The housing market keeps heating up! Crushed by high house prices, most say they want to leave New Zealand!

MBIE surveyed people who had returned to New Zealand over the past year. Of more than 20,000 respondents, over 5000 planned to return to their previous country of residence as the pandemic eased. Among them, 72% were New Zealand citizens and 16% were New Zealand residents. The vast majority of this group believed that New Zealand's house prices were now too high, placing excessive pressure on living costs. They were preparing to head to neighbouring Australia or other countries in search of cities with cheaper housing.

Despite the pandemic, New Zealand house prices did not fall last year. Instead, they rose strongly against the trend, with the country's house price growth over the past year ranking second in the world. Many people said that, although Australia faced its own housing affordability problems, its price growth was more moderate than New Zealand's recent rapid increases. 

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According to the latest CoreLogic data, New Zealand's median house price rose 2.6% in May to NZ$820,000, up 14.5% year on year. Meanwhile, Australian house prices rose 2.1% in May, the largest monthly increase in 17 years. The annual increase was only 4%, with a median house price of approximately NZ$600,000.

In Auckland, house prices rose by 21.6% over the past year, with the median jumping from NZ$920,000 to NZ$1,120,000, well above the medians in Sydney and Melbourne of NZ$890,000 and NZ$720,000 respectively. 

“This is the third consecutive record high for Auckland house prices. We are very surprised,” said REINZ deputy director Wendy Alexander.

According to a Stats NZ survey last year, approximately 1,000,000 New Zealanders were living overseas at the end of that year. More than 50,000 overseas-based New Zealanders returned home over the past year. It is estimated that as many as 500,000 Kiwis could return to New Zealand in future.

A survey by New Zealand expatriate organisation KEA found that 49% of New Zealanders living overseas planned to return, with 24% intending to come home this year and another 25% next year.

New Zealand's successful pandemic response made it a safe haven for large numbers of returning Kiwis. Yet the practical reality is that many returnees, confronted by continually rising house prices and intense pressure from living costs, feel compelled to leave again.

Data shows that only 21% of these returning New Zealanders own their homes. High house prices mean the vast majority live in rental accommodation or stay with parents or friends.

Westpac chief economist Dominick Stephens said that once the pandemic ended and the global economy recovered, New Zealand would again face a brain drain, and this would not be the first time. 

During the 2008 economic crisis, New Zealand saw large numbers of people return, but departures increased rapidly once the economy recovered. The same happened when the pandemic struck last year. Many Kiwis returned over the past year, choosing to come home while global economic conditions were poor, and large numbers will leave again when conditions improve.

House prices, wages and future prospects will all be important considerations in people's decisions to move.

Persistent housing supply problems, last year's record-low interest rates and the removal of LVR restrictions allowed more people to borrow to buy homes with smaller deposits, fuelling the blaze of rising house prices nationwide.

ANZ New Zealand chief economist Sharon Zollner said, “The temporary removal of LVR restrictions last year brought large numbers of buyers into the market. It was like a flashing green light, signalling an opportunity that first-home buyers and investors could not afford to miss.”

According to CoreLogic data, annual average house price increases in all 6 of New Zealand's main cities exceeded 10%. Auckland and Wellington recorded the largest rises, with median prices increasing by 16.6% to 21.6%.

Housing affordability has declined nationwide. Even in outlying areas where the service and tourism industries were hit hard last year, affordability continues to deteriorate.

As vaccines roll out worldwide and borders reopen, high house prices will make New Zealand less attractive.

Zollner expects large numbers of returning New Zealanders to leave because of high house prices. Unemployment is an important driver of trans-Tasman migration between New Zealand and Australia, but high house prices are also playing a “key” role. 

Some New Zealanders planning to leave said, “It is no surprise that so many people want to seek a better life in Australia. People are particularly interested in its jobs and housing markets. The cost of living is lower in Australia, and you can afford to buy a house without spending your whole life paying it off.”

Australia's more affordable lifestyle is more appealing to these New Zealanders preparing to leave.

Against New Zealand's high house prices, housing in Sydney and Melbourne looks more attractive. These cities offer more job opportunities, while reasonable house prices are another consideration for the vast majority.

Economic performance has always been an important driver of migration between the two countries. When employment is stronger in Australia, net migration from New Zealand to Australia continues to climb. Alongside income and employment, housing affordability is an important part of living costs. New Zealand's current high house prices are prompting more people to leave in search of more affordable homes.