NZ vs AU Property: Lessons From NZ’s 17% Fall

Nick Goodall (00:00): Kia ora and welcome to a special Trans-Tasman edition of the New Zealand Property Market Podcast, brought to you by Cotality. I'm Nick Goodall, Head of Research for Cotality NZ, and today I'm joined, as per usual, by Chief Economist Kelvin Davidson, but also by Tim Lawless, who is the Research Director of Cotality across the Asia Pacific region. Tim, thank you so much for coming on the podcast. It's been too long without having you on. How are you doing, mate?

Tim Lawless (00:25): Thanks for the invitation, Nick. How long have you been doing the podcast for? It's been quite a few years, man. Is this my first swing on the roundabout?

Nick Goodall (00:34): Over six years and we haven't had you on, which is an absolute shocker! But I'm glad we've finally righted that wrong. Great to have you on, mate.

Tim Lawless (00:43): Pleasure. Thanks for the invitation, mate. I'm a big fan and long-term listener.

Nick Goodall (00:48): Good man, good man! That's a great way to start off. Kelvin, long time no chat—a whole day! Are you well?

Kelvin Davidson (00:54): Yeah, going good. A bit chilly in Christchurch today, but we'll live—nice and warm inside.

Nick Goodall (00:58): We were just saying, mate, we've got snow here in Wellington, so we're going to claim that above you! But anyway, Tim, stoked to have you on today. Too long without having you on, so really glad to have you here. I'm looking forward to the opportunity to step back from our regular content—which is to look at New Zealand—to look at that bigger picture across both sides of the Tasman, where there are some similarities and quite a few differences as well. Before we get into that detail, I'm keen to hear a bit more about you personally, Tim. Can you tell us a little bit about your career, the length of time you've been with Cotality—or formerly CoreLogic—and what you do for fun outside the job on the weekends?

Tim Lawless (01:35): Yeah, absolutely. I'm looking at my 20th year here at Cotality / CoreLogic / RP Data, tracking back through all the different brands the company has evolved through. In New Zealand, PropertyIQ evolved into CoreLogic and Cotality as well. I started this role way back in October 2007, just before the GFC. It was a time when RP Data was going public on the Australian Stock Exchange. We had some pretty significant investors like Macquarie Bank and First American, which ended up becoming our owner eventually. We were on the New York Stock Exchange for a while when First American, which became CoreLogic, bought us out. Now Cotality is owned by two private equity funds: Insight Partners and Stone Point Capital.

It's been a long time at the helm here in the research team, but my whole career has been in property research. Before coming to RP Data back then, I was running the research team for Colliers International. Before then, I was at RP Data when it was a small, privately owned company owned by the founder Ray Hatlitz. RP Data bought a marketing consultancy I was working for, which started me on my journey through property analysis. That was never my intention, by the way—I've kind of just followed the path of least resistance in some ways and ended up finding something I'm quite passionate about!

For what I do on the weekends, it depends on the weather. I like my fishing, and as a Sunshiner here in Queensland, Australia, I'll quite often be out on the water wherever I can. If I'm not outside, then it's generally doing stuff around the house. I'm an empty nester with my wife Amanda—the kids are in Brisbane—so there are plenty of restaurants and bars around the Noosa area which I tend to frequent.

Nick Goodall (03:29): I can certainly vouch for the trip to the Sunshine Coast and having you take me and my family out on the boat, too. I can vouch for the quality of the weather up there and the experience of popping out on the boat to catch some fish—which all three of my children did under your watch! I have to thank you once again for enabling that in the recent summer.

Tim Lawless (03:50): It was good fun, mate. Good memories.

Nick Goodall (03:53): For sure. On the business side of things, it's hard to fathom twenty years in the business—I've been here for fifteen. As you said, a lot of change over that time, but the good thing has always been the consistency with the focus and respect given toward research and the research team, which enables the likes of yourself, me, Kelvin, and the rest of the team to do what we do consistently. I can speak highly of you and the team in managing things across the board to talk to clients and use all that great data we've got. You're a fellow data nerd like us, so it absolutely makes sense. Great to have you on to dive into the Aussie side of things.

Tim Lawless (04:32): Thanks, mate. Well, it's definitely hard to leave when you're drinking from the fountain of property data. We're right at the source here. For people like you and me that love data and a good graph, it's certainly a good place to be.

Nick Goodall (04:45): Absolutely. Really well put. All right, well let's get into it then. I'm keen to set the scene first. From New Zealand's perspective, over the last four years, the post-COVID property cycle has been a lot sharper and more aggressive than what we've seen in Australia. We did see our median value surge, peak, drop, and now sit essentially flat for the better part of three years. Meanwhile, in Australia, you've experienced more of a milder initial correction and steadily climbed back toward record highs.

The reason for this conversation today is that with Australian mortgage rates heading up, inflation quite high, housing affordability stretched, and property tax conversations coming to the fore, everyone is asking us this consistent question: Is Australia on the cusp of an NZ-style extended slump, or are there structural differences across the ditch that might protect the Australian market? With that primer, Kelvin, can you kick us off by detailing the New Zealand market over the last few years, how we've got to where we are today, and what might be coming?

Kelvin Davidson (05:53): Like a lot of countries around the world, we saw the post-COVID boom. Our prices went up over 2020 and 2021, pushing 40% over an 18-month period—a very sharp lift in property values spread right around the country. Clearly, lower mortgage rates drove that. We got down to a typical mortgage rate—and we'll get into the fixed versus floating differences here versus Australia—where a typical mortgage rate here was down at 2.5%, with some rates even as low as 2%. Most people were able to borrow at 3%. That's pretty cheap money. Everyone piled into the property market with a lot of investment, so property values went up a lot.

We got to the point where mortgage payments for a typical new 80% LVR mortgage were absorbing 50% to 55% of a typical household income. In hindsight, you look back and say that's pretty stretched. Subsequently, things changed in the economy with a recession and the Reserve Bank having to deal with runaway inflation. The OCR went up sharply, mortgage rates went up sharply, and property values fell sharply too—down 20% over the next 18 months. By the middle of 2023, we had seen a fall of 19% to 20% from that peak, and since then it's been flat.

We talk about the downturn, but it really happened three years ago; since then, it's been a lot more stable. Initially during that downturn, sales volumes fell as well, so there was not much activity going on while prices were falling and people struggled to adjust to the new environment. Eventually prices found a floor, people got used to it, and we saw sales volumes lift again. We're back to a relatively normal level in terms of activity, with prices still down sort of 18% from that peak.

Values haven't reacted because during that period where sales were below normal, listings built up. There's a lot of choice on the market, so buyers are in the ascendancy. Sales have recovered and people are willing to transact, but values have stayed down. That's not universal—Auckland and Wellington are still pretty soft, as opposed to provincial markets like Christchurch, Invercargill, and parts of the South Island that are stronger. What might not be so good for property owners is great for others, and we've seen first-home buyers piling into the market. It's a buyer's market, and that's keeping a lid on values.

Nick Goodall (08:42): Great summary. How about in Australia then, Tim? What have been the key trends over the last few years since COVID, and why has your market been more resilient than New Zealand over that period?

Tim Lawless (08:57): There are some similarities and some pretty big differences. We definitely didn't see value growth as strong as New Zealand through the pandemic. Our national index peaked at about 25% growth in the year to November 2021, well below New Zealand's high thirties or forties. It didn't have as high a peak to fall from.

Through the pandemic, there was a huge amount of stimulus. We started moving interest rates up, and all the stimulus expired by the end of 2021. Rates started to rise from the middle of 2022—from basically 0% up to a 4.35% cash rate. That was the catalyst for a downturn in our market, which was short and sharp. We saw housing values fall by 8.1% across the capital cities in about nine months from mid-2022 through to early 2023.

They started rising again in 2023—not because of stimulus or interest rates coming down, but simply because of a chronic shortage of supply. The market is still contending with the fact that we're not building enough homes by a long stretch. From 2023, borders reopened, migration came back with force, rental markets were really tight, and all that demand ran into a supply constraint. That saw values rising through 2023 and into 2024.

It started to slow down because fundamentals were stretched by affordability. Interest rates came down in 2025 by 75 basis points, which was a catalyst for a revitalization in our market through 2025 despite stretched affordability. A combination of low supply and lower interest rates saw markets like Perth, Brisbane, and Adelaide see values rising over 20% year-on-year.

Of course, that's all changed now. The market has slowed really quickly over the last few months. Sydney and Melbourne moved through a peak late last year or early this year, and the mid-sized capitals are following suit now. A lot of people point to the Federal Budget handed down in mid-May, but before that, we'd seen rates going up again—back to 4.35% with another 75 basis points of rate hikes, which evaporated the cuts we saw through 2025.

Affordability became even worse because we're not seeing much real income growth when adjusted for inflation. In the first quarter of this year, households were dedicating nearly 49% of their pre-tax income to servicing a mortgage. By the June quarter, that's likely even worse given another interest rate hike and rising house prices. Households are dedicating around 50% or more of pre-tax incomes to mortgage payments.

If you're on a median income in Australia, you're probably not buying at a median price simply because you can't demonstrate an ability to service the mortgage. That's why we've seen stronger price growth across lower price points—lower-quartile housing markets have been outperforming. But even there, values are starting to flatten out or fall.

It looks like we're done with rate hikes now. Inflation is starting to come down; headline numbers are easing, while core inflation at 3.6% is holding firm and should start coming down as well. There's no longer an expectation that rates will rise further from here, though forecasts can change. For now, there's going to be less investment in the Australian housing market given the budget changes, and a lot of first-home buyers are holding off on the sidelines. Confidence is deeply pessimistic, which is a big hurdle for buyers.

Nick Goodall (13:53): Confidence in the economy and job market in New Zealand has been pretty weak for a prolonged period. Kelvin, we spoke earlier about "labour hoarding" in the job market and the role that plays in people's nervousness around property investment or moving house. How much of New Zealand's prolonged weakness is directly attributable to employment insecurity and weak consumer sentiment rather than just interest rates?

Kelvin Davidson (14:36): They're all tied up together; it's hard to disentangle all these factors. Sentiment has definitely been low. Is confidence itself low, causing low transactions, or is it the other way around? The causality goes both ways. Moods have been pretty subdued. We've been talking about whether this is a structural change where people have permanently changed their mindsets around capital gains and house price growth. Even when the economy recovers and financing gets easier, have people fundamentally changed due to tax changes, interest rates, and housing supply?

There's a massive difference between here and Australia regarding supply. We've had a construction downturn over the past two or three years, but we're still building a lot of houses because that downturn came from an incredibly high peak. Physical supply has adjusted, and you don't hear the word "shortage" here anymore. If people believe supply will always adjust in the future, they naturally scale back capital growth expectations because they know supply will be there.

Mortgage rates have played a big role alongside economic weakness. What we haven't seen—even as the unemployment rate has gone up—is widespread job losses. It's been more about new people coming into the labour force. People who already have mortgages and own houses have kept their jobs, serviced their debt, and maintained an income. We just haven't seen repayment problems or widespread mortgagee sales because the unemployment rate increase is driven by new workers coming in. That physical supply response has changed people's mindsets and expectations around where the market goes from here.

Nick Goodall (17:49): In Australia, your economy has been much stronger in the post-COVID phase. We get plenty of headlines in New Zealand about Kiwis leaving for Australia for higher wages and more jobs. Where is the Australian economy at right now? Is it starting to show signs of weakness, and where are the labour market and unemployment numbers sitting?

Tim Lawless (18:49): The economy hasn't been strong—it might look strong to an outsider because we haven't gone into a technical recession, but per-capita GDP has been negative to flat for quite a few quarters. Part of the reason we've staved off a recession is population growth adding to aggregate economic activity. Significant capital investment in areas like data centres and substantial government spending have held up GDP numbers. A lot of labour force growth has been supported by the public sector.

Unemployment bottomed out in the high threes and is tracking at about 4.4% now, while underemployment has risen slightly to about 6%. Overall, the labour market looks quite tight, which is why mortgage arrears in Australia remain very low at about 1.6% (including 30, 60, and 90+ day arrears). Most people are keeping on top of mortgage repayments despite high household debt.

Inflation remains problematic, which pushed interest rates back to cyclical highs of 4.35%. That's driven less by consumer spending and more by utility costs, fuel prices, and electricity. Housing inflation is a big component: rents are up, building costs are high, and utilities flow into CPI. Housing CPI is running at 6.8% compared to headline CPI at 3.8%.

On the building side, we are definitely not building enough relative to population growth. The barriers to building are multifaceted: construction costs surged during the pandemic and haven't gone backward, construction labour is extraordinarily tight while competing with public infrastructure projects, and productivity has lagged. The Productivity Commission reported that while overall Australian productivity rose 50% in 30 years, physical productivity in residential construction declined by 12%. We need to see more innovation like modular construction, prefabrication, and digital printing to improve outcomes.

Nick Goodall (23:53): What about from a land-use perspective? In Auckland, the Unitary Plan enabled significant intensification closer to the city center and transport hubs. Do Australian cities have the ability to intensify close to major centres?

Tim Lawless (24:28): It's happening from a planning perspective. Town plans are set by local councils, state governments manage infrastructure, and the federal government sets migration targets. While town plans are becoming more receptive to density along transport spines, practically delivering that stock is difficult. High construction costs mean developer feasibility doesn't stack up for medium-to-high density unless it's high-spec boutique development for downsizers or high-net-worth buyers. Building mainstream density for a profit is almost impossible without higher productivity or lower government levies, which account for roughly 30% of construction costs. Sydney and Melbourne have densified around their CBDs, but consumer appetite still strongly favors detached homes on the outer fringes.

Nick Goodall (26:33): The quarter-acre dream is still alive and well! We've seen some first-home buyers move toward townhouses out of necessity, but as soon as options open up, preference shifts back to standalone houses.

Let's move to mortgage structures and interest rate pass-through. Tim, typical variable mortgage rates in Australia are around 6.2% for owner-occupiers and 6.4% for investors. Where are expectations sitting for Australian interest rates?

Tim Lawless (28:47): June inflation data came in softer than expected, so most economists agree there are no more rate hikes ahead unless something unexpected happens. A typical variable mortgage rate for an owner-occupier is about 6.2%, and 6.4% for an investor. Over 60% of Australian borrowers take out variable rates. Those on fixed rates typically fix for short terms around three years. Three-year fixed rates sit at about 5.6% for investors and 6.1% for owner-occupiers. Rate hikes appear done, but cuts aren't imminent—we're likely in for stability until the middle of next year when downward pressure on interest rates might emerge toward a neutral cash rate around 3.5%.

Nick Goodall (31:25): That is a stark difference to New Zealand, where the OCR is at 2.5% and moving toward neutral. Kelvin, can you talk through the structural differences in New Zealand, where fixed terms dominate?

Kelvin Davidson (31:57): Our floating or variable rates sit around 6%, but nobody takes those rates. About 90% of existing mortgage debt in New Zealand is fixed for a period of time. Fixing is overwhelmingly preferred regardless of term. From a monetary policy perspective, that makes the Reserve Bank's job harder because the pass-through lag is longer—borrowers feel the pain or benefit of rate changes only when their fixed terms roll over.

Bank switching and refinancing have been massive over the past 18 months, incentivized by generous bank cashbacks. Additionally, credit standards enforced by the Reserve Bank through LVRs, DTIs, and bank serviceability test rates (testing borrowers at 7%+) have weeded out risky loans, keeping mortgagee sales very low despite the price downturn.

Nick Goodall (35:36): Tim, APRA enforces a 3% serviceability buffer in Australia. Are there other macroprudential rules like LVRs or DTIs active?

Tim Lawless (35:47): APRA enforces a 3 percentage point serviceability buffer above the actual loan rate, which has kept mortgage arrears very low. Speed limits on investor credit growth and interest-only limits were removed in 2018. There is a 20% limit on high DTI lending, but it is currently non-binding at current interest rate levels.

Nick Goodall (37:50): Let's turn to property taxes. Central government tax settings have heavily impacted investor activity in New Zealand. Kelvin, can you summarize how tax changes altered investor participation in NZ?

Kelvin Davidson (38:19): New Zealand currently has no broad-based capital gains tax, outside of the Brightline Test which applies if an investment property is sold within two years. We have 100% interest deductibility under the current government. Back in 2019, the Labour government ring-fenced property losses (removing negative gearing benefits), and in 2021 began phasing out interest deductibility. While loss ring-fencing in 2019 didn't stop investor activity during the 2020–2021 boom, the removal of interest deductibility created a direct cashflow hit that significantly reduced mortgaged investor market share.

Nick Goodall (40:56): Tim, following Australia's May 12 Federal Budget changes to negative gearing (restricting it primarily to new builds) and shifting CGT discounts to CPI indexation, how are Australian investors reacting? Will Australian capital flow into the New Zealand market?

Tim Lawless (41:51): The Federal Budget legislation restricts negative gearing primarily to new builds or land, while altering the 50% CGT discount to a CPI indexation model. Major banks report a 20% to 30% drop in investor inquiries. Investors previously made up 40% of Australian mortgage demand; with gross yields under 4% and high holding costs, investor demand could fall toward 20%. First-home buyers utilizing 5% deposit government guarantee schemes will likely pick up some of that market share. Regarding Australian investors buying in NZ, it was mostly hype. Once investors realized capital gains remain taxable in Australia, anecdote hasn't translated into a flood of capital crossing the Tasman.

Nick Goodall (46:03): Tim, if you had to give Australian buyers and policymakers one key lesson from the New Zealand property cycle, what would it be?

Tim Lawless (46:38): Housing values can fall quite materially. New Zealand values are still 17% down from peak. Australia's largest declines over the past 40 years were around 8%. The key lesson is that an economy can withstand a material fall in housing values, achieve meaningful improvements in affordability, and see a strong resurgence in first-home buyers without catastrophic economic collapse.

Nick Goodall (47:18): What can New Zealand learn from Australia's market mechanics looking ahead, Kelvin?

Kelvin Davidson (47:40): It comes back to the economy and physical supply. If your economy is performing and affordability improves, housing activity recovers. In New Zealand, a permanent mindset shift away from ever-rising house prices relies on maintaining a responsive physical supply. Keeping affordability structurally better benefits the entire housing ecosystem.

Nick Goodall (49:05): Thank you both very much for joining us today. Tim, thank you for coming on from Australia—great to draw on your extensive experience. Kelvin, thanks for the NZ breakdown. Thank you all for listening. Please get in touch with questions or feedback. My name is Nick, they are Tim and Kelvin. You've been listening to the New Zealand Property Market Podcast and Australian Market Podcast. Mā te wā.

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