Housing Affordability Improves but OCR Risks Remain

Nick Goodall (00:01):
Kia ora and welcome to the New Zealand Property Market Podcast, brought to you by Cotality for the 24th of August 2026. I'm Head of Research, Nick Goodall, and today I'm joined, as per usual, by Chief Economist Kelvin Davidson. Kelvin, the Taniwha are Ranfurly Shield holders for the first time in my life. And the All Blacks have somehow pulled off their biggest ever win at Ellis Park in Johannesburg in South Africa. But as much as I'd love to turn this into the New Zealand Rugby Podcast, we probably should stick to property, at least to start with anyway. So kick us off, mate, by taking us through the release of the housing affordability report which went out last week.

Kelvin Davidson (00:39):
I'm never saying buying a house is easy or renting a house is easy. That's the thing I want to get in right at the start. But we've seen a big improvement in the last four or five years. Obviously, falling and flat house prices, lower interest rates than they were a couple of years ago, rising wages, flat to falling rents—all of those things inevitably have led to an improvement in housing affordability to the point where across all our measures we're actually back down to long-term averages or even slightly below on some of the measures. It's a good news story if we want sustainable housing affordability over time.

It's been a national hand-wringing exercise in the last two or three decades that we've got this housing affordability problem. Actually now, we're back to some kind of normality. Across the measures: the value-to-income ratio is 6.7 on the latest numbers, which is where it's been on average since 2004 when our measures started. Mortgage payments as a share of median household income—this relates to a reasonably new mortgage with a 20% deposit spread over 25 to 30 years—takes about 40% of gross household income now to service that debt. The average there is 42%, so that's better than average. Years to save a deposit is back down to 8.9 years; still a lot of course, but the average there is nine. And then renting currently takes about 25% of gross income, and that's bang on the average as well.

All of them have improved back to that position where you might call them normal. There are still going to be challenges for people, but in a long-run context, this is actually the best position we've been in for quite some time. Regionally, Auckland and Wellington amongst the main centres are more affordable than normal, which makes sense with big falls in house prices and rents. Markets like Christchurch and Dunedin have improved, but not to the same extent. On the flip side, markets like Invercargill and Queenstown, where house prices are more resilient or rising, haven't seen affordability improve much at all.

Just a couple of caveats. I am conscious for renting households that they may well be paying the average rent, but perhaps don't necessarily have the average income. What that would mean in reality is that the rental burden is higher than what these numbers suggest. But looking at it apples for apples through time, there has been a big improvement. It got a lot of media coverage.

I don't think it necessarily means we're suddenly going to emerge into a big housing boom just because affordability is back to normal. But it does suggest that this downturn has seen a big adjustment already, which probably limits scope for further falls in house prices to any great degree. It probably sets us up for some kind of upturn if and when we get unemployment coming down, interest rates a bit more stable, and more economic certainty. We're in this holding pattern now.

Nick Goodall (05:22):
Absolutely. I'll leave a link to the full report because it covers every single part of the country. I just want to ram home the point about relativity. Yes, the raw number matters, but it is more about that number in comparison to history and across different regions. Wellington is now the most affordable of the six main centres, requiring 33% of income to service a mortgage.

Tauranga is at 47%. The thing to note is that this measures income to service a mortgage like a first-home buyer. For Tauranga, we know house prices there are sustained by wealth, not income. If you live there with a higher ageing population, your income is really low if you are relying on superannuation, but you might have no mortgage. So it looks really bad on that measure. For areas relied upon based on wealth and not income—like Tauranga, Thames-Coromandel, Queenstown, or Taupō—these areas have crazy high numbers. Queenstown might be in the 80s because tourist workers are renting, while the owners have no mortgage or use income from elsewhere.

For most cities, you can use this as a decent measure. Wellington is 33%, Auckland is 43%. Christchurch is 40%, because prices are cheaper than Wellington but incomes are lower, and prices haven't declined as much. We also need to acknowledge there is no adjustment for the quality, age, or size of the property. For 33% of your income in Wellington compared to 40% in Christchurch, you might be getting a newer, better property in Christchurch that requires less maintenance. Also, if Wellington continues to be less attractive because of reliance on government jobs, it won't attract buyers simply because the numbers look good on paper. Local economic context is critical.

Kelvin Davidson (12:01):
Hopefully that got the message across.

Nick Goodall (12:04):
Let's move on to the macroeconomic data. The selected price indices data last week was slightly lower than expected, so good signs that inflation might not be as bad. We got card spending data in July which was up, and the Performance of Services Index looked a bit stronger as well. What does this mean for the Official Cash Rate and Monetary Policy Statement next Wednesday?

Kelvin Davidson (13:11):
That snuck up on me as well. Cameron Bagri used to say "good news is bad," and possibly that's what we're looking at now if you're a mortgage holder. Selected price indices were better than anticipated—food price inflation wasn't as strong, rents are sluggish, household energy didn't go up as much. Inflation is still above the 1% to 3% target, but softer than feared. Electronic card spending was up in July, though it is nominal and doesn't adjust for price changes. The Performance of Services Index was slightly above 50 for the second month in a row.

Inflation being softer is good if you don't want the OCR to go up. But if the economy is showing signs of recovery through retail and services, the Reserve Bank doesn't have to worry about the economy stalling. That removes an impediment to a higher OCR. The Reserve Bank has an underlying idea that almost whatever is happening, they want to get the OCR back to neutral to fight second-round inflation risks down the track. I don't think this data changes much; it probably still argues that there is no real impediment for another cash rate increase next week.

Nick Goodall (16:58):
There is probably enough in there for people to argue there is no need for an extra increase, but given the rhetoric in their statements, they seem determined to get to that neutral rate. I do expect us to be at that neutral level next week.

Another thing is the Chart Pack is out this week, wrapping up all the key data points from July, including the sales data and buyer classification series. That will be public on Thursday. Anything else on your mind, mate? Otherwise, I'm champing at the bit to chat some rugby.

Kelvin Davidson (18:33):
No, that's it. The sales data is the hero set in the Chart Pack, showing it is just so cautious out there with a downwards drift. People watching on video will know what your key topic is based on the shirt you're wearing.

Nick Goodall (18:54):
Let me go. The Taniwha taking the shield from Canterbury on Thursday night—and not just taking it, they smashed them. I am still almost in disbelief. I've watched us get pantsed and lose shield challenges. We absolutely killed them in the scrum. There was joy in my house; my kids thought I was crazy. Rob Rush was a man possessed. 48 years since we've had it, never in my lifetime. I've looked at flights to go home for the first defence against Tasman on Sunday.

Kelvin Davidson (21:41):
It was awesome. It's the draw of the Ranfurly Shield, getting it around the smaller unions for parades. I was stoked for you. Let's hope they defend it and keep it for a couple of times at least.

Nick Goodall (22:16):
You don't want to be the team that loses it the first time. The Shield is going all over Northland on parade. So many of these guys are homegrown Northland lads playing for their region. They embraced the community in the lead-up, and you could see that desperation and passion on the field.

We can't move fully on from rugby because we had the All Blacks game yesterday morning at 3:00 a.m. The All Blacks hung tight despite being dominated at the breakdown and the scrum. Then in the final 25 minutes, the bench was incredible, Jordie Barrett is a machine, and Will Jordan created the break for McKenzie. The All Blacks stayed close and made them pay later on. Your thoughts, Kelvin?

Kelvin Davidson (26:24):
It was awesome. Five tries to one feels like a dominant performance on paper, but if a few things went a different way it's a very different game. Jordie Barrett was outstanding in defence. Also, the Raiders are out of the NRL now, so up the Wahs. I'm on the bandwagon until next year. What a weekend of triumph.

Nick Goodall (27:27):
The Black Ferns smashed the Australian Wallaroos again, too. For the All Blacks, we've seen the selected team for the Lions midweek game with Richie Mo'unga back at 10. The Warriors got the drop goal to get a better points difference than the Panthers, and the Tigers upset the Roosters, meaning the Warriors are top of the table with two games to go.

I do have to stop. We are not the New Zealand Rugby Podcast. Thank you for your thoughts and insights, Kelvin, particularly getting that Affordability Report out there. Thanks very much for listening, especially if you lasted through my passionate rugby round-up. Please get in touch with questions or feedback, or if you're from Tasman and keen to take the Shield this week. My name is Nick, he's Kelvin. You've been listening to the New Zealand Property Market Podcast. Mā te wā.

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