Analysis by Keith Rankin.
Role: Economic historian.
Keith Rankin, 31 August 2026 – Yesterday, RNZ played this episode of Context – Property Nation: NZ’s Housing Obsession, 27 August 2026. Contextis a podcast series in which well-known GenX audio-journalists Guyon Espiner and Corin Dann take a superficial historical journey on a topical social issue.
My first point here is that Espiner and Dann do what most commentators do; they conflate the urban real estate market (a land market) with the market for houses (a built market). The reason of course for this conflation is that both markets are substantially secondary markets – resale of developed land, resale of existing houses – in which houses and land are bundled together. It turns out that much of the history of housing is really a history of the financialisation of the land that houses sit on.
Good quality analysis will separate out the two components of this bundled retail market. But here I simply acknowledge that the dominant factor, historically, has been land prices. And I acknowledge the observation by Espiner and Dann that, as apartments feature more largely, that in itself is a matter of fundamental change in the economics of housing in New Zealand.
Having said this Espiner and Dann raised at least four further important points about what we may simply call the market.
First, that the market – especially in Auckland, New Zealand’s largest city – is in a prolonged bear phase; it’s been a falling market for four years, since 2022. Espiner and Dann underplayed the fact that, except for about eight months in 2021 and 2022, the housing market has been static or falling since 2017; that’s nine years ago. This skewed emphasis on the mini-boom of 2021/22 over the much more prolonged boom of 2012 to 2016 reflects, I presume, the story that Corin Dann in particular wanted to tell. I will come back to this first point, in my conclusion.
Second, that the pattern of the market which we have become used to is one of alternating periods of boom and stasis. Thus, the naïve wisdom which even serious commentators believed was that, if you stay the course, you cannot lose money on housing; a ‘wisdom’ especially applied to the Auckland market. While Espiner and Dann never really explained that ‘bull’ reality or its ‘bear’ successor, they at least acknowledged both realities.
I say “naïve” in particular because academics in finance should know that, in the long run, the fundamental market value of houses/land is the yield (ie, in this case, the rental value) of the asset. The most fundamental part of the rental value is the capacity of would-be renters to pay. If renters cannot pay more rent, sooner or later the market must stall.
Finance academics know that, in the medium term, market prices can outrun fundamentals because market players focus on ‘returns’, not just yields. Returns exceed yields when the expectation of capital gain is built into players’ expectations. We continue to have some important parties – especially the Labour Party – who have built-in expectations of capital gains in a market for which, in most years since 2017, there have been minimal or negative capital gains.
There are good reasons, in fact, to believe that the present correction to fundamentals still has a way to go. Further, there are good socio-demographic and financial reasons to believe that the lack of capital gains in residential property is a new structural reality. Cohorts of younger people are smaller and poorer; and the financial world has moved on to other more esoteric assets which players can game. (In this last sense though, we may note that after the next great depression – ie after the next global financial reset, the last reset began in the mid-1940s – when the next long cycle begins, there may be a return to real estate as a favoured asset. After the Black Death of the 14th century, land became very cheap.)
Third, Espiner and Dann uncritically parroted the industry-cemented narrative that the last boom – the mini-boom of 2021/22 – was solely a product of loose monetary policy. They should know that most phenomena have more than one contributing cause; and that when there are multiple candidates for the attribution of guilt, one or more of those contenders may not be responsible at all. Pursuing the model of guilty until proven innocent – and contemplating the possibility of innocence – is what we traditionally associate with totalitarian systems of ‘justice’.
In terms of the 2021/22 event – which was both a brief bout of real estate inflation and a slightly less brief period of annual CPI inflation above three percent – there were other causes.
Re the property market, there was the expectation that, by about 2021 or 2022, the market was due for a new round of capital gains; that is, regardless of monetary policy. (In most decades going back at least to the 1970s, the property market took-off in the years ending in a ‘1’ or a ‘2’. This is because the cycle, as widely understood by players, was a ten-year cycle. The cycle would be at its flattest from years ending in a ‘7’ to years ending in a ‘0’. For specific reasons, the property cycle was late to restart in the 1990s, but it did restart in 1993. In the 1980s, I was a party to a house purchase in mid-1982. It was $60,000. In early 1988 the house, with just a few added improvements, sold for $180,000.)
In 2021, it was only Aucklanders who were quarantined in their city, from August to December; though all New Zealanders were effectively detained in their country. And non-Aucklanders, far from the scourge of the Delta strain of the virus, were subjected to substantial pandemic policy overreach. There was a huge fear then that Covid19 mutations were escalating the pandemic, and that new money would be needed for New Zealand industry and the New Zealand government to invest in substantially-modified supply chains.
New Zealander households which had not faced income decreases – and there were many such households – had significantly fewer options about how to spend their incomes compared to in a normal year. There is no real evidence that a property boom in the second half of 2021 would not have happened if interest rates had been (say) two-percentage points higher.
Property bubbles are actually quite insensitive to interest rates. In the modern financial environment of floating and short-term mortgage interest rates, almost zero property investors in 1921/22 would have been expecting their interest rates to have stayed at their early-2021 lows. Players in the property market may be naïve; but not that naïve.
With appropriate hindsight, everything was in place for a new round of property inflation to commence in 2021, regardless of what the interest rates were at that particular point of time. Banks were flush, not only because of monetary policy. For a short while, they had few other customers they could profitably to lend to; their perception at that time was that business lending was more risky than property-market lending. And businesses, facing deep uncertainty, were cautious about taking on additional debt; the situation had the appearance of a balance-sheet recession, in which it is the role of government to become lead-borrower.
The real story about the 2021/22 property mini-bubble was not what started it, but what stopped it in its tracks. What happened was that, when the pandemic restrictions ended – pretty much all at once in January and February 2022 – banks quickly rediscovered their business customers; and saw that most were not insolvent. The pivot in the flows of money was determined by the changed state of the pandemic, not the interest rates which in New Zealand had been prematurely raised. Economic growth rebounded sharply in 2022, despite cost-inflation arising from both from the Ukraine-Russia War and from interest rate escalation. CPI inflation soon dropped, as interest rates also dropped. (Compare New Zealand’s recent CPI inflation with countries which kept their interest rates high.)
Fourth, Espiner and Dann mentioned that the property boom of the late-2000s happened despite rising interest rates. (Regrettably, they did not consider the possibility that the property bubble happened, at least in part, because of rising interest rates.) They did not dig deeper into this issue. Just as President Trump only seems to remember what the last foreign head-of-state or technocrat told him, Espiner and Dann used 2021/22 as a sample-of-one to form the basis for a much-repeated generalisation about a simple causal relationship from monetary policy to housing-market outcomes. The earlier examples were presented as contextual candy floss.
Consider the 2010s. Interest rates were low for New Zealand in the early 2010s, but high by international standards. The New Zealand Dollar exchange rate was overvalued, and the New Zealand economy was slow to recover despite improving terms of trade. Money moved into the property market after 2010 because punters thought it was time for a revival of that market and because banks still considered other forms of lending to be riskier.
Once underway, the market gained its usual momentum. The rise in interest rates in 2024 – at a time when European interest rates were falling to zero or less – failed to cool the property market, and also slowed down the economic recovery. Interest rates were lowered again in 2015, back to 2013 levels (OCR of 2.5%). In 2016 they were further lowered. It was really only in 2017 that the economy – with Steven Joyce as Finance Minister – that the economic cycle moved into a new expansionary phase. Interest rates continued to fall, bringing the OCR to just 1% in late 2019.
The historically low and falling interest rates from 2016 both revived the New Zealand economy and stemmed (ie not invigorated) that decade’s real estate bubble. CPI inflation remained at the lower end of the target band of one-to-three percent. In late 2019, the New Zealand economy had moved into its sweet spot of low interest rates, a stable (though still overpriced) property market, and low annualised rates of price increases. Low interest rates put an end to the property bubble by diverting money away from the property market and reviving the economy.
While theoretically low interest rates stimulate all types of borrowing from banks, in reality they mostly stimulate business borrowing and have least impact on real estate borrowing. Money is most pumped into real estate when interest rates are high, because banks are then less interested in other forms of lending, and because (in our world of flexible and short-term mortgage lending) real estate punters expect that interest rates will soon fall; property punters are interested in expected interest rates over the life of a mortgage, not just the interest rate on the commencement date.
Consider the 2000s. The New Zealand property market turned upwards in 2001/02, on cue, at a time of geofinancial and geopolitical turmoil. Interest rates were briefly ‘low’ after the 911 attacks (the OCR dropped to 4.75%!). By mid-2002, the OCR was back to 5.75%; that’s when the property bubble really got going. Following a brief fall to 5% in 2003, the OCR was steadily pushed up to 8.25% in the first half of 2008! As noted by Espiner and Dann.
In the years from 2004 to 2008, New Zealand’s tradeable economy tanked despite an improving terms of trade, the NZD was increasingly overvalued, and bank money was increasingly channelled into the property market because it had fewer other places to go. Much of this was New Zealand’s version of sub-prime mortgages, injected into the top end of the property market through finance companies such as Hanover. Almost all of those kinds of finance company crashed from 2006 to 2008, in what remains New Zealand’s greatest untold – or at least under-told – financial scandal. It was the high interest rates, and the ensuing increased concentration of money in property, which fuelled that devastating property boom.
Espiner and Dann presumed that that property cycle happened despite high interest rates; no, it was because of high interest rates.
The 2000s’ property boom was followed in New Zealand by only a mini-bust; conditions remained more conducive to money being fed into property than to ordinary businesses.
In the 1990s there was a sharp property boom confined to the mid-1990s. It started late in the wake of the economic devastation of 1991 and 1992. And it finished prematurely with the Asian Financial crisis of 1997 bringing interest and exchange rates down, soon reviving the real economy while disinflating the property market.
In the 1980s, the property market boomed on cue in 1981, at a time when CPI inflation was approaching 20%, meaning that properties were looking very cheap, and when interest rates – well below the inflation rate during a global economic crisis – pointed the way to reinvigorate the property market. After a pause in 1982 (when I bought that $60,000 house in Wellington) that market really ramped up in the mid-1980s, after the full introduction of Rogernomics in 1985; a package of financial deregulation, very high mortgage and other interest rates (like 20%), and a rising exchange rate making New Zealand an emporium of imports. The markets stabilised after the crash of late 1987 and early 1988, but neither the did economy nor the did the property market recover until election-year 1993.
Possibly the biggest property boom in New Zealand’s history happened in 1972 and 1973, with the big ‘favourable’ spike in the terms of trade and the revaluation of the New Zealand dollar, creating new previously unheard of opportunities to consume imports and to travel overseas. I was lucky in that I embarked upon my OE in 1974, when despite the crashing British financial markets, my New Zealand dollars were uniquely valuable on the world’s foreign exchange markets (and I put my money into US dollars and Swiss Francs rather than British pounds). The New Zealand property market had a longer than usual slump in the late 1970s, not because of New Zealand monetary policy, but because of a mix of world events and the rapidity of the 1972 and 1973 property boom.
Conclusion
New Zealand property market booms have never been driven by low interest rates compelling people to buy real estate. Rather, loanable funds have gone into real estate in large amounts when there was a lack of other compelling destinations for those funds; and when governments were reluctant borrowers despite a huge availability of loanable funds at favourable interest rates.
Our commentators Guyon Espiner and Corin Dann were good to make a number of important observations about New Zealand’s property past. But they made no real attempt to join the dots, to question the narratives they have repeatedly heard, or to understand the actual relationship between banking and real estate.
Coming back to Espiner and Dann’s central narrative about the housing market and monetary policy – a narrative which emphasised the 2021/22 mini-boom and subsequent reversion to stagnation or bust – the Reserve Bank must make new money available when it is likely to be needed. The Bank can ‘take horses to water – or water to the horses – but cannot make them drink’; if the money doesn’t get consumed by the horses which need it, it is more the unhydrated horses’ fault, not the Bank’s. In this case, the horses were the government – which could have borrowed the new money, not spending it all straight away – or the many businesses which were not yet in a position to recommence large-scale borrowing.
The New Zealand Reserve Bank did not make a huge mistake in 2021. It did what it had to do in an economic environment clouded in uncertainty. Yes, property borrowers got the money first; but the problem was that other parties were too slow to respond to the market signals being conveyed by the Bank.
It’s a convenient story for pundits today to attribute all our economic woes to the alleged Reserve Bank’s mistakes during the Delta-strain height of the Covid19 pandemic. That story of piling into the then Bank does no credit to today’s uncritical commentators, and perpetuates the problem of economic policy today being founded on a mix of historical unawareness and myths derived only from the very recent past.
About the writer:
Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.