Still out of reach despite falling prices: New Zealand housing is quietly becoming ‘two markets’

Some people own 10 investment properties, while others are still saving a deposit for their first home

Over the past few years, the most frequently discussed questions in New Zealand’s property market have been when house prices would fall and when interest rates would come down.

Now, both changes appear to have arrived.

House prices in many parts of the country have fallen from their pandemic peaks. Meanwhile, although mortgage rates have edged up recently, they remain well below their 2024 highs overall.

Conventional thinking suggests that falling house prices and lower borrowing costs should make buying a home easier.

Yet that is not what is happening in practice.

More and more first-home buyers are finding that, even with market conditions better than a few years ago, taking that first step towards home ownership remains difficult.

Meanwhile, another group of market participants is considering an entirely different question: after retirement, should they keep multiple investment properties for rental income, or sell assets and move into investment funds?

When ‘how to buy a first home’ and ‘how to manage a tenth property’ become market talking points at the same time, an intriguing divide is emerging in New Zealand’s property market.

Has buying a home really become easier since prices fell?

According to REINZ data, lower-quartile house prices nationwide are now well below their levels at the market peak in 2021.

Mortgage rates have also fallen significantly.

Two-year fixed mortgage rates, for example, have rebounded somewhat since the start of this year, but remain far below their 2024 levels.

On the surface, this would seem to be a good opportunity for first-home buyers to return to the market. In fact, if mortgage affordability alone is considered, conditions have indeed improved.

Calculations by Interest.co.nz show that, with a 20% deposit, a typical first-home buyer household purchasing a lower-quartile Auckland home would spend around 36% of its after-tax income on weekly mortgage repayments.

Although hardly easy, this is still below the 40% threshold widely regarded as difficult to sustain. In other words, for those who already have a sufficient deposit, today’s market is more favourable than it was two or three years ago.

The problem is that many people are stuck before they reach that point.

The real barrier has shifted from house prices to the deposit

For many young families, the greatest difficulty is no longer whether they will be able to afford future mortgage repayments, but whether they can save the initial sum needed to enter the market.

In Auckland, for example, a lower-quartile home costs around NZ$790,000.

Even with a 20% deposit, buyers need close to NZ$160,000. For young families who have only recently entered the workforce, that is no easy sum to achieve.

Interest.co.nz estimates that a couple aged between 25 and 29 on ordinary incomes would need more than six years to save a deposit for an entry-level Auckland home, even if they saved 20% of their after-tax income each year.

During that time, they also face rising living costs, rent payments and uncertainty over future market changes.

The result is a seemingly contradictory situation:

House prices have fallen, but many people still cannot afford to buy.

Are low-deposit mortgages really the solution?

Many buyers will think of another option: a low-deposit mortgage.

In fact, Reserve Bank of New Zealand data shows that nearly half of the mortgages issued to first-home buyers in April this year were low-deposit loans.

This suggests that more young people are entering the market sooner by lowering the deposit barrier.

But a low deposit does not mean less pressure. Taking Auckland again as an example, reducing the deposit from 20% to 10% would increase weekly mortgage repayments from around NZ$804 to more than NZ$1000.

For many households on ordinary incomes, this is close to, or even beyond, what they can afford.

Many first-home buyers therefore face a dilemma:

Keep waiting, with a deposit still a distant prospect;

or enter the market sooner and face a sharp increase in weekly repayment pressures.

Some analysts describe this as a dilemma: without a sufficient deposit, buyers cannot purchase a home, but with a smaller deposit, monthly repayments may exceed what they can afford.

A bigger question: can local incomes still keep up with local house prices?

While the deposit barrier is a practical challenge for young buyers, another recent study reveals a deeper shift.

Cotality and Infometrics recently compared housing affordability across New Zealand’s districts over the long term.

Rather than simply comparing which districts had the highest house prices, they examined a more practical question:

How difficult is it for local residents to buy local homes on local incomes?

The findings showed that the district with the most pronounced deterioration in housing affordability over the past 22 years was not Queenstown, but Mackenzie District.

In this district, which includes Tekapo, Twizel and Aoraki/Mount Cook, an average household buying an average home now needs to spend around 51% of its income on mortgage repayments, compared with a long-term average of around 40%.

One important reason for this change is not a fall in local incomes, but house prices rising far faster than incomes. As tourism develops and money continues to flow in from elsewhere, local homes are increasingly sought after by holiday-home buyers and investors. Local wage growth, however, has been unable to keep pace with house prices.

The result is a situation where:

house prices increasingly resemble those of a popular tourist destination,

while incomes remain at ordinary small-town levels.

‘Two markets’ are emerging in New Zealand

Looking at these developments together reveals an increasingly clear trend.

New Zealand’s property market is gradually developing two different sets of dynamics. The first market belongs to those who already own assets. They may have gains in the value of their own homes, rental income, family support or other accumulated capital. For them, property is more of an asset allocation tool.

An investor approaching retirement who was recently featured in media reports is one example.

He owns 10 rental properties and is considering whether to continue living off rent or sell some properties and move millions of New Zealand dollars into investment funds.

The questions he is considering are:

How can he improve returns on his assets?

How can he optimise retirement cash flow?

How can he balance risk and return?

The other market belongs to those still trying to buy their first home.

They face entirely different questions:

How can they save enough for a deposit?

Should they use a low-deposit mortgage?

Will their future income be enough to cover the mortgage?

When will they actually be able to enter the market?

Both groups participate in the property market, yet their concerns are now completely different.

House prices no longer provide the only answer

For more than a decade, the most common question in New Zealand’s housing debate has been:

When will house prices fall?

Today’s market, however, shows that housing affordability is far more complex than house prices alone.

Income growth, deposit savings, borrowing costs, asset ownership and family financial support all influence whether someone can enter the market.

For people who already own assets, a fall in house prices may mean new investment opportunities.

But for many first-home buyers, even with prices below their peaks, the realities of deposit requirements, slow income growth and rising living costs remain.

The real dividing line in New Zealand’s housing market today may therefore no longer be simply how high or low house prices are.

Instead, it may be a more practical question:

Are you considering how to manage ten rental properties, or still trying to save enough for the deposit on your first home?

This may be the change in New Zealand’s property market that deserves the most attention today.