The New Zealand property market is experiencing a decline in regional house prices and rents, driven by oversupply and shifting investor expectations. Chief economist Kelly Eckhold discusses the factors behind this trend, including rising costs, net migration impacts, and the resilience of tourism-driven regions. While urban centers struggle, regional markets may see a recovery as economic conditions improve.
Booms end quietly. They don't announce themselves; they slow, hesitate, and then reverse. Currently, regional New Zealand is experiencing a retreat in its property market. Rents are falling, houses are sitting idle, and listings are piling up. In cities like Auckland, Wellington, and various provinces, the momentum has dissipated. The data reflects a clear trend: too many homes and not enough people. Investor expectations are shifting from capital gains to damage control. However, for those who can read the market accurately, opportunities still exist.
According to Kelly Eckhold, chief economist at Westpac, regional house prices and rents are indeed sliding. Surveys indicate that landlords are struggling to find new tenants, leading to incentives such as reduced weekly rentals. Despite this temporary softness, Eckhold believes that this trend will not be permanent. The costs associated with providing rental accommodation continue to rise, including local authority rates and insurance, which are expected to push rents back up as the labor market and net migration improve.
The oversupply in regional markets can be attributed to several factors:
While some speculate that the regional boom following the pandemic is ending, Eckhold does not see evidence of this yet. Regions that have been strong continue to show resilience, supported by factors such as population growth and robust labor markets. For instance, farmer confidence is notably high, which bodes well for regional economies.
The slowdown in net migration is significantly affecting rental yields, particularly in Auckland and the Upper North Island. Initially, forecasts indicated a positive trend in migration, but recent data shows a reversal, with many Kiwis moving to Australia and a decline in foreign arrivals. This shift has dampened rental demand and, consequently, rental prices.
Despite the challenges, certain regions like the Bay of Plenty are experiencing confidence due to their strong horticultural sector. The export volumes of kiwifruit are at record highs, driven by favorable growing conditions and strong foreign demand. However, not all areas are benefiting equally; regions like Rotorua and Hawke's Bay are struggling with lower tourism levels.
As rents flatline or decline, landlords must adapt their cash flow models. The expectation for 2025 is to retain existing tenants to avoid the risk of lower rents when seeking new ones. Landlords face a delicate balance between offering discounts to fill vacancies quickly and holding out for better offers. The quality of the property will play a crucial role in this decision-making process.
Rising compliance costs, including the new healthy homes regulations, are adding pressure on landlords in an already soft rental market. Local authority rates are also increasing, prompting discussions about potential caps on rates. On a more positive note, the insurance market is becoming more competitive, which may alleviate some financial burdens for property owners.
Eckhold emphasizes the importance of technology adoption in the agricultural sector, which is crucial for New Zealand's economy. As global markets evolve, businesses must leverage technology to remain competitive. The agricultural sector is beginning to embrace this change, with innovations aimed at improving productivity and resilience.
In conclusion, while the current landscape of New Zealand's property market presents challenges, particularly in regional areas, there are signs of resilience and potential recovery. Investors and landlords must navigate these changes carefully, adapting their strategies to align with evolving market conditions. The insights provided by experts like Kelly Eckhold will be invaluable as the market continues to shift.
