IMF: New Zealand’s housing bust threatens economy

A cross-country analysis shows that New Zealand’s residential housing market is by far the most expensive in the English-speaking world, measuring at 4.8 times the size of the economy:

Dwelling values versus GDP

Capital Economics also estimated that New Zealand’s consumer spending growth is the second most sensitive to changes in house prices, behind Hong Kong:

Consumption spending versus house prices

Given household consumption is the largest contributor to economic growth in New Zealand, a significant house price correction is more likely to slash consumer spending and push the nation’s economy into recession.

The International Monetary Fund’s (IMF) latest review of the New Zealand economy expressed similar concerns, noting that a deep and rapid correction in the New Zealand housing market might require Macroeconomic policy support to prevent the economy from sliding into recession:

“New Zealand’s household debt, most of it housing-related, is high, having increased from 158% of disposable income at end-2019 to 169% in June 2021″…

“There is likely to be a larger impact on consumption through wealth and sentiment effects. In a scenario of a marked housing correction, macroeconomic policy support may be needed to avoid second round effects and a pronounced downturn”…

“A sudden and deep correction would likely have significant spillovers to the rest of the economy.”

This follows a larger run-up in New Zealand house prices than other advanced nations:

“House prices in New Zealand were already increasing faster than in its peers before Covid-19, and the pandemic accelerated this trend.

“Since 1998, prices in New Zealand have increased by over 250%, almost four times the average increase across OECD countries (around 70%)…

New Zealand house prices

Finance journalist Bernard Hickey once described New Zealand as a “housing market with an economy attached”. In light of the IMF’s latest analysis, this statement rings truer than ever.

Unconventional Economist


  1. Goldstandard1MEMBER

    Isn’t that the point? Every western country has taken the easy road so now ‘whenever housing goes down’ it ‘threatens the economy’, and needs some fiscal/monetary sugar to boost it. I think there isn’t enough sugar this time. I personally cannot wait when we get at least 3 interest rate rises in 3 months and bleeding hearts crying for some sweet sweet stim stim………Gov needs housing down 20% (what it gained last 18 months) before they touch it, otherwise it wil blow inflation/stagflation out of the water and there will be riots. Sooner or later we’ll then be dealing with deflation so it’s going to be a roller coaster alright….

    • ErmingtonPlumbingMEMBER

      Wage inflation is the only thing that can save nominal house prices now.

      Ermington Plumbing is now charging 50% more to all Subscribers, pensioners and Concession card holders.

      Non subscribers pay 55% more so my normal 5% discount still applies.

      • And us lowly WA state public sector servants have been on a $1000 increase per year over last 4 years, despite McClown delivering some hefty budget surpluses (and hiding some more cash in two state-owned corporations that are allowed to make profits – Western Power and Water Corporation.

        This year he has come off his stance and offered a 2.5% increase across the board – of course, those on 60K and those on 150K get vastly different (but still paltry) amounts. The usual day for salary increases for WA is 1 February. He is still negotiating with the Teacher’s union, who want 4%, the rest of the eligible sectors will follow…

        At least he did commit to splash ~280mil on healthcare, and ~440mil on power rebates – ~1.1 households @ $400 each. Of course, power supply prices have been going up 2-3% per year over last couple of years, so that $400 is really like $200.

        And the next stroke of genius; “Firefighters would be called in to drive ambulances under a plan put forward by Premier Mark McGowan to address a severe shortage of paramedics across the State”

        Surplus was $5.6 billion. Who says Labor are not the best economic managers?

  2. Hugh PavletichMEMBER

    China …

    When does the West intend to compete by simply restoring the development and construction of affordable housing ? …

    China Offers Property-Buying Perks to Families With Three Kids … Bloomberg

    Chinese cities are making it easier for families with more children to own multiple properties, as authorities struggle to revive the housing market and boost birth rates.

    Hangzhou, the eastern city where internet giant Alibaba Group Holding Ltd. is based, said Tuesday that households with three children are now allowed to buy one more residence. The third child has to be born after May 31 last year. Such families can also enjoy precedence over other prospective buyers when purchasing new homes.

    The move makes Hangzhou the first major residential market to bundle property easing with birth rates, after at least seven smaller cities rolled out similar policy tweaks since April. China surprisingly allowed all couples to have a third child last year when births dropped to 10.6 million, the lowest since 1950.

    “Such a policy can spur home buying and encourage having more children at the same time,” said Gao Yuansheng, an analyst at China Index Holdings. “It again shows that China supports ‘real’ housing demand for multi-children families.” … read more via hyperlink above …

    Have three kids! Can China’s new edict reverse the fallout from its one-child policy? … Eryk Bagshaw … Sydney Morning Herald

    Following World War 11, in the United States, William Levitt created the modern residential construction production industry, supplying new homes of about 80 square metres on lots of about 700 square metres.

    These new homes were supplied for about $US 9,000 to SINGLE EARNER income families with average incomes in the New York area at the time of about $US 3,500 … about 2.6 times annual family income.

    When can we expect the democracies of the West to wake up, relearn this important recent history and restore the ‘Levitt system’ ?

    Allowing affordable housing to be developed and built happens to be a basic human right …

    This Man Is the Father of Modern American Suburbia … VIDEO (2.36 min) … The Smithsonian Channel

    Expanding the American Dream … Barbara Kelly … Amazon Books

  3. In a way that it was always swept under the rug if prices looked fragile, it’s out and about in public today.
    This mornings’ breakfast chat shows were all full of “House prices to fall 20% in Real terms. What does that mean?”

    I love the way we are now educating our property owners all about the difference between Nominal and Real! Tell me the last time we had a 6% rise in property prices when CPI was at 4% and the headlines were “Property Price Rise a Real 2%”?!

    If all the banks are now saying 20%, then in my view that is just softening us up for what the eventual fall will be.

    • I have a simpler model: House prices increase when the economy simply can’t find productive uses for their own labour
      Conversely House prices decrease (in real terms) when the economy demands that labour perform some essential task.
      Today we stand at that junction, Specialized labour is being asked to perform tasks essential to the survival of the nation and, not surprisingly these specialists want to be payed a living wage.
      I’m seeing this on a daily basis and I mean daily. I’m in the middle of pricing a project and not a day goes by that I don’t have to tell someone to just suck-it-up, the new price is the new price! if you want the product then it’s going to cost you the sum of all these new prices plus a margin for me and my team.
      There’s the round of well F-you, followed by the No F-you mate ..this is the new price!
      Neither labour nor the business community have had this sort of pricing power in over 2 decades, yet it’s here and it’s real. Specialized sectors of our economy, particularly our Military sectors, must decouple from China, it’s not optional, it’s essential, It is these now essential sectors that are leading the way for a repricing of all labour.
      For me this means that my new business is an asset with increasing (some would say unearned) value, The product space I’m targetting is unique and I have no qualms about demanding much more than the buyer was expecting, each price increase increases the value of my business and the amount that I can afford to pay for skilled labour.
      This is the way that both labour and product markets are suppose to work, this is real.

  4. Hugh PavletichMEMBER

    United States … The Feds inflation message seems clear …

    Fed’s Powell vows to raise rates as high as needed to kill inflation surge … Reuters
    … h/t HG …

    WASHINGTON, May 17 (Reuters) – Federal Reserve Chair Jerome Powell on Tuesday pledged that the U.S. central bank would ratchet interest rates as high as needed to kill a surge in inflation that he said threatened the foundation of the economy.

    “What we need to see is inflation coming down in a clear and convincing way and we’re going to keep pushing until we see that,” Powell said at a Wall Street Journal event. “If we don’t see that, we will have to consider moving more aggressively” to tighten financial conditions.

    “Achieving price stability, restoring price stability, is an unconditional need. Something we have to do because really the economy doesn’t work for workers or for businesses or for anybody without price stability. It’s the bedrock of the economy really.” … read more via hyperlink above …

    • Businesses have got a taste for record profits by price gouging, so they might not desire price stability quite as much as he makes out here.

    • ErmingtonPlumbingMEMBER

      There hasn’t any been any “price stability” in property and other assets.
      The investment economy has had nothing but inflation.
      It’s the real economy’s turn now.
      How many years of 5% wage growth does it take to double the incomes of people who work?

      • Jumping jack flash

        Double the incomes without debt spending?

        We all understand that the volumes of goods and food and cars and trinkets that we all currently buy is inflated immensely by debt creation and debt spending?

        And we all understand this is the *same money* that gets put into all our bank accounts each month as wages?

        And we understand that a portion of that debt that is used to buy all the stuff and pay all the wages is also used to repay interest on the debt?

        And we also understand that when interest rates rise it will attack this ridiculous excuse for an economy at both of these points simultaneously?

        There will be no wage inflation in fact there will be wage deflation as the debt growth slows and disappears and the amount of interest required to be paid on the debt rises.

      • About 14 years to get t double your income at 5% wage growth.

        That is, 5% per year above the annual inflation rate. If the target rate is 3%, you are basically standing still.

        Hell, I used to work with sparkies back in Florida who pretty much earned the same wage (after tax) for 10 to 15 years with no real increase. Reason – rise in income taxes and Messicans.

  5. So given those more extreme starting points, economic sensitivities and the fact NZ is ahead of us on rate movements, we should get a pretty good leading indication of just how far the RBNZ needed to push before demand was crushed and just how much impact that had on inflation prints….

    • Jumping jack flash

      Everyone goes up at the same time, and everyone goes down at the same time.

      Small variations of course, but there is unyielding pressure to follow the herd due to the macroeconomic forces.

      This is exactly why when the US decided to spend trillions in stimulus that should have been a wake up call for our own glorious leaders to follow suit and do it properly, and never, never, accept returns.

  6. Jumping jack flash

    “Given household consumption is the largest contributor to economic growth in New Zealand, a significant house price correction is more likely to slash consumer spending and push the nation’s economy into recession.”

    And im fairly sure that is the case with almost all western debt economies. And drastically understated.

    By the way this is a very pertinent analysis. It needs to be extended to include all debt creation and all debt spending [that will be affected by rising interest rates].

  7. ErmingtonPlumbingMEMBER

    Did anyone see Alan Kohler’s harsh and frank assessment of how bad Australians housing Unaffordability situation really is on the ABC last night.
    I’ve never heard an economist talk like that before in the Australian mainstream press.
    Went on at length about how Boomers had it so much easier than young people today.
    He even pointed out how its destroying our culture!
    I can’t find the piece online though.
    I’m dying to send it to my Boomer in-laws

  8. Hugh PavletichMEMBER

    Rising mortgage interest rates wiping out the benefits of falling prices for first home buyers … Greg Ninness … Interest Co NZ

    Hopeful first home buyers faced a mix of good and bad news in April, with house prices at the bottom end of the market declining in every region of the country, while a steep rise in interest rates made mortgage payments the most unaffordable they have been in the 18-year history of’s Home Loan Affordability Report.

    The Real Estate Institute of New Zealand’s national lower quartile selling price dropped to $640,000 in April from $661,000 in March, and has now declined by $30,000 since it peaked at $670,000 in November last year.

    April’s lower quartile price was lower compared to March in every region of New Zealand, with the decline now spreading to regions such as Canterbury, Waikato and Nelson/Marlborough, which up until last month were continuing to post rising lower quartile prices.

    The biggest decline has been in Otago where the lower quartile price was $505,000 in April, down $75,000 compared to its peak of $580,000 in October last year.

    That was followed by Auckland, where the lower quartile price was $900,000 in April, down $66,000 compared to its peak in November last year.

    Other regions where April’s lower quartile prices were down significantly from their recent peaks were Northland -$60,000, Bay of Plenty -$47,000, Hawke’s Bay -$40,000, Taranaki -$45,000, Manawatu/Whanganui -$60,870 and Nelson/Marlborough -$30,000. … read more via hyperlink above …