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Housing market continues to slide, major cities worst affected

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  Published in House and Home on Monday, October 13th 2025 at 16:17 GMT by rnz
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Housing market continues to slide, major cities worst affected

The latest housing price index released by Stats NZ shows that the New Zealand property market is in freefall, with the biggest declines concentrated in the country’s three largest cities. Over the most recent quarter, the median house price fell by 1.8 % year‑on‑year, while the median price in Auckland dropped by 3.3 % and in Wellington by 2.4 %. Christchurch and Hamilton were less hard hit, with price falls of around 1.2 % and 1.5 % respectively. These figures confirm that the housing market is now operating at the lowest level in the last decade, and that the post‑pandemic boom has given way to a sharp correction.

The underlying causes of the downturn are a combination of higher borrowing costs, slowing construction activity and a tightening of government support for first‑home buyers. The Reserve Bank of New Zealand has kept the official cash rate at 5.0 % in an effort to bring inflation back into target, which has pushed mortgage rates up to around 6.5 % for a standard 30‑year loan. Higher rates have reduced affordability for many buyers, leading to a fall in demand across the board. For instance, the mortgage debt‑to‑income ratio for households with mortgages rose from 3.4 % to 3.7 % over the past year, indicating that borrowers are taking on more debt relative to their earnings.

Construction output remains sluggish, with the sector adding only 2 % of new dwellings over the last year, far below the 4–5 % growth that was seen before the pandemic. Builders are struggling to source materials and labour, and many projects have been delayed or put on hold. The slowdown is reflected in the housing supply figures, which show that the number of new houses listed for sale has fallen by 12 % since the peak of the housing boom in 2021.

Affordability data released by the Ministry of Housing in the National Housing Strategy also points to a worsening crisis. According to the latest affordability index, 45 % of households now find it difficult to purchase a median‑priced home. The figure is higher in the major cities – 60 % in Auckland, 53 % in Wellington – and slightly lower in smaller centres such as Nelson and Taupō. The government has announced a new set of measures aimed at boosting supply, including accelerated approvals for new projects and additional grants for affordable housing. However, critics argue that these measures will take too long to have a noticeable impact on the market.

The fall in house prices has had ripple effects across the economy. The New Zealand Treasury estimates that the housing sector contributes approximately 10 % of GDP, and a sharp decline in this sector could have a contractionary impact on the broader economy. The Treasury’s latest forecast projects a modest slowdown in growth for the next two quarters, with the real GDP growth rate slipping to 1.3 % from the 1.9 % recorded in the previous quarter. Consumer confidence surveys also show a drop in confidence among households that own property, as well as among those seeking to buy.

Despite the bleak outlook for the housing market, some analysts point out that a modest correction may be a healthy reset for a market that has been overheated for several years. “The current price drop is an adjustment to a market that was operating at an unsustainable level of demand and supply imbalance,” said a senior analyst at a leading property research firm. “While it is painful in the short term, a healthier, more affordable market can lead to stronger long‑term growth.”

The Reserve Bank’s Monetary Policy Statement indicates that the central bank will likely keep rates steady for the foreseeable future, pending the evolution of inflation and employment data. However, the bank remains vigilant and is prepared to adjust policy if the economic indicators suggest a further deterioration.

Meanwhile, the New Zealand Housing Market Review, an ongoing independent study by a consortium of universities and think‑tanks, is set to publish its next interim report next month. The review will examine the impact of the recent price corrections on different demographic groups, with a particular focus on first‑time buyers and the elderly who are vulnerable to a loss in equity.

For the average homeowner, the market downturn presents both challenges and opportunities. Those who have been holding onto properties for a long time may find their equity eroded, while potential buyers could benefit from lower price tags and the possibility of securing a mortgage at more favorable rates if the central bank decides to cut rates in the future. Meanwhile, property investors with high leverage could face a squeeze on cash flow as loan repayments remain high relative to rental income.

In the coming months, the housing market will likely be watched closely by policymakers, investors and households alike. The data points to a clear picture: the price slump is real, the major cities are the hardest hit, and the underlying forces driving the downturn are a tightening of monetary policy, reduced construction activity and an ongoing affordability crisis. Whether the market will recover, and how fast that recovery will take, remains to be seen.