Four decades of 6-7% yearly house price growth ending

New Zealander’s reliance on property capital gains in the mid-single digits is at an end.

CoreLogic NZ research head Nick Goodall expects long-term house price increases to be more in line with annual income growth of 3-4%.

Speaking at a Financial Services Institute of Australasia (FINSIA) webinar on insights into New Zealand Property in 2025, Goodall says the old adage of house prices doubling every 10 years and will continue to do for forever, just irks him.

“If we see income growth over the next decade of about 3% of maybe 4% per annum, then we expect house prices to follow similarly.

“That’s not to say there won’t be periods where house price growth will exceed that and sometimes be below that, but we do expect the long-run level to be much closer to 3% or 4% than 6% or 7%.

This was one of four long-term predictions Goodall laid out after studying “decent academic research” on the key influences on housing prices around the world, and specifically New Zealand, over the past three to four decades.

Declining interest rates have had a big effect. He says interest rates have dropped dramatically over several decades from 20% plus to now 5% - “a big shift that can’t happen again.”

“If we see income growth over the next decade of about 3% or maybe 4% per annum, then we expect house prices to follow similarly... we do expect the long-run level to be much closer to 3% or 4% than 6% or 7%.”

Interest rates are a strong contributor to increases in borrowing power and how much people can pay for property. “We can’t really see that big shift in interest rates happening again, which would contribute to the long-term growth in house values of 6-7% a year.

Goodall says restrictions on land use have been another main contributor to growth in property prices over time.

Over the past few years, however, land use restrictions have been relaxed through Auckland Council’s 2017 Unitary Plan and the Government’s Medium Density Residential Standards.

Both are well in place and Goodall says although they are not exactly perfect or enabling of all types of building to happen, they are certainly an improvement on where land use was in the past. “It was hard to build where is mattered and where people wanted to live supported by the right infrastructure.”

That has changed and both major political parties want to increase intensification supported with infrastructure spend. But Goodall says with the extensive changes that have already occurred he doesn’t expect that land use change will lead to strong house price growth at the same level in the future. 

Another recent brake on rocketing house price growth has been Reserve Bank restrictions in the form of loan-to-value ratios (LVRs) and the newly minted debt-to-income (DTI) rules.

LVR introduced in 2013 were supposed to be temporary, but they are still in use, while DTIs, introduced last year, have yet to become binding, particularly on investors, although some mortgage brokers say they are starting to be felt.

DTIs will limit how many properties an investor can own and how fast they can accumulate a portfolio. “So, that is going to hold the market back than otherwise would be the case,” Goodall says.

Coming into focus over the next few years will be some form of tax. He says it might not be some form of capital gains tax, land tax or wealth tax in the next year, but sometime in the next five,10 or 20 years there could be a rebalancing of New Zealand’s tax system.

“That could balance things to some degree away from the property market. The fact there hasn’t been a comprehensive capital gains tax in the past has led to property being relatively favourable compared to some other assets. And that has been a contributing factor to strong house price growth.”
Goodall says CoreLogic believes the market is now set for a less volatile time and a phase of less growth than seen the past.