KPMG sees 2019 as a key year for house prices following the restrictions placed on overseas buyers late last year and with the current woes in the Australian market

This year will likely be the "litmus test" on the resilience of New Zealand house prices, according to KPMG.

In a section on housing in KPMG's 2018 Financial Institutions Performance Survey, KPMG notes that the housing market finished 2018 on a two paced note.

"Median prices in Auckland were $862,000 in December 2018, up 0.2% on December 2017, showing the market in Auckland appears to have peaked, and has managed to hold on to prices even with significant drops in volume. On the other hand, median prices in New Zealand excluding Auckland were $480,000, up 6.4% on December 2017," KPMG said.

They noted that many economists have said that the house prices in New Zealand often tend to mirror those in Australia, reflecting a similar demand and supply factor.

"However, there tends to be a six-month lag between the trends in the Australian market before making their way across the Tasman and affecting New Zealand. The Australian housing market is currently suffering from a weak housing market, with house prices in Sydney dropping 9.5% and Melbourne’s taking a 5.8% hit. Given this, many are worried that it is only a matter of time before the market in New Zealand, namely Auckland, makes a similar movement.

"Some commentators claim that there are local factors specific to New Zealand that will limit this flow on impact from Australia, being a lack of supply of houses that looks to only increase with time required to build new houses and the high net immigration, and continued record low interest rates.

"However, this logic implies the current market price is ‘rational’, based only on underlying economic factors, whereas ‘asset bubbles’ tend to be defined by their ‘irrational’ factors, such as ‘fear of missing out’. With the restrictions on overseas buyers implemented in October 2018 and house prices struggling in Australia, 2019 is likely to be the ‘litmus test’ on the resilience of house prices."

Loan-to-value ratios (LVRs)

KPMG notes that one factor that may help support house prices is the slight relaxing of Reserve Bank's loan to value ratio (LVR) restrictions from the start of this year.

"In doing this, the RBNZ recognised that while New Zealand households have high levels of debt to income ratios, and this leaves New Zealand vulnerable to global risks, house price inflation and household lending growth appear to have moderated, allowing them to slightly ease these restrictions. This is in line with these measures being a prudential tool that need to be tweaked based on the macroeconomic factors, rather than being a natural countercyclical prudential tool (such as a debt to income ratio limit) that would be held fairly constant," KPMG said.

However, KPMG added that this is unlikely to have a significant immediate impact given the banks already lend well within their existing LVR volume limits "and have historically shown little inclination to push up against limits".

"On top of this, with the probable extra capital requirements for these higher LVR loans and the probable need for significantly more capital, the banks may decide it is not worth undertaking these type of loans."


KPMG notes that while KiwiBuild has promised to have 100,000 affordable homes built by the end of 2028 for first home buyers, in the five months to 30 November 2018, only 33 homes had been built with 77 in progress, showing it might be a while yet until KiwiBuild starts to have a real impact on the housing crisis.

"All of the major banks have already agreed that they would be willing to lend on KiwiBuild homes, with Kiwibank and ASB both offering cash incentives to borrowers to borrow with them, with most of the major banks lowering the deposit threshold to between 5–10%."

Overseas buyers

KPMG said it appears that the ban on overseas buyers of houses, which came into force in October, is already impacting the housing market, perhaps more than expected.

"December 2018 saw the lowest number of residential property sales across New Zealand in the last seven years, decreasing by 12.9% (787 houses), although this decrease was also partly driven by listings being down 13.3%.

"The decrease in the sale of houses for New Zealand excluding Auckland was only 8.2%, whereas the Auckland region seems to be feeling the effect of the ban most, with a much larger drop of 24.3%.

"It will be interesting to see if the effects of the ban, combined with increased consents for housing and KiwiBuild, will finally burst the ‘housing bubble’."

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Very sound piece from KPMG. Unlike most economic commentaries.


Indeed a good article with objective pros and cons.The current Govt has certainly turned away from supporting the frenzy of debt based speculation and cites growing international concerns as the reason to shore It is an interesting dinner topic, what will be the prick that pops the bubble. Will it be as early as Feb and March figures showing a decline, or as late as the national loosing the next election?


I smell the perfect storm continuing to brew. Foreign buyers reigned in, boomers dropping off their perches, kiwibuild hitting its straps with factory setup, little capital gain for negatively geared speculators, rental WOF laggards, professional landlords keeping their powder dry, FHB saving and waiting for lower prices. Pass the popcorn.

Yes, yes, yes, yes, yes and yes. Don't forget the new money laundering compliance requirements.

Those compliance requirements are pretty big!

When I shared offices with a finance group, I was chatting to them about the housing market, foreign buyers ban etc... They said the biggie would be/is the anti-money laundering rules and regulations.

The Anti-Money Laundering rules have already been in place since 1 July 2018 for conveyancers/ lawyers etc, the latest round covers Real Estate agents which I think is a pretty big deal. Especially when you look at the level of compliance required:

Monitoring Customer's accounts to identify potential warning signs of money laundering

.... as a Real Estate Agent?


It’s nice to see one of these reports that actually spells out the “irrational” factors that most economists tend to ignore.

Too often economists stick to the assumption that house prices movements are purely based on fundamentals (supply/demand). The reality of the NZ market is that a huge portion of the “demand” is based on the fear of missing out on tax free capital gains.

Once capital gains dry up or turn negative the demand picture will look very different.

Given some of the factors that are set to hit the housing market (FBB, a CGT, RBNZ capital requirements, near record levels of builds, decreasing immigration, Boomers demographic impact, AU house price falls, increasing likelihood of global growth slowing) ..... it could be sooner rather than later.

Good article. Finally, real acknowledgement that it's a bubble that is likely to burst. Why have there been so few acknowledging this?
"Some commentators claim that there are local factors specific to New Zealand that will limit this flow on impact from Australia, being a lack of supply of houses that looks to only increase with time required to build new houses and the high net immigration, and continued record low interest rates. However, this logic implies the current market price is ‘rational’, based only on underlying economic factors, whereas ‘asset bubbles’ tend to be defined by their ‘irrational’ factors, such as ‘fear of missing out’."

It’s interesting to read economists predictions on Sydney/Melbourne around 2016 explaining why house prices are unlikely to fall as they will be underpinned by low interest rates, high immigration and high employment (sound familiar?) .... you can the track the predictions of 5% falls turning into 10%, 20% as time goes on.

Economists assume a rational market, based on supply/demand has got prices to the levels seen in AU and NZ. They always ignore the irrational factors and are then surprised by the results

Exactly. and f you look back a few years ago, a housing shortage was also one of the reasons given for inflated prices. All sounding very familiar.

The best way to understand/filter an economists predictions is to understand who is paying them.

@Voiceofreason you are literally fake news. You cut the part out where KPMG says:
"With the restrictions on overseas buyers implemented in October 2018 and house prices struggling in Australia, 2019 is likely to be the ‘litmus test’ on the resilience of house prices."
Meaning we are about to find out if prices are supported by fundamentals or if it is a bubble. They are not saying it IS a bubble.

Laminar, according to you prices are supported by the fundamentals and there is no reason to question whether it’s a bubble or not, but they are.
Conservative, mainstream firms like this never come out and say it directly until it’s blindly obvious. Until now, most economists have not even been entertaining the possibility, apart from pointing out the massive income to price ratio is unsustainable in the long run.

You are lying. For the last couple of years I have only ever said that I expect Auckland prices to fall. Just because I point out that you are deceitful does not mean that I think prices are justified at current levels.
Income to price, by the way, lacks explanatory power, it is affordability that drives house prices.

I’m not lying or being deceitful, no need for insults. I thought that’s what you were saying in our last interaction, that the NZ fundamentals had changed and that those changed fundamentals explain and justify the current prices. If that’s not right I certainly misunderstood.
As far as explaining how unaffordable the NZ market is in world terms, for NZ income earners, I assume we’ve both seen the recent comparison graphs on that...

You cut the crucial last sentence from the paragraph, that is deceitful, and then pretended KPMG said it is a bubble.
Affordability can not be easily compared between countries because of preferences, cultural differences, size and nature of properties and such. There are big differences in how people use houses. For example in London people like to go out a lot but in NZ people tend to entertain in their home.
Affordability is most effective at comparing the past to the present in which case Auckland reached a point of peak un-affordability in about 2017 at a level about equal to 2007.
My point yesterday is you are not measuring the 'bubbly' component of the change in price correctly. You must first adjust out the change in prices that was dependent on interest rates. Then you are left with the medium term froth that is a combination of scarcity, foreign competition and often, some overshoot from exuberance. Because you look at the whole of the rise as froth you are very likely overestimating the fall, absent some massive interest rate shock.

Another indicator of the health of the real estate market is RE agents' "Recent Sales" .

A peculiar trend emerging where "Price Withheld" in a selective way. In some instances, price is disclosed & I presume it is where price achieved was good.Something to crow about.

But, in other instances ( & this constitutes the MAJORITY), the price is not disclosed. I can only presume therefore in the majority of cases, the actual sale price was dismal.Far below what the agents may have appraised when they made the sales pitch to hook a listing from owners guillible enough to swallow the bait.

Heh! Heh! Not good for the CV .Not good even to stand on a dungheap & crow!!!

Just check up by clicking on an agent's profile & see for yourself their selective dementia on actual house prices achieved

...…...And they said that foreign buyers have no role in housing crisis in Auckland :)

Still many in Denial mode that the market is not down.

Maybe they want to see steep cut before accepting. Market is falling and one push and the speed of fall may gain momentum.

Nice article So many mixed messages and interpretations of stats in the media. Will be very interesting to see how this year goes. Whats one to do..Im looking to buy in the Waikato...can't sleep the whole family in the car and don't wan't to pay 20k+ in rent p/a whilst waiting..waiting and more waiting.

Interesting to note the 24.3% drop in Auckland sales volume is pretty close to the percentage of Asians living in Auckland. I think the Auckland FB figures were around the 20% mark late last year so the new laundering regulations plus the FBB are starting to kick in big time.
And when was the last time you believed a real estate agent or a government department statistic?

Indeed. Next 12 months will be revealing on Nats lies...its only 3% mateeeeeee.

Land supply, why Auckland is falling whilst the rest of the country is rising.

Phil Goff was elected mayor of Auckland and inherited a land supply shortage. Goff made changes to the Unitary Plan that opened up a vast amount of exurban land supply. That vast new land supply arrived on market in 2018 and now land prices are falling.

Because of fleeing retires and econonic refugees from Akl.

This year defenitely but by April / May only will know the direction of the housing market in NZ.

Starting of 2019 many poperties were listed on good price as agenst were positive or hopefull but it went the other way from Mid January to now but still hopefull and by april picyure will be out.

Even if the market remains stable (Doubtful) is good now for real estate sector but if it continues to fall with no good news than is time to go in hibernation for few years to come and enjoy the abnormal money made during last few years.

Until recently it seems that real estate agents and salespeople have been very bullish. But they don't get paid unless there is a sale, and the sales volumes are pretty low now. So I'm guessing we are going to see them become quite bearish and start aggressively conditioning vendors expectations down.

Has anyone on here sold recently? What has your experience been like?

It's a good question, will be interesting to hear of any experiences