Wealth effect missing as rates fall
New Zealand’s long‑standing playbook of using a housing upswing to drag the wider economy out of a downturn is misfiring, leaving mortgage advisers and their clients facing an unusual mix of lower prices, higher servicing costs, and weak confidence.
Even after the Reserve Bank (RBNZ) slashed the official cash rate from 5.5% to 2.25%, house prices remain about 20% below their pandemic peak, dismantling the “wealth effect” that used to support spending and refinancing. In its February 2026 Monetary Policy Statement, the Bank effectively acknowledged that shift, signalling that it expects house prices to be broadly flat through 2026, with only a modest improvement in 2027.
The conflict in the Middle East is adding to the problem, with higher oil prices feeding into global borrowing costs and limiting how far the RBNZ can cut without stoking inflation.
Nick Goodall (pictured), head of research at Cotality NZ, said the usual relationship between lower mortgage rates and a housing rebound has broken down, Reuters reported.
“It’s sort of been thrown into question now with all the global uncertainty,” Goodall said, noting he had previously expected a pick‑up this year as prices, mortgage rates and incomes found a new equilibrium. “The longer the war drags on, the worse it will get.”
With the central bank now forecasting no rise in house prices this year and two‑year swap rates jumping close to 0.6 percentage point in a month, many borrowers are still facing tighter serviceability tests despite lower headline rates.
Latest REINZ figures echo that subdued picture, with the national median price up only around 0.4% year‑on‑year in February to about $753,000, while sales fell roughly 5% and median days to sell lengthened to the mid‑50s. Together, those indicators point to a market that is stabilising at lower levels rather than rebounding strongly.
Projects stall as employment and confidence weaken
The broader economy is also under pressure. Growth slowed again in the December quarter, with construction activity falling and consumer spending soft, while unemployment has climbed to around a decade‑high 5.4%.
Those conditions are flowing through to development pipelines.
In Auckland, a 56‑storey residential tower called Seascape – intended to be New Zealand’s tallest building – is now in limbo after its developer was placed in receivership. In Wellington, the One Tasman apartment project launched in 2021 remains frozen, with the existing building on site cordoned off but not yet demolished.
CBRE’s director of residential research, Tamba Carleton, said “quite a few other projects were in that situation, where they just had to go back to the drawing board until market cycle timing was more supportive.”
Migration and cost‑of‑living strains weigh on demand
The housing malaise is being deepened by an exodus of higher‑income residents. Statistics New Zealand estimates the country lost about 40,000 citizens last year, more than 60% of them to Australia, eroding demand in some centres and changing the supply‑demand balance.
Retiree Brian Ellis, who recently sold an inner‑city Wellington apartment well below expectations, said the shift in population “has completely changed” the local market, wiping what he described as a “half‑million‑dollar difference” from his retirement plans.
Former project manager David Laing, laid off 18 months ago, said his household has had to strip out everything but non‑discretionary spending.
“From a financial perspective, it definitely feels like the household is going backwards,” Lang told Reuters.
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