Bust Territory Now


The latest inflation was announced today and at 1.7% it’s showing an improving trend. The RBNZ has managed to slow inflation a little already, down from 2.2% in Sept 2021. The headline figure of 7.3% is inflated by selection of a 12 month comparison. Actual inflation peaked last September and appears to be on a lowering trend:

Interest Rates

Interest rates meanwhile are being pushed up quickly by the RBNZ. With inflation growth subsiding, it may be time to rethink interest rate increases. Previous increases up to 9.5% in 2008, waited until the next major event (GFC) before returning to a low level, again overshooting.

Property Prices

Property prices are now lowering, and very fast. This data is from, it is actual monthly rates, not the 3-month moving average reported by CoreLogic, which is too little info too late. The trend is visible but confusing with high inflation.

Actual prices are in the above chart, but we have higher inflation now, so the value of each dollar is decreasing. The real value is the gap between the CPI and the actual prices, this is easy to turn into the more useful Real Sales Prices chart below.

Now you can see the real prices (in 2020 money) and the drop in prices is very clear and more pronounced in real terms:

  • Auckland and Hamilton rose less than other centres so the price drop since February is subdued a little
  • Christchurch and Tauranga are yet to see price drops - here’s a hint, if you plan to sell in these regions, hurry up
  • Wellington rose very quickly on the back of a shortage of properties, but building activity has been dramatic, so oversupply is now showing in our sales stats. Moving from supply shortage to surplus resulted in the greatest drop in real prices - from 45% up (February 2022 vs July 2020) to just 25% above July 2020. Selling may still be a good idea if you were planning to do it because prices may drop to 0% real, hurry up.

I included the 2yr mortgage rate from RBNZ to show the relationship in timing between interest rates rising and house prices falling. The correlation is incredible. The RBNZ have suggested they will raise the OCR another 0.5%, that will continue to accelerate price drops. There has to be a lag between interest rate rises and price drops (it takes a while to buy a property) so the steep price drop in Wellington in June is most likely to have been caused by the April and May increase in interest rates. The latest increase may cause a similar fall in prices in August.

The big question is “will the RBNZ be cautious enough to cease interest rate rises in time to create a soft landing. I would predict a soft landing is when real prices hit the Zero line in the last chart, ie when prices are at the same inflation adjusted level as July 2020. That could be achieved in Auckland, Wellington and Hamilton by Christmas at this rate. Christchurch and Bay of Plenty will take longer due to shortage of properties in those regions - ie lack of sufficient construction combined with high population growth. The crash landing will be real prices falling below July 2020

Both Markets in oversupply?

Lower Hutt

Sales InventoryAs previously noted, I only record sales data for Wellington, but it turns out that Lower Hutt and Wellington are the canary in the coal-mine. Listings have recently been at all time highs, but appear to have set a limit and are retreating.

Rentals Inventory: -However listings for rentals are now soaring to new levels as well. Has the new build demand now hit a rental demand shortage and too few tenants are chasing properties? I suspect that is the case.

The market may be shouting now, not only is there too many properties for sale, and too many properties being offered to rent, but house sales prices are falling in Wellington - about $130,000 so far for a $1.3m property, ie 10%. Data for rentals is also in, so I have details now.

I have a hint from Eastbourne where rents stopped rising back in 2021;

Wellington City

I collect rental prices for all suburbs within the green belt, and this is what they currently look like:

Median rents were up in February by 6.5%, $627 in May 2021 to $668 in February 2022, but now down to $660pw in April. Its even worse for the upper quartile.

What about sale prices? I only have Homes detail in the form of a chart from their blog, they do not publish the data behind the chart. This suggests that prices are dropping quickly, using their data for Eastbourne you can see prices have dropped more - 10% ($1.3m home is now down by $130k). The suburb or city valuations on Homes is far more likely to be accurate than an individual home.

The chart shows the YoY increase as at June 2022 for each city, as well as the trend for each City

Check out similar stats for Wellington here

Excessive Sales Inventory

Wellington Sales listings (inventory) has reached a very high level of supply, with Lower Hutt being the standout sector within Wellington. Lower Hutt Inventory is now 4 times that of the same time last year(648 compared to 163 on 4th April 2022) and almost double that same time at the highest in the last 5 years in 2016 (350). Wellington Region is up 40% on the peak of the last 5 years (2019).

This increase in inventory is likely to be driven by

  • Forecasted increasing interest rates
  • Fear of Over Paying (FOOP)
  • Bank reluctance to lend
  • Migration preparation
  • Investor withdrawal

ie an increase in supply as well as a reduction in purchasing intent, ie the perfect storm.

There is also very clear hint that prices are falling, about 10% in my suburb of Eastbourne. publish computer generated values, these are likely to be inaccurate for any single home, but quite likely accurate for a suburb as many house sales feed into the algorithm. Eastbourne looks like this:

Sales inventory is often quoted by organisations like the Reserve Bank, REINZ and Corelogic for a three month period, missing any recent changes. I collect Wellingoton data every month so am able to provide unfiltered data

Social Housing Shortage

Social Housing is the forgotten market in NZ, where the “housing crisis” is a social housing crisis, but politicians and reporters alike appear committed to laying the blame on Private landlords. The data says the exact opposite is the issue, politicians need to ensure that Kainga Ora spend the money they have allocated and sharply increase their building rate, incremental increases are not enough.


There is a lot of FUD about the property market, driven by political interests and cheap shots from poorly researched reporters both written as clickbait. Here are some real stats courtesy of MBIE and Kainga Ora. I am presenting these as a service to help readers understand the market in a way which can assist profitability as investors.

I believe I am looking at the data correctly in my presentation, but please comment if you think I have presented a bias, all of us have difficulty seeing our own biases.

Kainga Ora were given access to over $3,800million in theHousing Acceleration Fund announced in June 2021. $2,000million is to be borrowed to buy and develop land. Building from land takes time, meanwhile Kainga Ora is redeveloping existing land, having completed 1,586 redeveloped dwellings to June 2021, along with a further 557 new dwellings from direct purchases. A tiny 38 dwellings were sold, mostly to tenants - thats about 2000 homes, is it enough?

To get the same growth as the private sector since 2009, Kainga Ora andCommunity Housing Providerswould need to add 30%, ie over 25,000 social rent homes more than currently available, alternately match the population growth of 20%. At 1586/year, neither scenario (20-30%) will be achieved. At approximately $500k per dwelling, Kainga Ora will need the order of $12b or $8b just to build enough social housing to be equivalent to 2009, this is not planned. Kainga Ora currently show 483 planned homes on their site.

Market Size

The size of each market in NZ is often hidden, so this chart brings a precise timeline to actual rental properties, Private rentals grouped by region(s) and Social Rentals as a single region. Surprising isn’t it. Social housing is a fraction of the market, less than private rentals in Auckland, but more than any other region.

The following chart shows the actual number of Private rentals (rentals with a landlord or PM) in each major region with all other regions combined in grey. To show the level of growth in Social housing I have included the number of rentals combining Kainga Ora and theCommunity Housing Providers (CHP). Since 2008, Social housing appears to have remained constant (down 145) while Private rentals have increased by 105,467.

Social Housing Shortage

Can the difference be identified a better way? I will try.

Indexed growth in Rentals

Placing the above chart in an index, where 2008 is 1000, provides us with a clear comparison of growth in each market - there is a single outlier, but so is Wellington and Bay of Plenty. Clearly Canterbury was severely impacted by the 2011 earthquake, but is now on the same track as the rest of the country.

Social housing has stagnated, with reductions throughout the period of the John Key government, this is hardly surprising, HCC had spending cuts and were instructed to sell to homeowners and CHPs. Kainga Ora (as HNZ or some other name) sold 1,777 homes and released 3917 to CHPs in the four years 2013-2016, and the impact was a reduction in Social housing while the Private market grew to take up the slack, especially Auckland, which has a curve almost the mirror of Social, but on the slope.

Why did Wellington and Bay of Plenty not grow much over the last decade? That deserves a study, but I currently lack the resources and/or data.

The following chart shows the number of rentals as in the previous chart, but divided by the number of rentals in 2009 (and multiplied by 1000) to create an index. An index enables us to compare growth on an equal basis, better than the raw numbers that only show actual numbers. The risk with this chart is that the result “assumes” that 2009 was perfect, which is unlikely, social housing was probably very reduced at that stage, so I expect the real situation is far worse. This only shows changes since 2009.

Growth charts strongly suggest that the current “Housing crisis” is a government driven one, with two fuels:

  1. Undersupply of social housing, leading to calls of over pricing while we can clearly see that prices follow Household income and there is little over pricing.
  2. House prices are fuelled by interest rates with banks keen to lend money they pay little if anything for. It currently costs the same in interest payments for a $1m home in 2021 (at 4.5%) as it did in 2008 for a $500k home (at 10.7%).

The following chartshows mortgage interest rates since 2003. I included the run-up to the GFC from 2003 to 2008 to show how quickly interest rates rose in response to that crisis. Since 2008, not only have interest rates declined but also the choice of mortgage period has moved from fixed term (2 years was common) to floating or shorter term rates, this trend may be going in the opposite direction now. Interest rates in December were close to 5%, but that is half of the interest rates at the peak of the boom, and 2/3rds of the typical rate until Covid in 2020.

Note from Kainga Ora: "Kāinga Ora has a mandate to deliver more public housing to help meet the rising demand in many locations. Over the past four years we have accelerated the pace and scale of new builds and large scale development projects. The number of new state homes being built are the most in two decades. The demand for public housing has never been higher."

The current plans for social housing are not enough to reduce the waiting list or address the social issues in NZ, this is not something the private sector can do, so change is needed. The plan for $3.8b is not yet showing any movement, Kainga Ora is continuing to build at the rate they were prior to the announcement, no evidence is available to show any change yet.

Download Kainga Ora OIA response

pdfand Data

Updated from original on 7th March to replace an old Kainga Ora name with Kainga Ora and replace the acronym CHP - Community Housing Provider, the term used for organisations who provide social housing such as the Salvation Army.

Market report

The market for landlords has developed in multiple directions over the last few months after increases in interest rates and changes to lending criteria while building is in a frenzy - with very regional responses. Some regions are showing high levels of rental vacancies while others have moved into severe shortages, while actual prices continue to follow Household Income - except for BoP.

Rental Listings are mostly down - Excluding Auckland

While the total number of rentals being advertised is in balance (Supply = demand) there are many anomalies;

  • Auckland has significant oversupply and this is growing, take a look at the linked chart
  • Bay of Plenty and Waikato continue to show shortages, this is especially severe in BoP
  • Wellington seems to be in balance, but this belies a new trend in Sales - see below
  • Christchurch has gone into severe shortage of stock over a very short 6 months

The following chart compares supply to demand by showing the difference from 2.5% of rented properties are being advertised. This level has long been the standard where above that an increasing level of competition for tenants exists (Auckland) and below this rental prices start rising above the norm. eg BoP is the only major city with supply much less than 2.5% and rents are rising in real terms.

Rental Prices rising?

The Spinoff ran an article today postulating the obvious - “Is government policy pushing up rents?”, this is probably true, but so is inflation. The Spinoff made this comment "Rents are rising steadily and vacancies are down. The government is looking at what it can do next.Associate housing minister Poto Williams has mused about imposing rental control to help the country’s struggling tenants.” The situation is far more nuanced of course.

Real rental prices continue to be limited by increases in Household income despite many in the media having a hack at landlords increasing prices. Renters continue to upgrade their accommodation based on their income. Of all the main urban centres only Bay of Plenty shows rent growth exceeding HH Income growth - however BoP also has an increasing shortage of rentalspotentially driving prices higher. Auckland rental inventory remains high so rents are staying close to the 20yr low of 27% of Household Income. Note, these are median rents, so specific areas may be different. The income statistic used is for the year ending June 2021, so is getting increasingly dated, meaning actual rent/HH income is lower than shown for all regions in the chart below which uses average rent to Dec 2021.

Wellington Specific Income vs Rent, comparing June 2015 with June 2021, from Stats Dept(HH Income) and MBIE(rents) The Stats Dept details are currently unavailable so I cannot report national levels, but have Wellington data already:

  • Average Wages & Salaries $2,028, up $516 from 2015 or 25%
  • Average Self employed income $399, up $196 or 49%
  • Average Government transfers $128, up $19 or 15%
  • Geometric Mean Rents June 2021, $512, up $154 or 30%
  • Income as proportion of rents has risen from 19.6% to 20.0% in 6 years.

Reflecting the shortage of properties available in Wellington we have seen a 2.1% increase in rentals as a percentage of HH Income over those 6 years. In fact the range has stayed well within the historic range of 21-25% of HH Income. While rents have risen 30%, Household Income rose 29%, a minor rental increase during a period of shortage.

Sales listings are Rising, some regions very quickly

Unfortunately I only have past details for Wellington and suburbs for Sales stats, but the situation is suggesting something is changing dramatically. Lower Hutt has 498 listings on the 7th Feb 2022, while at the same date last year it was 148, that’s over 3 times last year. Prices are likely to be held up by the interest groups like Homes, REINZ, Agents and Trademe however I do expect prices to fall. REINZ has recently focussed on million dollar homes for the last 2 blog posts, to keep the market rising.

REINZ do however admit that inventory is increasing: "Inventory levels increased in most regions, some recording a significant jump, as restrictions eased across New Zealand and those who previously held backtheir properties brought them to market. Wellington increased 206.6%, from 346 in December 2020 to 1,061 in December 2021. Manawatu/Whanganui increased 133.7% annually, from 315 to 736, and Hawke’s Bay increased 107.4%, from 203 to 421.” I cannot duplicate REINZ stats because they use their own data, and do not state which part of Wellington, region or city. On Trademe, the Wellington Region inventory increased from 1307 on 5 Dec 2020, to 2200 on 5 Dec 2021 - as below which is now even more pronounced.

House prices never Fall

I frequently read that house prices never fall. That is almost true, but on the other hand never true. Firstly, real house prices (prices reflected in today’s money values (in my case Dec 2003), prices have gone up a long way, with a few pauses on the way, including some significant falls (1992, 2000 and 2008-2012). There is another factor that is often forgotten, a house sold in say 1992 is not going to be the same quality or construction as a house sold in 2022. Many regulations have changed the nature of “houses”, more recent houses have full insulation, double glazing, wind resistance, fantastic kitchens and bathrooms and cost more to build with scaffolding and safety requirements. Comparing a current house with an older house is like comparing oranges and apples. This can be seen in the real price step-ups in 2003-2007 and 2014-16 when many of the new rules were introduced.

The Pandemic impact

The rise in real prices since the pandemic is a false rise, with no other driver than very low interest rates. As interest rates rise, real prices will fall probably back to 2019 real prices, the timing will depend on sellers accepting lower actual prices and/or inflation rising by up to 20%! (the index falling from 1050 down to say 800).

It’s worth remembering that the average 2yr interest rate was 3.5% throughout 2020 and in Dec 2021 was 4.7% (RBNZ C31), lets say interest rates rise to 7%, then last years mortgage of $800k at 3.5% will be costing $28k pa in interest only or $538pw, but at 7% that will be $56k pa or $1076pw. Households will need to absorb the increase in Interest rates while maintaining their principle payments or sell. The RBNZ is late to increase interest rates, so is likely to have to increase further than expected, maybe to the 10% of 2008, but hopefully not the 20% of the 1980s, but most likely higher than 7%.

Volatile Market

NB, MBIE updated their active bond data today, missing my analysis for this post. The biggest change is to the last chart, which now shows the actual, beside the false data perviously published by MBIE. I have corrected the article to remove the mentions of the MBIE data having a severe downturn. This has not changed my other conclusions, the Private Rental market is stalling.

Listings started falling off a cliff from April 2021 after a sharp rise beginning October 2020. This is worth comparing with the bond data coming out from MBIE, based on their new formula, that appears to now match the market (see the last chart below).

What is very interesting about the seasonally adjusted listings chart below is that the NZ Total listings have remained constant over the last 10 years, (the first 5 years I removed to show the recent changes clearly) Trademe became a force in the market and their data effectively measured the entire private rental market from 2010. This hints that the NZ Private rental market is actually a NZ wide market, and I am thinking that maybe tenants actually move region to region chasing available rentals. That would mean tenants have recently moved from Auckland/Hamilton to Christchurch and BoP? - maybe.

This data is simply a count of rentals, indexed, so does not represent “normal” vacancy rates, more about that below.

Vacancy rates are usually about the 2.5% level during periods of equilibrium, below this and I suspect tenants leave town, above this and tenants move into town.

This next chart shows Seasonally Adjusted listings over 10 years, as a percentage of Active Bonds. Active Bond data is now updated 3 months late.

Post Covid, the market is extremely volatile, but markets are now in a strong downturn, ie listings are reducing, and vacant rentals are becoming increasingly difficult to find.

This next chart was produced a couple of months ago, but MBIE became concerned we were using their data before they correct it, so have now decided to delay publishing for another month. Unfortunately this means the most recent market data is only available for April 2021. Update 14th July 2pm - MBIE have now published an update with the following comment: "Recent changes to the reporting of the data — Improvements have been made to this data to give a more complete and accurate picture of bonds lodged.”

It would be nice if they let me know! No reply to my query about the accuracy, but this chart shows the difference!!!

At this stage I am not sure what is happening in the market. Anecdotal evidence is that many Property Investors are either selling or moving family into their rental or just holding it empty while we wait to see if the new rules on tenant selection are improved. Tenants most PI’s would prefer to avoid are now being moved along before they become a problem, this means many prospective tenants do not look attractive, leading to PI’s standing back.

Updated 14th July. I am not sure that the MBIE update changes a lot, clearly my comments about people avoiding renting are too early if correct at all, so I remain in the dark about where the market is going. However the listings data above is correct, it is based on my own collection of real Trademe data every Monday.

Listings support PI’s exit

Listings are showing seasonal declines that are now quite extreme over a very short time. Nationally, listings have moved from a March 2021 peak of supply (greatest peak in 5 years) to a trough in June, that is a big seasonal change.

Aucklandsupply is easily the most extreme, it was a long way above the seasonal trough we normally see in February, but that dissipated quickly and is now exactly the same as last year

AK Seasonal

Seasonal Trend for Auckland Inventory

My interpretation: Auckland has built too many apartments, I have been calling out the oversupply for years, with prices falling over the last couple of years as a result. However, the changes in the market have bought an opportunity for PIs to exit and keep their shirts on, while removing low quality tenants before they cannot. This is demonstrated by a sharp reduction in Bonds as well as a sharp reduction in inventory.

The reduction in Inventory is showing in all the major cities, excluding Hamilton. Careful when comparing Wellington, there is strong seasonal demand, I am referring to the changes on a seasonal basis, here is the same chart as above for Wellington:

The ownership market is clearly in a bubble, the Private Rental market is in drastic change, what that will mean is your guess, not mine. Anecdotally, since we have a property up for rent, we are getting applicants coming from properties being sold. Many failed our checks, suggesting PI’s dumping and running where they have a poor tenant and before it gets messy. That scenario fits the data.

Care needs to be taken to understand the market. This is information to assist you, not to guide you.

Property Investors Respond

The response from Property Investors to the change of rules around Tax, Tenant protection and Brightline tests was always expected to become a major factor in the Private Rental market, as per my earlier blogs.

However, I did not expect the impact to be as severe as it already is. It is clear that very large numbers of Property Investors have left the market in the last 6 months and the rate of selling investments continues at a very high pace. There are now just 361,000 rentals where we would expect more than 375,000 now, ie a loss of 14,000 rentals in 6-8 months.

Note: This is the first post on this topic since Tenancy Services updated their Active Bonds data in November 2020. "In November 2020 there were some changes to the way we report on the rental bond data to give a more accurate representation of the market.” I am cautiousaboutthe data, they may have created errors, I will keep an eye on it, but this is the ONLY data we have onthe rental market, so I must use it. My opinion is that they may have fixed something, because the data seems to better fit “gut feel” from anecdotal data. But we shall see.

Index of Properties rented with a Bond, by Region, by Month

As is clearly visible, the growth in rentals prior to November 2020, was around 20 points per year, but the loss of rentals is running at around 80 points per year. ie growth was 2%pa, but a 4% loss of rentals is 8%pa. At less than that rate, there will be less than 50% of rental homes remaining in 10 years.

I included the odd case of Otago, where rentals do not have bonds around Christmas ready for occupation the next year. I am not sure of the mechanism here, comments below would be helpful. Either way, there is a distinct 15% drop in active bonds for a month.

Of course rentals rise with time, in fact I have a page that proves rents rise at the same rate as household income. But, rents are now rising much faster as supply is being withdrawn at a rate that is pushing demand well ahead of supply. I have noted in the past that we are in surplus in some regions such as Auckland and Canterbury, but that also has changed and we are now in shortage in Christchurch as shown in my regional charts here.

Rents rising in response to changes in market rules

I have included a long timeframe for this chart because it shows some changes occurred early 2019, when some rule changes were expected from Politician "Kite Flying”. However, the rubber hit the road last November and prices are now on a sprint, especially in Bay of Plenty, Wellington and Canterbury (although Christchurch may be due to their final signs of recovery) Auckland and Waikato remain subdued with price rises matching household income at present,howeverthey do have a surplus of private rentals.

Apartment Dwellings

The central cities of Auckland and Wellington have now built too many dwellings, resulting in strong oversupply, rents are falling in both areas. The Wellington CBD supply is shown below, with supply hitting the all-time high of last year after a high-rise was opened, but was soaked up by students at the end of the year. Continued growth in construction is now heading to oversupply.

Have Landlords Responded?

Increased Sales Inventory

It has only been a couple of weeks since the announcement of non-deductibility of tax on interest payments, but some action may be happening. I follow the Wellington market more than other regions so I have more information, ie both rents and sales by district in the region. Looking at the stats for inventory by district, the last couple of weeks shows some critical changes in Wellington:

  • Sales inventory is up by about 100 properties from an expected low of 700 to a still low 800
  • Rental inventory is about the same as last year.
  • Rental inventory is down sharply for the CBD - from about 100 excess last year to just 50. Thats about 25% down.

The detail Sales inventory I have is for Wellington, but the uptick is very evident here:

and more especially here:

No Changes in Other Regions

There are multiple differences in other regions inventory but no recent change:

  • Auckland, Waikato - No change, remaining 25% above last year
  • Canterbury - about the same
  • Bay of Plenty - continuing maybe 25% below last year, but volatile
  • Otago, continuing previous growth, maybe 20% above last year, no recent change
  • Northland and Hawkes Bay both show less than previous years with usual seasonal variations missing. No change recently

A shift may be underway in Wellington Central city where sales inventory is up about 15% and rental inventory is down by 25%. It’s still to early to be sure, but the changes are large.

Comments below appreciated, this post is very early information and the market may go in many directions. It's a big warning that Auckland has not changed and so the Wellington hint may not be universal, what do you think?

Market Forces

Untitled copy

While it is very likely to be too soon to expect to see changes from the government announcement on 10 years bright line and the loss of interest deductions, the market was already responding to other signals.

Auckland Private rental listings continue to rise, jumping a seasonally adjusted 600 homes (about 8%) in the last 2 months from an already historically high level of 5,100 to 5,699. Supply cannot continue to rise without price adjustments, the long term average is apparently around 4,500. However, Tenancy Services changed their reporting method for prices in November and the long term data has considerable errors, I doubt I will be able to accurately report quality data anytime soon.

Actual Listings

I plotted the actual listings this time because it is clear where the issues lie. There is little change in Canterbury, Wellington and Bay of Plenty, but actual growth in listings is clearly visible in Hamilton and Auckland.


So what are prices doing in this environment. The answer is economics 101, oversupply lowers prices and undersupply raises prices. BUT, housing has fixed locations so the general trend is limited to the area directly affected by demand.

I cannot use all of Tenancy Services data, because they have changed their publication and I need to learn API language - I may not bother. However I do collect data directly from their rental page every month for Wellington and Auckland, so here is some details you can’t get elsewhere;

Prices where Supply exceeds Demand

Prices for a range of Auckland close Suburbs:

Wellington Comparison

The current market looks to be in a holding mode based on the situation prior to the government changes in rules. I do not expect that to remain constant however. I am looking for a way to get data on the number of active bonds, but Tenancy Services do not have any idea, they pulled their data when I queried the fact that their upper and lower quartiles were the same for every suburb of a region. And they want me to learn API, so I plan to push back.

I recommend you check out the regions, some show too many rentals and some show too few. It is mostly where education is no longer winning so there is little demand (Southland, Nelson, Wellington CBD) while where construction is struggling to match demand so supply is short, (BoP, WellingtonNon-CBD)

Jonette 2011