New Zealand Property Market Performance in 2021

Updated property market analysis to make sure you invest in the right region in New Zealand.


Ed McKnight

Economist, property investor and host of the Property Academy Podcast

How is the NZ property market performing right now?

If you're a New Zealander, you're bound to have an opinion on the property market.

While rugby may be our national sport, our national pastime might as well be talking about property.

Too often, those conversations are based on salacious headlines read in Stuff or the NZ Herald, rather than based on facts and data.

That's why this always up-to-date article will go over the key points and data to let you know how the NZ property market is performing right now.

Overview of the Last 12 Months

How has the NZ property market changed over the last 12 months?

According to CoreLogic, a data firm, the median house price in New Zealand is currently $806,151, as of January 31, 2021.

The Real Estate Institute of New Zealand, another data provider, reported that house prices are up 19.3% on the previous 12 months and an enormous 9.0% over the last 3.

For context, over the prior 27 years – the longest period for which we have data – house prices increased 6.6% per year.

That means that over the last 12 months house prices have increased at almost 3x the rate of the prior 27 years.

Property prices are increasing rapidly, and right now there are no signs that a sharp slowdown is approaching.

Where Should I Buy?

Where are the opportunities to buy?

Each region in New Zealand has unique factors that drive it. And regional prices will move at different speeds.

That often presents opportunities to invest in one region over another. At times one area can be considered overpriced while others may be comparatively underpriced.

Here at Opes Partners, we compare this by looking at the median house price of a region compared to where it has historically sat against the New Zealand median price.

For instance, over the last 28 years Auckland's median house price has been 1.40x the New Zealand median house price. Right now, it is sitting at 1.39x the national median.

This suggests that Auckland house prices are where we would expect them to be over the long term. So, house price inflation will likely be in line with the national average over the medium term (5-ish years).

Here's a table that breaks down this analysis across all 16 New Zealand regions.

According to this analysis, the Otago property market is the most overpriced, compared with its long term average.

The median house price there is 17.61% above its long-term average.

Compared with their long-term average, the most undervalued regions are Canterbury and the West Coast.

A word of caution, house prices on the West Coast may not fully bounce back. That’s because it is the only region in New Zealand with a declining population.

We may not see the same catch-up growth there that we expect to see in Canterbury, Nelson or Taranaki.

House Prices vs Rents

How does this compare to rents?

Residential property yields have been declining across New Zealand.

Low interest rates increase demand for properties, pushing up sale prices, but not necessarily rents.

According to CoreLogic, over the last 8 years, the average value of a New Zealand home has increased from $416,994 to $753,038 (Oct 2012 - Oct 2020). That means house values increased 7.67% each year over that period.

Over the same time frame, the country's median rent increased from $325 a week to $470, an increase of 4.7% per year.

So property prices have risen almost two thirds faster than rents.

Therefore, the average gross yield has fallen from 4.05% to 3.35% based on those numbers.

In actual fact, those won't be the real gross yields that investors accept.

Because the average rental property is unlikely to be the same as the average house. Instead, the average rental property is likely to be cheaper and more basic.

However, this does give the sense that gross yields are likely to be tracking down over time. That’s because rental increases are not keeping pace with the demand for property in general.

Housing Market Drivers

What's driving the property market right now?

Generally, there are two critical factors, among many, that are driving the hot housing market:

Low interest rates

Low interest rates are causing the demand for housing to increase in three ways.

1) Homebuyers can pay more for a property without really paying the price

First, lower interest rates make purchasing properties cheaper. That means prospective property buyers can take out higher mortgages without altering their lifestyle.

Over the last 12 months, the 1-year fixed interest rate has dropped from 3.44% to 2.26%, where it sits today.

Over the last 10 years, the change is even more apparent. The 1-year fixed interest rate was a comparatively enormous 6.28% back in February 2010.

Cheaper borrowing encourages house buyers to bid up prices at auctions, without paying the cost of higher repayments.

2) Properties become more profitable for investors

Cheaper borrowing also increases the profitability of properties for investors.

Say a $500,000 property generated an income of $50 a week when interest rates were 3.44%. It would earn $163 per week today, solely based on the interest rate changing.

This increased return attracts investors into the market, further pushing up house prices.

3) The alternatives for investors are less profitable

Finally, lower interest rates don't just affect borrowers, but savers too.

The average term deposit rate decreased from 2.6% to 0.86% in the last 12 months. That is severe.

Because leaving money in the bank now generates such a low return, investors will buy assets instead. This is a global phenomenon that increases the price of assets worldwide – shares, art, bitcoin and property.

Lack of inventory

The second factor causing the property market to roar is the lack of listings.

Put simply, there aren't enough houses available for sale in the country. There are many more buyers than sellers.

This is caused by two factors. First, the volume of properties sold is skyrocketing. Secondly, the number of listings on the market is not keeping up.

This is decreasing the weeks' worth of inventory currently on the market.

1) Skyrocketing volumes

The increased demand for property is, unsurprisingly, translating into more properties selling.

8,935 properties were sold in December 2020.

That's 39.33% higher than the average number of properties sold in December for the prior 5 years.

These higher volumes decrease the number of properties left on the market, which leaves fewer properties for other buyers.

This is causing a Fear Of Missing Out (FOMO) among property buyers.

A net 90% of real estate agents report that buyers are scared of missing out on buying properties, according to the latest REINZ & Tony Alexander Real Estate Survey (February 2021).

This momentum forces buyers to make quick decisions or risk missing out.

That’s why the number of days it takes to sell a property was down 15.6% in December 2020 compared with the same month in each of the 5 previous years.

2) Lack of listings

At the same time, the number of new properties listed for sale is not keeping pace with the higher demand.

Even though the number of properties coming on the market was up 19.2% compared with the previous year (December 2020), properties sold much faster.

That’s the key reason the total number of properties for sale is now down 29.1% compared with last year, according to (Dec 2020 compared to Dec 2019).

A culmination of these factors is creating the hot housing market.

Bear in mind that while this is the trend nationally, each region will also be impacted by its local market's unique factors.


Should I invest in the NZ property market?

The New Zealand property market has rocketed along throughout 2020, and house prices show little sign of slowing down.

It's not all rosy, though. Risks will be forthcoming as the market continues to show strength. Firstly, there is the risk of increased government regulation, which could levy additional costs on landlords.

Investors should also consider the prospect of higher interest rates.

Although money is cheap now, a sharp increase in the short-term interest rate could cause some over-leveraged property investors to falter.

In our view, property is still a solid long-term investment. But investors must put safeguards in place to continue to hold for the long term, and not be forced to sell early if something goes wrong.


Ed McKnight

Ed McKnight is the host of the Property Academy Podcast – NZ's #1 business podcast. He is an economist, having studied at the University of Auckland and the University of Waikato. He's a frequent writer for Informed Investor Magazine and has contributed to NewsHub, Stuff, OneRoof and Property Investor Magazine.