'NZ's going to eat Australia alive': What Australia can learn from our housing downturn
Sunday, 26 July 2026
New Zealand is a few steps ahead of Australia in the housing cycle. We have already lived through the sharper end of the downturn, so there are clear lessons Australia can take from our experience. But as the lucky country faces a tougher period, could there also be an upside for New Zealand?
ANALYSIS: Australia is now facing many of the same pressures New Zealand experienced when inflation surged, interest rates rose and the housing market was forced to reset.
Now Australia’s property prices are starting to drop, and one economist believes it’s only at the beginning for the lucky country.
“Seldom can I say with conviction that New Zealand's going to eat Australia alive on the growth stakes, but I'm pretty convinced about the next sort of two to three years,” says independent economist Cameron Bagrie. “And one of those things will be their property market's going to go down further.”
If you have a property story or question, whether uplifting or challenging, email Sutff chief property correspondent Janika ter Ellen: janika.terellen@stuffdigital.co.nz or fill out the form below.
That slide has started. Australian property prices are down 0.7% nationally from their peak, with Sydney and Melbourne down 3.7% and capital city values down 1.3% according to Cotality’s Australian arm. Some regional centres in Perth, Queensland and Western Australia are still growing.
Here are six lessons Australia can take from New Zealand’s housing downturn.
1. Interest rates always win in the end
Lesson: The cost of borrowing matters most.
The clearest lesson from New Zealand’s downturn is that housing markets ultimately come down to what people can afford to borrow.
Kelvin Davidson, chief property economist at Cotality, says “mortgage rates are key. In the short run, that’s what really drives house prices and house sales.”
New Zealand had a rapid lift in house prices when borrowing costs fell during the pandemic, followed by one of the fastest increases in interest rates in decades as inflation took hold. The result was a sharp change in what buyers could pay.
“They’re seeing that in Australia now,” says Davidson. “The Reserve Bank’s raised the official cash rate there three times and mortgage rates have risen.”
“Their housing affordability now is pretty much as stretched as we were at the peak. So, you know, if it all plays out the same, you’re looking at a housing downturn with sales falling and prices falling.”
2. Affordability catches up eventually
Lesson: House prices cannot outrun incomes forever.
New Zealand entered its downturn with house prices far ahead of what many households could realistically afford, particularly in Auckland and Wellington.
The eventual correction was significant, with nationwide values falling around 17% and some of the biggest markets dropping by 20-25%, and in localised areas - even more.
Gareth Kiernan, chief forecaster at Infometrics, says that adjustment was unavoidable.
“You can’t keep pushing house prices away from what people earn and expect it to be sustainable,” he says. “At some point the maths catches up with you, and that’s what we’ve seen.”
Australia has had a much longer period without a major housing reset, particularly in Sydney and Melbourne where prices have moved well ahead of incomes.
Bagrie believes Australians may be less prepared for a dip ahead because they have not experienced a major downturn for decades.
“Australia hasn't had a really tough period since about 91, 92,” he says. “They walked through the GFC, they walked through the Asian crisis. COVID was a bit of a blip. They haven't actually had to hunker down and face very tough times.”
“They've thought they've been incredibly rich by just jacking up the property market,” he says.
Rising prices can create a feeling of wealth, but in the end, it’s not sustainable.
3. Building more homes helps prevent future problems
Lesson: Supply matters more than simply pushing demand.
One of the biggest differences between the two countries is the response to the need for housing supply.
“We had a genuine construction boom,” Davidson says. “Planning became more permissive, more land was opened up, and that extra supply helped rebalance the market.”
Australia faces more barriers to building, says Gerard Burg, who heads research in Australia for Cotality.
“Access to land, regulatory hurdles, state policies, a fragmented industry, labour shortages, high raw material costs, all of these make it very difficult to build the homes we need,” he says.
That means Australia’s house price drops may not be as deep or last as long as New Zealand’s in the short term. Burg believes a downturn of around 15 to 16 months is possible.
But if Australia can sort it out, building more homes makes the market more stable over the longer term.
4. There is no single property market
Lesson: National figures hide where the real pressure is.
New Zealand’s downturn showed that some regions can fall sharply while others prove more resilient, thanks to local jobs, migration, development and supply.
Burg says Australia is already seeing the same divide; “Sydney and Melbourne are leading the decline because they’ve had more stock and more stretched affordability, whereas Perth and Brisbane, with below-average stock levels, have seen stronger conditions until more recently.”
For buyers and homeowners, the lesson is to focus less on national headlines and more on what is happening in their own towns, suburbs and price ranges.
5. Tax changes matter, but they do not drive the market
Lesson: Interest rates and affordability matter more than investor rules.
New Zealand’s changes to landlord tax settings were predicted by some to destroy property investment. Davidson says that did not happen.
“There’s a lot of chat there (in Australia) about the tax changes and removing negative gearing,” he says. “‘Oh, they’ll see all investors abandon the market, and they’ll all come to New Zealand, and no one will buy rental property anymore’, you know, that sort of scare story.”
“I mean, I think the experience from New Zealand tells you that that’s not necessarily going to happen. We took away negative gearing ( in NZ). Yet property investors have still carried on. So, you know, it’s not the death knell for property investment.”
Burg agrees tax is not the one of the main force driving prices in Australia.
“The incentives have definitely been reduced at the margin here,” he says. “But when you look at the data, investors are still in the market. Tax is important, but it’s not as powerful as affordability and interest rates.”
6. Confidence can change the market quickly
Lesson: Housing is emotional, not just financial.
Housing makes up a huge share of household wealth in both countries.
Burg says around 56-57% of Australian household wealth is tied up in property. In New Zealand it’s around 48%.
“So even when prices are only down a couple of per cent,” he says, “people who own homes feel that very keenly. Confidence is a huge factor.”
Is there an upside for New Zealand?
Bagrie believes there is: “I think Australia at the moment is a very good news story for New Zealand,” he says.
His argument is that New Zealand is further through the cycle, with inflation easing, interest rates falling and the economy beginning to recover, while Australia is only starting to face its challenges.
That could influence migration flows. Stats NZ figures show the number of New Zealanders leaving for Australia is still rising, but only slightly, from 40,600 in 2024 to 41,100 in 2025.
At the same time, the number returning increased to 12,800 last year, up 14% from 2024.
Three Christchurch agents we spoke to say they are already seeing more interest from Australia.
“I’ve definitely noticed more enquiries from there,” says Jack Marshall of Harcourts “Whether they’re expats or Aussies investing or moving here. Some of our listings online are seeing between 5-10% of listing views from Aussie.”
For New Zealand, the upside in the near term may be that after years of watching people leave for Australia, the economic gap between the two countries could finally begin to narrow.
If you have a property story or question, whether uplifting or challenging, email Sutff chief property correspondent Janika ter Ellen: janika.terellen@stuffdigital.co.nz or fill out the form below.