are pretty low, making this income generation not very popular. At the end of 2022, for example, rental yields in the capital averaged around 3.9%. In other cities, the figure is even lower. It should be noted that New Zealand has a relatively high demand for rental properties: around 32% of properties were rented in 2022.
By April 2023, the market has reached a minimum supply, and demand has also fallen significantly. This has led to a fall in prices in almost all regions of the country, except for the tourist centre of Queenstown, where prices rose by 2.8%. Despite the fall in prices, the New Zealand property market has not become more affordable for buyers.