New Zealand Housing Market Fractures: A Tale of Two Islands
New Zealand’s housing market is undergoing a significant divergence, with conditions in the North Island sharply contrasting those in the South. While prices in Auckland and Wellington continue to decline from post-Covid peaks, several South Island regions are experiencing record highs, painting a picture of a deeply fractured national market.
National median house prices rose 0.4 percent between January 2025 and last month, reaching $753,106, according to Real Estate Institute data. However, this figure masks a more complex reality. Excluding Auckland, the increase was a more substantial 1.4 percent, to $700,000. This disparity highlights the growing influence of the South Island’s performance on national averages.
The West Coast led the charge, hitting a record median price of $480,000 – a 9.3 percent year-on-year increase. Southland, Otago and Canterbury also saw significant gains, with year-on-year increases of 5.7 percent, 6.7 percent, and 3.4 percent respectively. Only Nelson bucked the trend, experiencing an 8.9 percent decline.
In stark contrast, Auckland and Wellington remain firmly in correction territory, down 23.6 percent and 26.9 percent respectively since their peak. This divergence is prompting economists to question whether it’s still meaningful to speak of a single “New Zealand housing market.”
“It’s becoming more and more difficult to even talk about the New Zealand housing market as an entity, because it is so divergent amongst those regions,” said Mike Jones, chief economist at BNZ. “The North Island market, if you put all those parts of the country together, is operating at quite a different pace from the south.”
Migration and Commodity Prices Fuel Southern Growth
Several factors are contributing to the South Island’s resilience. A slow but steady migration of people from the North Island is increasing demand in southern regions. Jones also pointed to the impact of commodity prices, which are bolstering incomes in rural and regional areas. “Also you’ve got the commodity cash coming through, which is bolstering some of those rural and regional incomes. That’s a story that continues to play out.”
Affordability is also playing a key role. Southern markets offer significantly lower entry points for buyers compared to Auckland and Wellington. As Jones noted, these markets are “cheaper relative to incomes and rents than the likes of Auckland and Wellington.”
North Island Shows Limited Recovery
The North Island’s recovery remains patchy. Only Waikato, Hawkes Bay, and Auckland saw increases in median sales prices in January compared to the previous year – gains of 1.4 percent, 2.4 percent, and 1.1 percent respectively. This suggests that the North Island’s housing market is still struggling to regain momentum.
Looking at longer-term trends, house price index data reveals a five-year decline in Auckland (down 1 percent annually) and Wellington (down 3 percent annually). Conversely, Christchurch, Queenstown, and Invercargill have experienced annual gains of 5.4 percent, 8.1 percent, and 5.2 percent respectively. Otago and Southland have also reached new record price levels.
ANZ Downgrades National Forecast, Cites Uncertainty
The diverging regional trends are contributing to broader uncertainty in the national housing market. ANZ, New Zealand’s largest bank, recently downgraded its 2026 house price inflation forecast to 2 percent, from a previous estimate of 5 percent. The bank cited a lack of momentum at the start of 2026 and the potential impact of the upcoming election – including the possibility of a capital gains tax – as key factors influencing its revised forecast.
ANZ economists also anticipate that rising interest rates will put downward pressure on prices. They have brought forward their expectation for the first increase in the official cash rate to December, earlier than previously anticipated.
“As OCR hikes draw closer, mortgage rates are shifting from a tailwind to a headwind for the housing market,” the bank stated. Wellington prices are down 4 percent over the last six months, while Auckland has also experienced a decline, albeit less pronounced. Canterbury, Otago, and Southland, however, continue to see price increases.
Investor Sentiment Shifts South
Property investment coach Steve Goodey is advising clients to avoid Auckland due to a lack of rental yield. “I’m advising clients not to go there for cash flow if that’s what they are after,” he said. He is instead focusing on smaller towns, citing recent investments in Invercargill, Whanganui, and Hawera.
Kelvin Davidson, chief property economist at CoreLogic, notes that sales activity is picking up fastest outside the main centres. He anticipates that Auckland and Wellington may lag behind the national average recovery, projecting a national average price rise of 5 percent for the year, with some regions potentially exceeding that figure.
“It wouldn’t surprise me if… Auckland and Wellington are below that number and Invercargill, Nelson, some of these more second-tier cities are a bit stronger. I could see that lasting for a while just reflecting the shape of the economy at the moment.”
The diverging fortunes of New Zealand’s regional housing markets underscore a fundamental shift in the country’s economic landscape. The “tale of two islands” is likely to continue, with the South Island benefiting from migration, commodity prices, and relative affordability, while the North Island grapples with oversupply and economic uncertainty.
