1. It’s pretty rare for rents to be this weak
The median weekly rent in New Zealand over the three months to May was $598, down 0.3% annually. Now that’s clearly a small decline, but nevertheless the first since a small bout of falls in late 2009 and prior to that a similarly short episode in the first half of 1999. In other words, rents don’t tend to fall that often, which makes this period pretty notable – especially since we’re not obviously in any meltdown, as we were in the late 1990s (Asian Financial Crisis) or late 2000s (Global Financial Crisis).
I’d put this down to the already-high levels of rents, certainly in relation to household incomes, which is a natural handbrake on any further growth. But it also reflects the classic supply-demand equation – lower net migration has cooled the marginal extra demand for property, and there’s also a higher number of available rental listings on the market than there has been over the past few years (helped by new-build completions).
As always, there are two sides to the equation. This is good news for tenants, but it’s also a challenge for landlords who are still having to top up their mortgages.
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Looking ahead, I wouldn’t be surprised if rents remain relatively flat for the next little while, with an adjustment in the market taking place through slowly rising incomes – rather than rents falling markedly or for a long time.
2. Latest inflation figures don’t rule out an OCR cut next month
Last week we also got the Q2 inflation data from Stats NZ, which showed a middle of the road result of 2.7%, up from 2.5% in Q1, but still within the Reserve Bank’s 1-3% target range for inflation and also below the figure of close to 3% that some economists had been concerned about (weak rents are helping to keep a lid on overall inflation).
To be clear, it’s not ideal to have a rise in inflation. But the domestic/non-tradable rate continued to fall, from 4.0% to 3.7% (lowest since 3.3% in mid-2021), which is encouraging, as this is primarily what the Reserve Bank can actually influence. Imported/tradable inflation went from 0.3% in Q1 to 1.2% in Q2, but that’s still fairly low.
Cotality chief economist Kelvin Davidson: "There doesn’t seem to be much reason for the Reserve Bank to hold back from another Official Cash Rate cut on August 20." Photo / Peter Meecham
In a nutshell, the figures weren’t as concerning as they might have been, and there doesn’t seem to be much reason for the Reserve Bank to hold back from another Official Cash Rate cut on August 20, as it tries to shore up the economy, reduce spare capacity, and head off any deflation risks down the track. (Deflation = falling prices. That might seem great, but it can also cause significant economic problems, given that households will tend to delay spending.)
3. Not much loyalty in the mortgage market
Amongst many other things, perhaps the stand-out feature of the Reserve Bank’s latest mortgage data for June was that more than 3500 borrowers switched lenders – comfortably a new record high for this data series, which goes back to 2017. Loyalty is low at present, as borrowers chase cashbacks and also simply have more ability to swap lenders at low/no cost than before, given if you’re on a floating rate or a bunch of short-term fixes the break costs will be less common.
4. The weak labour market is a key housing restraint at present
Looking ahead, Stats NZ will publish June’s filled jobs figures later today (Monday), with these numbers having remained weak lately, as firms stick in a cautious mood. June’s data also looks likely to be pretty soft, with the weakness of the labour market currently a key reason why the normal influence of lower mortgage rates in pushing up house prices isn’t being seen at present.
5. Waiting for the construction upturn
The other key data series I’ll be watching this week will be Stats NZ figures on new dwellings consented in June, due Friday. These figures have stabilised over the past year or so after a previously large downturn, and although a fresh upturn hasn’t arrived yet, the signs for the construction sector are starting to brighten a bit, maybe for 2026.
- Kelvin Davidson is chief economist at property insights firm Cotality
