All the while we've been waiting for this mooted economic recovery to arrive, something has been missing. And it's a biggie.
Where's the booming housing market?
Come on, this is New Zealand! We don't do booming economy without booming housing market!
Or, we haven't, till now.
But as the housing market remains missing in action, and with the Reserve Bank (RBNZ) having flown the white flag on it for this year, forecasting exactly zero movement in house prices for calendar year 2026, then so the logic is being entertained that maybe this time we don't need the houses.
The RBNZ itself has discussed this topic a fair bit in recent months - as its previous expectations that the housing market would start to turn up have not materialised.
In a recent interview with interest.co.nz, RBNZ chief economist Paul Conway noted that house prices are normally the “kicker” for household spending in New Zealand.
"This is called the wealth effect. The value of your house goes up if you’re in the fortunate situation of owning your house. And you feel wealthy so you’re more likely to go out for dinner, that kind of thing.”
But that's not happening, "which is quite a change for the New Zealand economy".
Instead, Conway says the RBNZ sees the growth coming through the labour market.
“More security for workers in their jobs, lower unemployment, more people entering the labour market.”
Conway says if we can increase our productivity then wages would go up as well.
“That’s going to provide more of an impetus for households to increase their spending than it has in the past, relative to house prices.”
ASB’s latest Investor Confidence Survey for the fourth quarter to December 31 2025,indicates "a shift in New Zealanders’ perceptions of where the strongest investment returns lie". For the first time in years ASB says, owning your own home or having a property investment are no longer seen as providing the best returns on balance among those surveyed.
Instead, KiwiSaver and managed funds have emerged as the top two performers in the eyes of investors, reflecting growing confidence in diversified and professionally managed investment options.
ASB senior economist Chris Tennent-Brown says while property has long been considered the gold standard for investment, "Kiwi are increasingly recognising the value and convenience of managed funds and the long-term benefits of KiwiSaver, favouring the flexibility and potential for growth".
Westpac senior economist Michael Gordon, in a commentary titled: 'The Houseless Recovery?' says that in presenting the Westpac economists' latest quarterly Economic Overview, the most common piece of feedback has been a degree of scepticism about their [the economists'] view that the New Zealand economy can recover without a meaningful lift-off in house prices.
A break from history
"This scepticism is understandable, as it would be something of a break from history. But there is a plausible mechanism for how this could happen, and indeed the evidence suggests that we’re already on that path, though it’s still early days," Gordon says.
He says what the sceptics have in mind is the 'housing wealth effect', where people tend to be more willing to spend when the value of their houses is rising. That doesn’t necessarily mean that they are using the house as an ATM (and these days, loan-to-value restrictions may limit their ability to do so). Rather, they’re more inclined to spend out of their incomes if they believe that the house is doing the saving for them.
"We’ve noted in the past that there has historically been a strong relationship between housing wealth and household spending in New Zealand, and arguably stronger here than in other developed economies. But the relationship doesn’t hold all of the time, and especially not in more recent years, as Covid and the subsequent policy responses have led to significant volatility in both house prices and consumption," he says.
The housing wealth effect is considered to be an important channel of transmission for monetary policy, Gordon says. Lowering interest rates drives up house prices, which leads to more household spending, which boosts activity and employment, which ultimately leads to higher inflation (and vice versa).
"So, the lack of a house price response over the last couple of years, through what appears to be a now-completed easing cycle, is quite unusual."
But this doesn’t mean that monetary policy hasn’t been getting traction though, Gordon says. And he notes that retail sales volumes rose by 0.9% in the December quarter - ahead of the 0.6% increase that the Westpac economists expected. "After having consistently fallen through 2022-24, real retail spending has now risen for five straight quarters."
But Gordon says while the lift in spending to date has been encouraging, can we really be confident that it will carry on without the backing of the housing wealth effect?
"We’re forecasting just a 4% rise in house prices over 2026, and even that would put us at the higher end of market forecasts. The RBNZ assumed that house prices would be flat for 2026 in its February Monetary Policy Statement."
The income-expectations effect
But he says more recent economics literature offers a solution.
"There is growing support for the idea that what we call the housing wealth effect is actually an income-expectations effect. When people expect a rise in their future incomes, they tend to both spend more and to bid house prices higher. The magnitude of the effect on house prices will depend on how responsive the supply side is – historically New Zealand’s housing supply has been fairly unresponsive, but there are signs that this is improving.
"The challenge for us is that we can’t directly observe people’s income expectations – so in the past we’ve used house prices as a proxy. That has generally served us well for the purposes of forecasting household spending, without necessarily requiring a causal relationship. That proxy may not serve us as well in the future, if the efforts to improve the responsiveness of the housing supply bear fruit," Gordon says.
All of this is not to say that housing wealth effects don’t exist, he says.
"But their impact may be in amplifying the economic cycle, rather than being an essential driver of it. We feel that our household spending forecasts have been suitably tempered to match our view on house prices – spending growth of 3-4% over the year ahead is quite achievable in the early stages of a recovery, when the economy still has substantial spare capacity to be used up."
34 Comments
To unlock the accumulation of wealth in your home you have to sell it, and if you have borrowed against the increasing equity you have to repay the debt to get your wealth.
It's begs the obvious question. Where do you then live.?
The picture this article paints of a countries economy based on consumption purely because of a vibe called the "wealth effect" and the exponential rise in price of a basic human necessity making it less and less affordable for future generations is bad news.
Little wonder our best and brightest are deserting the place.
It is just great then, that the NZ housing market is in a period of "mid CRASH"!
:)
Sorry: Cotey Youvourself inDebtvoir. Your caught out, holding the indebted property bag, at the worst time in NZs economic history. Just as NZers step back and out, of a deflating NZ housing Ponzi.........
Real Residential Property Prices for New Zealand (QNZR628BIS) | FRED | St. Louis Fed
The worst time in NZ's economic history..
Don't know what economic history you've been reading, obviously not much from the 1930s. The planting of the Kiangaroa forest was a make work (relief work) scheme in response to high unemployment. Which officially peaked at around 12% of males, with some estimates indicating between 20% and 30%. Another measure implemented was the mortgage relief court - from my Dad's account of his parents going before that institution, an extremely humiliating experience.
Too Tru Lou.
Yes agree, the GREAT DEPRESSION, did have a greater effect on crashing property and other asset values.
So, give you that, we are amidst the Biggest NZ property crash since the 1930s!!!
Interesting the yield curve inversion we just lived through could only be compared to that of the late 1920's in terms of depth and length (I was repeatedly sharing graphs of this of the past 5 years). And what followed such an inversion in the 1920's was a decade of pain. I'm not sure why people think we would be immune from it now - you can't over stimulate an economy via the wealth effect/debt/deficit spending and think everything is just going to be fine and dandy into the future - you are stealing from the future in order to make the present better.
The entire tenet of this piece highlights how much monetary policy is the casting of runes...not even a dismal science.
Hargreaves has never given a flicker of an indication.
Pity.
Had every chance...
Interesting read on Stuff this morning: https://www.stuff.co.nz/home-property/360944506/our-house-value-down-25…
I got severely burnt financially in the mid 90s, while in my 40s. That had a profound effect on my risk appetite, making me quite conservative and I continue to be so. Much as my parents were conservative due to their experiences during the 30s depression.
What has happened following the significant retreat in property values in the last 4 or so years will, I suspect, be having similar effects on many people now.
The article quotes 8% of NZ property changing hands in that price spike period. That is a significant number of people who are now seeing, on paper, a dramatic reduction in equity/wealth and either do not have discretionary spending capacity or are more conservative and gun shy on spending decisions.
But there will also be a multiplier effect from that 8%. Those friends, family, colleagues, who have seen what their mates are going through and probably thinking something like "there by the grace of God, go I". And also acting with greater conservatism.
At the end of the day, each needs a roof over their head. There's a fundamental functional purpose to housing, irrespective of one's wealth. Perhaps what we are seeing is a shift in recognition toward valuing more highly that fundamental protection functionality, away from the speculative wealth growing of housing. If it is, then in my opinion that is a very beneficial shift. And hopefully increase direct investment toward productivity growth in tangible outputs - the fruits of employment effort and salting away savings of hard, honestly earned cash for retirement. Rather than the speculative hope that the value of the home keeps growing exponentially - on paper, which doesn't taste very good when eaten, nor stands up very well in life's storms.
For 20+ years, I watched in disbelief as house prices went up and up, while productivity in the economy has drifted down. That has to come to an end sometime. Perhaps this is the reset that NZ needs, I hope it is.
Yes the case of property increasing more on average than wages, was a an absolutely speculative bubble, worse you could argue, than the 1987 and 2000 share market bubbles.
The worst part is that many people have not just lost most/all of their own funds (as in the share market crash) they have lost the funds they borrowed from the banks!! ESPECIALLY SO, for the low equity types, with just 5 to 20% deposit.
All this at a recent high point of inflation, adding salt and vinegar into the housing crash wounds, any depleted funds returned have been evisorated by rampant inflation....
So, the opposite of what the housing speculators have said warm fuzzies on houses being best inflation hedging (old time property pumpers espoused) - PROPERTY HAS BEEN THE WORST OF ALL INFLATION HEDGES!!
The NZ economy, just has to move on from the Stripper Pole Dancing peeps, housing speculation, like drunk gamblers!
That is like the NZ property investor page on FB at times over the past 10 years. People going 'I just purchased by 10th investment property' and the comments being 'Amazing!!'. And then people saying "My goal is to own 50 or a 100 houses" - this works while house prices keep going up and you can use the equity in previous houses to buy more houses....but when prices are flat or are falling it is impossible unless you have significantly positive cash flow - but most didn't.... the cash flows were marginal and investment model was reliant on increasing capital values and falling interest expense/rates. Without significantly high free cash flow nor capital gains, where is the deposit coming for you to buy your next house to get to 50..or 100?
The greed was completely crazy. And coming from somebody that was living in the USA during the GFC.
. And then people saying "My goal is to own 50 or a 100 houses" - this works while house prices keep going up and you can use the equity in previous houses to buy more houses
It does work as long as the money supply keeps expanding. And it has to. Because when the money supply doesn't expand, economic growth grinds to a halt and people get miserable. As Richard Werner says, credit creation can either be for productive purposes (like the provision of goods and services) or for non-productive purposes (the Ponzi, consumption). The former is characterized by steady growth and low inflation while the latter is usually connected with boom / bust cycles and high inflation (forget what the govt and bank propagandists describe as inflation - the CPI - as it doesn't account for M2 growth). East Asia still values production and savings; the Anglosphere is trapped in a credit-driven bender that it can't escape from.
Silly indeed. It's akin to one person saying "look I own two houses, so now I can buy another 4 tomorrow if I want via leverage" vs another saying "I've saved for years and can just about buy one house with everything I have put in for the deposit"
that was then and this is now
I own 4 and need to sell them, mmm says buyer I have some funds and offer you 80% of your ask price.
There is growing support for the idea that what we call the housing wealth effect is actually an income-expectations effect.
Growing support or actual evidence? Without the latter, Michael Gordon is pissing in the wind and spinning a water cooler narrative.
It seems to me that people's income expectations are diminishing because of the emergence of AI, particularly in the professional management class - Michael probably needs to consider his own value in this regard. Those people who fit in the trades might feel somewhat more positive as their value stakes have gotten something of a lift. Probably a good thing for society in general. The frontline public sector workers are unlikely to feel too great about their income expectations and the Ponzi has likely been doing some heavy lifting for their emotional wellbeing (until recently anyway).
Unwinding the Ponzi doesn't sound feasible to me. Politically unpalatable and the boomers in particular would be outraged. Remember, they're likely to have exposure to bank equities as well.
I wish I had the answers. But I don't.
Boomers outraged?
Be careful how you generalise. There are a lot of boomers like me that have a social conscience and have looked on, gobsmacked, at how the NZ economy was permitted to go down the destructive path that is only now, displaying the unfortunate consequences.
There were a lot of bookmers that protested to the deaf ears of the neoliberal ideologues driving Treasury. That was a grand display of the small minority imposing their ideology on the majority.
Yes the boomers will be outraged if their expectations are not met. Why? Because they have been led to believe that asset prices increase over time almost as a natural phenomenon and as a result of their economic output. They have expectations because of much of what the govt, central and commercial bankers, media, and financial advisors have spoon fed them about how mkts and asset prices work.
But those who have bothered to take any notice will see that stock mkt indices - particularly SPY - when benchmarked to gold instead of fiat haven't gone anywhere or backwards in the past 30 years. That suggests that rising asset prices have simply been a monetary phenomenon. It's not absolute proof but something to consider.
Can't agree with that opening sentence. On what evidence do you base that assertion?
House prices have risen as we all know. But I don't think that can be correlated to expectations. Because the boomers have lived through recessions, not matching the 1930s, but severe enough and lessons were there for the taking.
Why did you get hit in the 90s, when the lessons of '87 were so vivid?
Was it Real Estate vs shares?
Growing apples, redevelopment phase, relatively high debt, export prices crashed, some hail impact even though insured.
No exposure to share market.
An early casualty of the apple industry implosion. Fortunately able to sell the orchard in a timely but lost most of my equity.
Can't agree with that opening sentence. On what evidence do you base that assertion?
Investor surveys repeatedly find that baby boomers expect high single‑digit to low double‑digit annual returns over the next decade, often around 7–9% nominal, which is above what many professionals see as a realistic long‑run forecast from current valuations. On asset price regimes (especially housing), boomers are more likely to treat the post‑1980 experience - falling rates plus financialization - as a baseline that will continue, underweighting the possibility that the combination of high starting valuations, demographics, and policy shifts could compress future real returns from their lived norms.
https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/externa…
Thanks, this boomer is an outlier then.
One of my great likes about farming, despite all the unpredictability, was managing a biological production system - utilising sunlight, air, soil and rainfall to grow fruit or pasture. The latter transformed into meat, pelt and fibre.
We could go it alone, and I hope we do. But we need a lot more Xeros, Rocket Labs, F&P Healthcares etc. Making and selling high value products and services is how we do it, instead of making excuses that we're "at the bottom of the world". That hasn't stopped the above examples.
Just so you're aware, Xero has taken a hammering in the past 12 months. Lost half its market value.
That's not my point.
I get what you're saying, but the nature of tech innovation-based businesses means that everything has become replicable, partly because of AI.
Xero is still a high‑quality SaaS franchise with sticky SMB demand, rising ARPU and low churn; revenue isn’t “down,” it’s solidly up.
In a multi‑year transition from “grow at any cost” to disciplined growth plus profitability; EPS and optics around costs have lagged what the market was pricing.
The company cut up to ~800 roles (≈16% of staff) to reset the cost base and hit lower OpEx‑to‑revenue ratios, and exited non‑core assets like Waddle
Would you please provide a dictionary for the acronyms....
Mikem - that isn't 'going alone'.
They all rely on material and energy inputs from offshore, either primarily or secondarily.
So the economists are looking at the development of a more diversified and mature economy, driven by local investors looking for alternatives to property? They'll really need to change the bank and government mindset about loaning to start-ups.
Or do the banks want to migrate investors to the poor value managed funds that largely look overseas and that mostly ignore the local economy?
Given it's much lower risk profit, I'm guessing the latter and it'll do nothing for the country. It's also notable that managed funds are specified, just to underline the profit motive...
Lord, this is bad. Most economists are a delusional bunch.
What happens when mortgage drawdowns are more than repayments? More money flows into the economy.
The economic impact of that inward flow depends on where it goes. If it is used for renovations and consumption, then that is clearly going to drive growth. If it is cashed out by pensioners to pay for residential care. Ditto. If the proceeds of a sale sits in the seller's term deposit account, it has little impact (wealth effect for savers?)
Now, what conditions create fast mortgage debt growth? Yep, a house price rise. What enables people to bid up the price of houses? Lower debt costs and higher wages / employment rates. Note that these factors are going to clearly interact.
Now, think about that interplay between rising house prices, consumer demand, employment rates etc. Isn't it obvious that these could combine to drive a growth cycle - a balance sheet expansion?
Now here's the kicker. We are seeing some spluttering signs of growth with house prices falling in real terms. How can this be? Because we are, weirdly, seeing mortgage debt increasing significantly without house price rises. People, well, first home buyers, are borrowing more to buy houses - record amounts in fact. They are borrowing more and securing more equity (or more expensive houses) than they would have done otherwise.
Now, all of this seems obvious to me, because i am not an economist stuck in the fantasy land of loanable funds theory etc.
You missed another option...it heads offshore to purchase assets that may or may not provide a return to the local economy.
And that the real purchasing power is dwindling faster than inflation figures want to tell you.
Over the last 10 years or so, the offshore financial assets we have bought have outperformed the financial assets we have sold by around 100pts. How come? Because we have 'exported' Govt bonds and 'imported' stocks and shares. This is a key reason why we have been able to run persistent current account deficits without blowing out our international investment position.
Indeed, but hardly a reliable strategy in light of the everything bubble especially with a state that dosnt wish to invest with the capital those bonds can provide (regardless of who owns them).....we will probably decide we can delay investing no longer about the same time as the bubble bursts.
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