“Is a Weak Housing Market Really a Bad Sign?”

The Reserve Bank has revised its housing market forecast, now expecting house prices to fall slightly by 0.3% this year—far below its previous 7% growth estimate. It attributes slower-than-expected house price growth to weaker household wealth and reduced spending, since housing significantly influences both.
Real household wealth has declined, with house price growth trailing inflation since mid-2022. This has dampened residential investment, though it’s expected to pick up from late 2025 as interest rates fall, population growth increases, and real prices recover. Historically, housing cycles in New Zealand have closely mirrored economic activity, making subdued price growth a concern for the Reserve Bank.
However, not all economists agree that a softer housing market is bad for the economy. Some argue that rising house prices shouldn’t be the cornerstone of recovery. Westpac’s chief economist Kelly Eckhold notes that while rising prices can boost consumer confidence and spending, affordability worsens when prices outpace income growth—an issue that’s persisted for decades.
Economists like Gareth Kiernan and Brad Olsen warn that relying on house price increases for economic momentum is short-sighted. Affordability remains worse than pre-2020 levels, and boosting prices could further exclude potential buyers, deepen inequality, and increase emigration. Instead, long-term solutions like increasing the supply of affordable homes are encouraged to create a more sustainable foundation.
Kiwibank’s Jarrod Kerr supports this, calling for more construction in the $500,000–$700,000 range to help first-home buyers. He argues that building affordable homes wouldn’t necessarily hurt owners of higher-priced properties and could ease pressure on the market.
While the housing market has long been a pillar of economic growth in New Zealand, many now suggest it’s time to decouple the two and pursue a more balanced, inclusive path forward—one that supports stability, productivity, and long-term affordability rather than short-term gains. -TIN Bureau