New Zealand’s housing market is demonstrating remarkable resilience as 2025 concludes, pivoting towards stability. This shift is primarily fueled by expectations that the cycle of interest rate hikes has peaked, coupled with improved buyer affordability. Meanwhile, the construction sector is adapting to headwinds by focusing on smaller, more accessible housing types.
Key Stabilizing Factors
The Reserve Bank of New Zealand (RBNZ) has held the Official Cash Rate (OCR) steady, allowing some stability to return to the mortgage market. While the OCR remains at a level designed to curb inflation, the expectation of future cuts is building confidence.
- Mortgage Rate Realities: Contrary to an immediate post-OCR-cut drop, the housing market has observed volatility. Recent days have seen longer-term fixed mortgage rates increase slightly as global funding costs remain elevated, meaning the immediate affordability boost hasn’t fully materialized. However, the crucial factor is that rate hikes appear to be over, which supports market stability.
- Buyer Activity Surges: Despite the rates remaining firm, sales volumes rose 6.4% annually in October. New listings followed, up 10.9% in November, confirming seller confidence is returning.
- First-Home Buyer Strength: First-home buyers (FHBs) are the bedrock of the current market, hitting a record 27.7% of purchases, leveraging the pause in rate hikes to secure financing.
Easier Path to Home Ownership for FHBs
The Reserve Bank has pragmatically eased Loan-to-Value Ratio (LVR) restrictions, effective December 1, 2025. This move is less about complex LVR figures and more about approving more loans for buyers with lower deposits.
- The Change: The proportion of owner-occupier loans that can be issued to buyers with less than a 20% deposit has been increased (from 20% to 25% of new lending), directly supporting first-home buyers and improving market access.
Construction Adapts to Sector Contraction
The construction sector is undergoing a necessary adjustment. The sector contracted by 1% in 2025, a figure that, while seemingly small, is significant as it contributes to the overall market dynamics, particularly material cost increases. This contraction contrasts sharply with the post-2022 period of massive cost drops, suggesting a return to a more healthy, demand-driven cost trend rather than an inflationary spiral.
- Focus on Density: Building consents show a strong shift toward townhouses and smaller, higher-density dwellings. This is a direct response to both land scarcity and cost pressures.
- Granny Flat Simplification: The upcoming 2026 rules that exempt 70sqm granny flats from requiring a building consent will be a major catalyst. While a building consent is not required, homeowners will still need to obtain a Resource Management Act (RMA) permit from the council before starting construction works, confirming the safety and environmental compliance of the activity. This move will significantly boost smaller-scale building activity and supply.
- Investor Incentive: The sector is also seeing renewed activity thanks to the reinstatement of interest deductibility for investors since April 2025. This policy change is spurring property upgrades, particularly for rentals that need to meet new Healthy Homes Standards, improving the quality of the rental stock and driving selective investment.
2026 Outlook: Sustained Growth and Regional Hotspots
The outlook for 2026 remains cautiously optimistic, anchored by key economic fundamentals:
- First-Home Buyer Dominance: Expect sustained strong demand from first-home buyers as they continue to maximize current LVR settings and anticipated eventual rate cuts.
- Investor Returns: Rental yields are steadying around 3.8%, making investment an attractive long-term proposition again, especially with the reinstated interest deductibility.
- Regional Growth: Key metropolitan areas like Auckland, Tauranga, and Queenstown are expected to drive growth, benefiting from high employment and migration.
- Policy Impact: Marginal policy tweaks, such as overseas buyer exemptions for properties over $5 million, may add a small amount of new supply, but the market’s trajectory will remain primarily dictated by local job growth, wage inflation, and the RBNZ’s OCR path.