Over the past four years, New Zealand's housing market has experienced significant price fluctuations. Currently, the market is quiet due to high interest rates, making it difficult for many potential buyers. Banks face competition to attract a limited number of creditworthy borrowers. Despite some easing in monetary policy, economic uncertainty has kept borrowing cautious, with low lending growth over the past year. Residential property holds a large share of household wealth, affecting financial stability and economic growth. The government is introducing policy changes to improve housing supply and affordability, while new debt-to-income limits aim to manage demand and reduce risks.
Over the last four years, the housing market in New Zealand has seen substantial price rises and falls. According to the RBNZ, the current phase is characterised by reduced activity due to persistently high interest rates.
Kerry Watt, the Director of Financial Stability Assessment and Strategy at the bank, mentioned that house prices are challenging for many potential buyers as they are near the higher end of what is considered sustainable. He also noted that banks are under competitive pressure to attract a small number of creditworthy borrowers.
Despite some relief from monetary policy easing, which has given households greater capacity to handle debt, economic uncertainty has resulted in cautious behaviour among potential borrowers. Watt emphasised that while interest rates are high compared to recent years, lending growth has been low over the past 12 months. This has led to questions about when and to what extent the demand for new borrowing might pick up again.
Residential property holds substantial weight in New Zealand's economy, making up over half of household wealth. The housing market impacts financial stability, consumer confidence, and overall economic growth. Understanding these dynamics is essential for the RBNZ, as home loans constitute more than 60% of total bank lending. This heavy reliance makes any fluctuation in the market a potential source of broader economic risk.
Watt stressed the importance of closely monitoring market trends to protect the financial system and the overall economy. He also noted that government policy changes are being made to improve the long-term supply of housing.
To address the long-term stability of the housing market, the government is implementing policy changes aimed at enhancing the responsiveness of housing supply. The goal is to prevent extreme fluctuations in house prices and improve affordability for buyers. Watt indicated that better supply-side responses would help moderate price cycles. Additionally, new debt-to-income restrictions will play a crucial role in curbing demand and reducing potential risks to financial stability.
While the market adapts to high interest rates and limited activity, the RBNZ remains focused on maintaining economic stability. The combination of policy measures and ongoing assessment is expected to guide the housing market toward a more balanced future, supporting both household financial health and the broader economy.
With residential property so deeply tied to financial stability, the coming months will reveal whether these policy efforts will moderate market behaviour and encourage sustainable growth. For now, households, banks, and policymakers are all watching closely as New Zealand navigates this uncertain phase in its housing market.
Advertisement
Facebook
Whatsapp
