There is no disputing our nation’s historic affinity to property, but the golden formula of cheap credit, rising migration, and steadily climbing house prices has broken down. Cash-flow margins on rental properties have been squeezed, while higher interest costs and changing tax rules have eaten into returns.
Several of the structural tailwinds that propelled the property market through the last decade have now reversed. Lower immigration is near the top of the list here. Net migration in the year to September 2025 was 12,434 – the lowest for a September year (outside of the Covid-affected 2021 and 2022 periods) in 13 years. This sharp slowdown contrasts with the record inflows seen in 2023 and early 2024, when population growth was a key driver of housing demand.
Credit standards also remain very tight. The Reserve Bank reintroduced loan-to-value ratio (LVR) restrictions in 2022, limiting the proportion of low-deposit lending that banks can undertake. Further guardrails against house prices heating up were introduced in the form of debt-to-income ratios in 2024. These rules have constrained investor activity and curbed speculative buying, reinforcing a more subdued property market. Banks continue to apply conservative serviceability tests, further dampening demand. These will continue to do so, even as the RBNZ is proposing to partially relax LVRs constraints for banks.
It is also telling that the property market has barely responded to a decline in interest rates over the past 14 months. The property market, of course, fizzed higher in the Covid era (when many thought it was a “great” time to buy a house because money was cheap) as the RBNZ’s official cash rate (OCR) fell to a low of 0.25%. Enthusiasm then progressively waned as the OCR went on to peak at 5.5% in July last year. Rates have since fallen to 2.5%, and commercial banks have passed most (but not all) of this drop on to borrowers. However, the reaction of the property market has been lukewarm at best.
A point could be made that around 40% of all mortgage holders are still to come down off the higher interest rates of the past two years. So a lift in activity and prices may be coming. However, households that do refix will be doing so at rates that remain well above the ultra-low levels of the pandemic era (and particularly with inflation at the top of the RBNZ’s target range).
Mortgage rates for the next year or so are likely to sit around 4-4.5%, low by historical standards, but not the 2-3% levels that fuelled the property boom of the early 2020s. Those pandemic-era borrowing rates are unlikely to return any time soon. This is also being acknowledged by market participants. The RBNZ’s latest Survey of Expectations shows that expectations for house price inflation over the next year have continued to cool, and are now sitting at 3.47%, well down from earlier peaks.
The latest figures from the QV House Price Index underscore this cooling trend. Residential dwelling values declined by 0.8% over the three months to the end of October, with New Zealand’s average dwelling value sitting at $902,020, unchanged from a year earlier, but still down 13.9% compared to the market peak in January 2022.
Another potential cap on house prices is that affordability remains a major constraint. House prices in New Zealand relative to incomes are still among the highest in the developed world, limiting the scope for a rapid rebound even as rates fall. For many first-home buyers and would-be investors, the deposit hurdle remains steep.
At the same time that the demand side is encountering headwinds, housing supply is no longer scarce. The post-Covid building boom added tens of thousands of new dwellings across the country. Many of these are now coming to market, contributing to a high level of listings and softening price growth.
Furthermore, residential rents are falling, as evidenced by recent residential bond data from Tenancy Services. This challenges the long-held assumption that rental income always rises in lockstep with inflation or property values.
Against this backdrop, the relative allure of other investment classes, including equities and bonds, has strengthened. This is also while the Reserve Bank is signalling further easing to support a fragile economy, therefore deposit and term-investment returns are declining.
The tide has certainly turned in the stock market. Global equity markets have had a very strong year (as at the end of October the S&P500 has risen 16%). The Kiwi market is also starting to pick up and has risen 14% over the past six months to hit record highs recently. Dividend yields on the New Zealand market now average around 3%, similar to one-year term deposits, and that’s before factoring in the potential for capital growth.
In previous decades, NZ property returns outpaced shares, driven by leverage and compounding capital gains. But those tailwinds have faded. According to CoreLogic data, the average gross rental yield across New Zealand is around 3.2%, broadly comparable with the dividend yield on listed companies, but with far greater capital requirements, less liquidity, and higher maintenance and tax costs.
The reintroduction of interest deductibility for investors may provide some relief, but it’s unlikely to restore property’s former dominance. Net yields on many rental properties remain barely positive after financing, insurance, rates, and upkeep are taken into account. Meanwhile, residential investors face heightened regulatory uncertainty, including Labour’s proposal to introduce a targeted Capital Gains Tax on residential investment and commercial property sales from 2027. The proposed 28% tax on realised gains could reshape investment behaviour. For many long-term landlords, it adds another reason to rethink whether property remains the most efficient vehicle for wealth creation.
By contrast, listed equities and diversified managed funds already operate within clear, predictable tax frameworks. The Portfolio Investment Entity (PIE) regime caps tax at 28%, while reinvested returns compound efficiently over time, without the maintenance, debt, or legislative uncertainty attached to owning physical property.
One of the biggest shifts in recent times has been the growing appeal of diversified, actively managed funds, which blend global equities, fixed income, and other asset classes to balance growth and stability.
New Zealand’s investment culture has long been shaped by property. For many, the first instinct after saving a deposit has been to buy a house or rental. Yet demographic and economic shifts are prompting a gradual change.
Younger generations, priced out of the housing market, are building wealth through KiwiSaver and managed funds instead. They value liquidity, transparency, and the ability to diversify globally. The rise in participation in investment platforms and KiwiSaver growth funds over recent years underscores this trend.
At the same time, older investors are recognising the importance of diversification. With house prices plateauing, rents under pressure, and term-deposit returns falling, many are reallocating capital into income-generating funds that can provide both yield and growth potential.
The New Zealand housing market has entered a new era. Interest rates may be falling, but structural constraints – high supply, slower migration, tighter credit, stretched affordability, subdued rent growth, and (potentially) looming CGT reform, will limit how far and how fast prices can rise.
Meanwhile, falling rates, moderating inflation, and rising corporate earnings are reinvigorating equity markets. Investors who have long relied on property for growth may need to broaden their horizons. For the first time in a generation, the smarter money may no longer be in houses, but in portfolios built for tomorrow’s economy.
Generate is a New Zealand-owned KiwiSaver and Managed Fund provider managing over $8 billion on behalf of more than 180,000 New Zealanders.
This article is intended for general information only and should not be considered financial advice. The views expressed are those of the author. All investments carry risk, and past performance is not indicative of future results.
To see Generate’s Financial Advice Provider Disclosure Statement or Product Disclosure Statement, go to www.generatewealth.co.nz/advertising-disclosures/. The issuer is Generate Investment Management Limited.
