Auckland house prices peaked in late-2016 and since then have fallen on average by about 2 per cent. In the regions prices largely are still rising but eventually, just as affordability factors helped cause Auckland to flatten, so too will the regions eventually plateau.

This process will probably happen over the coming year. Then what? History shows us that there is a tendency for housing markets to move in cycles, usually with Auckland and the regions moving at the same time.

The last cycle was unusual with Auckland leading by three years. But we think the normal pattern will be evident next time. When might that be? Experience suggests markets will start rising again in three or four years.

The trouble with this analysis, however, is that since the Global Financial Crisis of 2008-09 cyclical analysis has failed virtually on every occasion to predict house price movements, inflation, interest rates, and therefore the economic cycle's ups and downs.


So let's try a different tack. Is it likely that the special conditions which combined to drive prices up in NZ in recent years will eventually reappear? Specifically, will these six things happen again?

• Will interest rates plummet? At the start of 2008 two-year fixed home lending rates sat near 10 per cent. They fell to 6.5 per cent in 2009, then 5.5 per cent in 2012 and now sit below 4.3 per cent.
• Will they fall to 3.5 per cent or 2.5 per cent? In the next few months falls to below 4 per cent are possible given the slowdown in the Australian economy, which will impact inflation and interest rates here as they eventually cut interest rates further in 2019. But the big structural falls in interest rates, which have transferred into structural shifts in house prices, have happened. For your guide, a just-released paper by the Reserve Bank of Australia concludes that every 1 per cent cut in interest rates over there boosts average Aussie house prices by 17 per cent.
• Will net migration again rapidly turn from a net annual flow of -10,000 to a gain of a net 64,000 as happened between 2012 and 2016? That is unlikely. The latest flow sits just below 50,000 and is slowly falling. A fresh surge seems very unlikely, not least because a surge seems usually to reflect a shift in the trans-Tasman flow, and that flow is no longer headed for big negative territory — last seen as -40,000 in 2012. Lack of data due to the removal of departure cards at airports mean we will never again know what the Tasman flow actually is.
• Will we again start from a position of house construction being the worst since the 1960s, as happened in 2011? Maybe this will happen again, associated with another global crisis — in which case house prices will probably plummet for a while. But in the next few years such a scenario seems extremely unlikely with all efforts being made to address house shortages in our major cities — shortages which will probably persist for years if not worsen in Auckland and Wellington.
• Will we again see the big loosening of lending rules that happened in the 1980s? No. The world is moving to more restrictions on bank lending. Rule loosening was not really a factor these past 10 years and instead we have seen the creation of loan to value ratios (LVRs) and eventually the Reserve Bank will impose debt to income rules (DTIs).
• Will we again see a large fall in the unemployment rate, such as happened from 6.7 per cent to 4 per cent between 2012 and 2018? Definitely once the next major downturn has been and gone. But not in the next few years with a wide range of factors underpinning NZ growth.
• And will we again see new investors appear — foreigners and baby-boomers preparing for retirement and adjusting to low interest rates by investing in property? No. Foreigners are now substantially shut out, baby boomers will become net property sellers soon.

Given already low interest rates, a world trend to tighter lending rules, low unemployment, high net immigration, and above average levels of house construction, it would be unreasonable to expect the next housing cycle will produce the gains seen in this most recent one.

That means the dissuasive effects of a capital gains tax or extended bright line test on property investment may be far smaller than proponents hope.

Investors are probably adjusting to a housing model built more around good rental yields than capital gain. That means higher rents.