Geopolitical conflict is quietly changing the pace of New Zealand’s housing market, as finance and property experts sound warnings

Early this year, New Zealand’s property market briefly showed signs of recovery. Interest rates fell, lending conditions improved and buyer confidence returned, with construction activity and demand for homes both recovering to some extent.

However, as tensions in the Middle East escalate, fresh uncertainty is disrupting this still-fragile recovery. Experts across construction, finance and property say a chain reaction triggered by geopolitical conflict has already begun feeding through to the property market via energy prices, cost structures and policy expectations.

Mounting costs and uncertainty

Construction bears the brunt

The construction industry was the first to feel the impact.

Stuart Shutt, managing director of Auckland building company Sentinel Homes, said the industry had briefly seen signs of recovery early this year: “Interest rates were falling, confidence was returning and the phones were starting to ring again.” But market sentiment shifted rapidly when conflict broke out in the Middle East.

The conflict has pushed up global oil prices, while construction is heavily dependent on transport and petroleum-related materials. Costs for key materials such as aluminium, plastics, bitumen and resins face upward pressure. Transport charges have already risen and are quickly being factored into quotes.

Building Industry Federation chief executive Julien Leys said material price adjustments usually require three months’ advance notice, and the first round of increases is now starting to emerge. Fuel costs have had a more immediate effect, already feeding through to the industry via logistics and transport charges.

The bigger problem is uncertainty itself. Leys said businesses and developers are delaying decisions, with “a wait-and-see attitude spreading throughout the industry”, slowing progress on projects.

Although figures show that consents for new homes nationwide reached 37,813 by March this year, up 11% year on year, the industry generally regards these as lagging indicators that struggle to reflect current market conditions.

Meanwhile, pressure on the industry is increasing. Figures from credit bureau Centrix show that 768 construction businesses became insolvent over the past year, still the highest total of any sector. Crane numbers also fell from 116 in the third quarter of 2025 to 102 in the first quarter of this year, the lowest level since 2016.

Oil price shock spreads as views diverge on interest rates

The effects of geopolitical conflict have not stopped at construction, but have quickly spread to the wider economy and policy settings.

Kiwibank chief economist Jarrod Kerr said rising oil prices caused by the US–Iran conflict are adding to cost-of-living pressures on New Zealand households. Lower-income households are particularly exposed because fuel and food account for a larger share of their spending.

Economists are sharply divided over the next move in the Official Cash Rate (OCR). The OCR currently stands at 2.25%, and markets widely expect it to remain unchanged this month, but its future path remains highly uncertain.

Kerr firmly opposes an interest rate rise, arguing that amid a cost-of-living crisis, “increasing borrowing costs is not the solution”. He emphasised that this round of inflation stems more from an external supply shock than from excessive demand.

Others disagree. ANZ senior economist Miles Workman believes that if oil prices continue to push up inflation expectations, the central bank may need to start raising rates in July to prevent a more sustained upward spiral in prices and wages.

Westpac chief economist Kelly Eckhold expects OCR increases could begin in September, taking the rate to around 3% by the end of the year. He also noted that even if the conflict ended immediately, restoring supply chains and inventories would take months, so the effects would not fade quickly.

These differing policy views are themselves adding to market uncertainty. Workman said economic forecasts in the current environment depend heavily on assumptions: “Everyone is making judgements based on different scenarios”, while the actual outcome could differ from all expectations.

Housing market diverges as first-home buyers buck the trend

Against a backdrop of growing uncertainty, structural differences are emerging within the property market.

Cotality’s latest report shows that first-home buyers in New Zealand purchased around 24,800 properties over the past 12 months, providing important support for the market. In the first quarter of this year, standalone houses accounted for 77% of their purchases.

Meanwhile, the average age of first-home buyers has fallen to around 35, while their borrowing leverage has increased. Westpac figures show their average loan-to-value ratio (LVR) now exceeds 80%.

Analysis suggests this group is taking advantage of a “relatively favourable” window to enter the market: house prices are stabilising, mortgage rates have eased for now, and KiwiSaver withdrawals and low-deposit policies have lowered barriers to home ownership.

However, the report also flags risks. Mortgage rates could rise in the period ahead, while the employment market faces uncertainty. Both could affect purchasing power and market confidence.

Lending patterns are also changing. Reserve Bank of New Zealand figures show that in March this year, 55% of new mortgages had terms longer than a year, with 29% on two-year fixed rates, suggesting borrowers are preparing for future interest rate increases.

From recovery hopes to a reality check, the housing market’s pace is changing

Taken together, the shock triggered by geopolitical conflict is affecting New Zealand’s property market through several channels. Rising construction costs and slower development are constraining supply, while inflationary pressure from oil prices is making the interest rate outlook more uncertain. At the same time, demand is diverging within the market, with some buyers choosing to enter sooner.

Westpac expects house prices could fall by around 1% this year, while overall economic growth remains between 1.5% and 2%, a moderate rather than strong pace. Several economists say market confidence could still recover if the Middle East conflict eases, but uncertainty remains the dominant factor for now.

Observations and reflections:

Is the recovery still under way, or has its pace changed?

Current data suggests New Zealand’s property market has not experienced dramatic swings. What deserves closer attention, however, is the changing pace at which it is operating.

The “recovery” anticipated early in the year was built on falling interest rates and improving confidence. External shocks are now prompting a reassessment of that reasoning. Rising oil prices, costs feeding through the economy and uncertainty over policy mean the market is no longer driven by a single variable, but is entering a phase shaped by several interacting forces.

For developers, the key question is when to start projects amid combined cost and risk pressures. For policymakers, it is how to balance inflationary pressures against economic growth. For home buyers, it is how to judge whether now remains a suitable time to enter the market amid uncertainty.

The market has not cooled uniformly. Active first-home buyers show that some demand is still translating into purchases, but this behaviour looks more like positioning before the window closes completely than complete confidence in the future.

In other words, the market may not have entered a clear upward cycle. Instead, it is gradually seeking a new balance amid competing forces.

If geopolitical conflict persists, energy prices remain high and interest rate expectations continue to fluctuate, this “transitional state” could last longer than expected. If uncertainty eases, however, the recovery momentum built up early in the year could re-emerge.