ANZ: Housing supply catching up to demand

by Roxanne Libatique26 May 2021

It seems New Zealand’s housing crisis is being addressed little by little, with ANZ’s latest Property Focus report revealing that the housing shortage in the country is starting to decline.

However, ANZ economists warned that the possibility of housing supply catching up to demand depends on immigration settings once the New Zealand border is reopened. They explained that New Zealand’s closed border means its housing market is in a rare position to build enough houses to keep up with new demand.

The economists also warned that disruption to international supply chains aggravates capacity pressures and increases costs in the construction sector, which could impede the supply of new homes.

“On net, it looks like New Zealand will be able to chip away at the housing shortage pretty quickly over 2021,” ANZ economists said, as reported by

“But it’s important to note that this is largely due to the border closure, as the largest source of demand for new housing has been completely cut off. This brief respite will not last unless serious changes to immigration policy are made.”

The current red-hot demand for homes, which has dramatically increased prices, appears close to peaking – with credit and affordability constraints biting, mortgage rates appearing to have bottomed out, loan-to-valuation restriction returning larger than before, building consents hitting historical highs, and population growth severely curtailed by the border closure, the ANZ economists said.

“In other words, the demand pulse is probably close to peaking, and supply is catching up, although there’s still a long way to go,” the ANZ economists added.

The ANZ economists expect “significant moderation in house price inflation” over 2021 and the Reserve Bank of New Zealand (RBNZ) to start raising interest rates from August 2022, with the official cash rate (OCR) rising from the current 0.25% to 1.25% by the end of 2023.

“The higher OCR is expected to be fully passed through to mortgage rates,” the ANZ economists wrote in the report. “We think interest rates have bottomed out for now, and with OCR hikes pencilled in for August 2022, we’re expecting mortgage rates to start lifting in the not-too-distant future.

“This should see demand for houses fall significantly. With prices so high, even a small rise in mortgage rates will significantly increase the debt servicing cost of buying a house, as well as making repayments much harder to afford.

“With mortgage rates being such an important driver of house prices (especially when prices are so high relative to incomes), we expect this to result in a decent headwind for house prices.”

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