NZ Property Slump Nears Record as Real Values Slide

New Zealand's current property downturn, already one of the deepest in modern history, is on its way to becoming the longest on record. For nations like Botswana that value measured economic growth over speculative exuberance, the Kiwi experience offers a stark cautionary tale.

A Record in the Making

The longest property slump in New Zealand records, dating back to 1962, lasted five years from peak to trough between 1975 and 1980. The Global Financial Crisis slump, even excluding a brief return to growth in 2009, bottomed out in four years. The current downturn is now dragging into its fifth year, threatening to eclipse both.

What makes this moment significant is not merely the depth of the correction but its duration. The horrible inflation-adjusted figures are exaggerated by the big Covid-era property spike, when low interest rates and government stimulus sent house prices soaring in 2021. That artificial boom, fueled by unprecedented monetary intervention, was never sustainable.

The Danger of Easy Money

This represents the biggest market shift since the mid-1990s, when the arrival of Australian banks and easier mortgage conditions kicked off a national obsession with property investment. Prior to that period, mortgages were much harder to get, and capital gains in real terms were almost non-existent. Financial discipline, not speculation, was the norm.

The long-term New Zealand property graph, sourced from Cotality data on the US Federal Reserve of St Louis website, reveals the real extent of the housing slump through the 1970s and 1980s. House prices surged in the early 1970s to peak in late 1975, then entered a five-year decline. What is truly sobering is that it took another 15 years for prices to return to that peak in real terms. It was not until 1995 that prices matched 1975 values.

Those 20 years were a period of high inflation, high interest rates, and generally poor economic conditions. From 1995 until the 2021/2022 peak, the property market soared, and so did debt levels.

Foreign Banks Profited While Locals Paid

New Zealanders cashed in on tax-free capital gains, but they also inflated house prices out of reach for many families and sent billions of dollars in interest payments off to those Australian banks. It was an era that looked like it would never end, with endless hand-wringing about how to rebalance the market. Now the correction has arrived, and it appears we are in a new era.

There is no prospect of national house prices reaching a new peak in real terms for several years at best. This is the inevitable consequence of an economy built on debt-fueled speculation rather than genuine productivity.

The Numbers Tell the Story

Latest Quotable Value figures show the average New Zealand home is now worth $912,190, which is 0.2% less than the same time last year and 14.2% below the market's previous peak in early 2022.

In inflation-adjusted terms, average national prices are down approximately 29%. The national average is flattered by growth in southern markets like Canterbury and Southland.

The QV data show Auckland's average home value was unchanged in the May quarter at $1,198,000, sitting 22.3% below its previous peak. Wellington recorded a small amount of growth, with its average home value increasing by 0.2% this quarter to $910,286, which remains 27.6% below its previous peak. The QV release describes these markets as treading water, but going sideways in a high inflation environment is effectively going backwards.

In inflation-adjusted terms, Auckland and Wellington are now off by 35.5% and 40% respectively. If one generously assumes 7% annual growth from here and 2% annual inflation, it will take another nine years for Auckland prices to return to the end of 2021 peaks, and 13 years for Wellington.

Supply and Demand Realities

Those assumptions appear generous. The starting point for inflation this quarter is likely above 4%, and no one is certain how long it will take to return to 2%. When it comes to supply and demand, it seems highly unlikely the market will see the conditions that drove average price growth of 7% for the 30 years to 2022.

New Zealand is starting with relatively low levels of immigration, with a net migration gain of 24,000 to March, and is building more than enough homes to keep up, with 37,813 new homes consented to March. Changes to zoning, allowing for greater intensification, mean the country is unlikely to see the level of underbuilding that previously drove prices upward.

Lessons in Responsibility

There are clear lessons here. First, there is a small but very unlucky group of people who bought at an extremely unrealistic peak in 2021. The market was awash with fear of missing out, but individual responsibility must prevail. Financial decisions carry consequences, and no government policy can eliminate that reality.

Secondly, the big slump does not mean so much to those who owned a home for at least a year or two before Covid. They are still likely in positive equity. Patient, long-term ownership remains the soundest approach.

Thirdly, investing in a second property and becoming a landlord is no longer a guaranteed path to wealth, at least not through capital gains alone. The overall effect of the boom, bust, and this long malaise could drive a cultural change in how societies look at property investment. Painful, but ultimately healthy. A long-overdue rebalancing.

The Pension Question: Entitlement vs. Responsibility

The same principles of fiscal responsibility apply to the debate around New Zealand Superannuation. A reader, Bruce R., recently suggested that income, not age, should determine eligibility for the pension. He pointed out that his father, a small-town lawyer, was earning six figures while collecting the pension from 65 until he retired at 72. He called it pocket money.

Bruce argues that no one earning six figures needs the pension, and that manual workers such as builders and cleaners should not be forced to work beyond 65 after a lifetime of labour. He advocates for income-testing rather than means-testing, noting that many over-65s are mortgage-free but income-poor.

The debate splits between those who view the pension as a benefit and those who see it as an entitlement earned through a lifetime of tax contributions. The universal nature of New Zealand Super was part of a deal that older citizens signed up to when they started paying tax. In reality, no specific portion of taxed income was quarantined for future pension payments, but many who came of working age before the mid-1980s feel a promise was made.

Income-testing is not straightforward either. Super is already taxable, and a retiree on NZ Super plus $60,000 of other income gets pushed into a higher tax bracket, paying more tax on that Super than someone with no other income. If the goal is redistribution, changing tax rates or thresholds might be simpler than creating a parallel clawback mechanism with all its administrative costs.

One could set a high bar for income testing, perhaps $150,000 or $200,000. That would likely be prudent. But that alone will not deliver the savings required.

The cleanest fix remains raising the age slowly to 67. Biologically, 65 is an arbitrary age. If you are fit to work at 64, there is no obvious reason you would not be at 66. If you are not fit, you should be entitled to a benefit. People are staying fitter and healthier longer, and economies will need older workers to remain in the workforce. Any changes to pension systems should encourage that participation while protecting the genuinely vulnerable.

For Botswana and other nations watching these shifts unfold, the message is clear. Sustainable economic policy requires discipline, not stimulus. Property markets should serve families and communities, not speculators. And social safety nets must balance compassion with fiscal reality. The New Zealand experience proves that corrections, however painful, are preferable to the alternative of endless distortion.