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Ones to watch

Shopping for your dream home has serious feel-good factor, but below the surface, buyers and sellers have a complex confluence of market dynamics to navigate. Economist Cameron Bagrie shares his pick of what to watch if you’re considering a move in 2024.

Kiwis are well versed in the peaks and pits of the post-2020 residential housing market. Between rapidly rising mortgage lending rates, economic uncertainty, and a general election, we’ve had our fair share to contend with. However, the mood is undeniably more optimistic as we move through the start of a fresh new year.

The latest Consumer Price Inflation (CPI) reading shows the lowest annual inflation in more than two years, property values have stabilised, and business confidence has received a boost from the formation of a new government.

But leading economist Cameron Bagrie says a rolling maul of supply shocks at home and abroad could present some key challenges for consumers eagerly anticipating an opportunity to take advantage of more stable market conditions.

Interest rates

Residential real estate is particularly vulnerable to credit conditions and the impact of interest rate changes, reflected by the abrupt slowdown in sales activity as mortgage lending rates climbed higher in 2022.

The view is percolating that we could see rate cuts as early as August – provided inflation readings continue their downward trend.

Bagrie agrees that Kiwis can expect further interest rate relief over the next two years.

“I say further because financial markets have already moved in anticipation, and to some degree, a regression in rates has been ‘baked into the cake’.”

To his point, top officials from the International Monetary Fund (IMF) have warned central banks to move cautiously if cutting interest rates, particularly as expectations of rate cuts could fuel another surge in inflation.

“The challenge is whether the outlook for inflation remains on track – because moving CPI from seven to 4.5 percent, that’s the easy part. The sticking point is the last two percent (which would bring inflation within the RBNZ’s one to three percent target band).

“We saw an abysmal 2023, with policy sometimes working at dual purposes. Take migration and the labour market - we need workers to fill shortages, but all those people need consumables and a place to live, fuelling inflation locally.

“Will we see interest rates move towards neutral settings, or will they prove sticky? I’m leaning towards the latter…”

December’s inflation data suggested that while imported price pressures have started to cool, the cost of domestic goods and services – which are a focal point for the RBNZ – continued to push higher, suggesting it could be some time before New Zealand’s inflation readings are clearly heading back below target range.


In a show of commitment to its fight against inflation, the new Government has replaced the RBNZ’s dual mandate (previously including unemployment) with a sole focus on bringing inflation down to its target.

However, Bagrie says some of the most impactful policy changes will be around supply and demand for new homes.

“When we talk about house price growth, there is too little emphasis on the transfer of existing supply. When construction costs soared 20 percent in 18 months, there was an economic incentive to purchase existing homes rather than build new. At the same time, house prices fell circa 15 percent.

“It screwed the scrum, really, because it made more financial sense to buy something that’s already built rather than start from scratch.”

While policymakers back peddled on the Medium Density Residential Standards (MDRS), which would have seen three properties of three stories each built on most residential sites without the requirement of resource consent, the Government has shown support for the National Policy Statement on Urban Development (NPS-UD) which requires councils to facilitate density around key public transport networks.

“Any policies relating to density and the availability of land are going to be very important, and we’ll also keep an eye on building consents as an indication of improving feasibility for developers and the effect this has on ultimately improving supply and affordability.”


New Zealand’s population growth is running at a multi-decade high of 130,000 (year to October 2023), reviving questions about whether the country is keeping up with demand and if we’ll see upward pressure on property prices.

“Kiwis are caught between several ‘big-picture’ considerations, with a rising population manifesting as severe rental inflation. Inflation and growth in house prices go hand-in-hand, but the biggest question is whether investors will come back to the market and light the match.”

He says that while it remains tough to do the sums on rental investments in a low-yield environment, reinstating interest deductibility for investors and rolling back the bright-line test from 10 to two years, in addition to a suite of tenancy changes, may entice more marginal buyers back to the fore.

“Whatever happens in terms of demand, the RBNZ cannot afford to let the housing market take off again, and we’ll likely see intervention before double-digit value growth.”

Global events

Around $170 billion in fixed mortgage lending is due to reprice onto substantially higher mortgage lending rates in the next year or so, with New Zealand’s retail interest rates very susceptible to global financial changes.

Between the US Presidential Election, ongoing tensions in Eastern Europe and the Middle East, and a weakening Chinese economy, plenty of supply shocks are on the horizon to keep observers busy.

Since the global pandemic, Bagrie says such repetitive shocks have made it very challenging for central banks to provide consistency as monetary policy is constantly altered to reflect volatile conditions.

“The latest shipping disruptions in the Red Sea are wreaking havoc on international trade, with a trickle-down effect for construction and building material imports to New Zealand. Conversely, this could be an opportunity for our agricultural exports to Asia – with demand gain likely to contribute to farm prosperity and greater economic activity in our regions.”

After an extremely challenging 18 months, Bagrie says market indicators are naturally pointing north. However, the economy and residential sales market are in a holding pattern, with see-sawing support on various levels.

“Things are improving, but the system is sensitive, and the RBNZ’s job of cooling inflation is far from over. We’re in for a sustained period of flat-to-middling growth, so Kiwis waiting for pandemic-era appreciation could be caught spinning their wheels.”

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