Can New Zealand's economy thrive without a housing bubble?
THE FACTS
- ANZ forecasts a 2% rise in national house prices for 2026, below the 3.1% inflation rate.
- Auckland and Wellington house prices remain significantly below their peaks, with real value declines of 33% and 39%.
- A cultural shift in housing investment attitudes is emerging, with a focus on stable growth and affordability.
Can we finally call time on the era of speculation-fueled house price growth that flattered and distorted our economy for more than 30 years?
Maybe. Things look promising.
ANZ is forecasting average national house prices to rise just 2% in 2026.
That’s at the lower end of forecasts, but given we’ve started the year flat and with January declines in Auckland and Wellington, it doesn’t seem unrealistic.
A 2% rise is below the annual inflation rate (3.1%), which means the real value of house prices will likely continue to fall.
In fact, if we take out the few regions that have maintained reasonable price growth – Canterbury, Otago and Southland – the prospects for a significant turnaround in the rest of the country look pretty meagre.
I’m reluctant to suggest we’ll never see a return to the kind of housing madness that saw house prices rise roughly 600% from the mid-1990s to their last peak at the end of 2021.
These things take time, but time is marching on.
As we head into our fifth year of the property market downturn, it is possible we could be seeing a real cultural shift in attitudes to housing and investment.
Never say never, right?
But there is no immediate prospect of a return to the kind of price rises that drive property speculation.
On the supply side, it seems unlikely that we’ll let the level of new development fall as far out of whack with demand as we did in the early part of this century.
Big moves have been made to unlock new land and allow higher-density housing in our cities.
Even the dialled-back plans unveiled earlier this month keep the path clear for a steady pipeline of development.
On the demand side, there doesn’t seem to be any prospect of a rapid return to the kind of migration-fuelled population boom we had post-Covid, or even the elevated levels we ran through most of the 2010s.
It doesn’t look like low interest rates are going to be enough to turn it all around either.
So far, they’ve made little impact and, with inflation elevated, it doesn’t seem likely that the Official Cash Rate will stay at these stimulatory levels for long.
Last August, I described the current house price correction as a crash, based on the big falls we’ve seen from the peak in Wellington and Auckland.
At that point, Quotable Value data showed Auckland home values were 19.7% below the peak, while Wellington’s were 27.3% lower.
QV data for January 2026 show Auckland prices are now 20.7% below their peak and Wellington prices are 27.9% below their peak.
These falls have occurred during a period of relatively high inflation, which means in real value terms the falls are even larger.
In inflation-adjusted terms, Auckland valuations are down by 33% and Wellington prices are now down by 39%.
Those numbers don’t make for an enticing investment opportunity.
Older investors holding properties may still be buffered by the big capital gains made in the decades prior to 2022.
But those looking at where to invest right now – especially younger Kiwis – are being forced to reassess their attitude to property as the default option.
This is broadly a good thing. It’s a cultural shift we spent years trying to engineer with no success.
For a long time, it seemed unachievable and I think it was probably overhyped as a singular panacea for the New Zealand economy.
Housing investment was demonised as the villain undermining all our productivity issues.
It is probably worth noting that, if we have really knocked the age of mum and dad property speculation on the head, we appear to have done it without a capital gains tax.
In fact, if we’d had a capital gains tax in place for the past four years, it would have been largely redundant.
I’ll just leave that there.
There are other reasons for looking at capital gains and generally broadening our tax base, but I suspect most readers already have a view on that.
Anyway, there is no question that the demise of the economic activity that surrounded the property sector (however frothy and unproductive commentators argued it was) has left a villa-shaped hole in the recovery curve.
I know there is evidence that the wealth effect created by rising propertry prices is largely a mirage.
But Auckland, in particular, is struggling to thrive without the population growth and booming property and construction sectors that underpinned the boom times in previous decades.
As the economy grinds slowly back into growth, we should think of the property market headwind as resistance training.
We are making the economy sweat.
It will be fascinating to watch and assess what a recovery in the absence of a property boom looks like.
It’s something I’ve never seen in my working life.
Will we see a more productive allocation of capital to business? Will we see some real wealth creation?
I hope so.
Housing affordability will continue to improve, albeit slowly.
We may start to see some social benefits flow through.
I certainly don’t think this shift will solve all of New Zealand’s economic problems.
But if we can achieve stable growth with lower unemployment and higher wages without falling back on the familiar props of high immigration and housing bubble, we will have achieved something significant.
We’ll have created a more solid foundation on which to build our long-term economic goals.
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
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