How do we stack up? The New Zealand housing market in the international context

Housing matters - the big picture: House prices in New Zealand are driven by a wide range of factors – interest rates are just one part of the big picture. A global decline in interest rates and strong population growth in New Zealand has had an outsized impact on house prices because the supply of new homes has been slow to respond. This includes both opening up new land and building new homes. Tax rules in NZ favour housing against other investments. House prices are influenced by employment and incomes, as well as bank lending rules and the availability of mortgages. House prices were boosted by falling interest rates around the world in the past decade (post GFC). The Reserve Bank of NZ moves short-term interest rates to keep inflation low and stable and support employment at its maximum sustainable level. We consider the impact of our interest rate changes on house prices and how they affect the Government policy for sustainable house prices. We do not aim to drive house prices up or to stop them falling. The factors affecting house prices have changed. Building consents are now high, population growth has slowed dramatically, interest rates are rising and we are seeing house prices cool down in 2022, after a rapid rise last year. We are carrying out a wide range of research to understand the key drivers of house prices. We need to be clear about what the Reserve Bank can and cannot do and what others could do to fix this problem, which has been many decades in the making. Key findings of Analytical Note: - This Note compares and contrasts various facets of the housing market in New Zealand with those in 12 other developed economies over 1991-2021. - While several other economies have experienced increasing house prices in recent years, the rate of increase is the highest in New Zealand. - Among the economies we consider, New Zealand has seen the steepest decline in mortgage rates since the Global Financial Crisis, and almost the strongest increase in population. - Despite the rapid pace of residential construction in New Zealand over the last decade, the number of dwellings per inhabitant remains low and below the average for the OECD.