The question many New Zealanders are asking: can the economy recover if house prices don’t? With the housing market moving sideways and buyers hesitant, the link between property values and wider economic health is impossible to ignore.
The Housing Market and Its Ripple Effect
The housing market is central to New Zealand’s economy – it makes up around 15% of GDP and represents the largest asset for many households. When house prices are flat, the effects ripple outwards.
Lower equity means homeowners can’t borrow as easily for renovations, vehicles, or even funding small businesses. In New Zealand, much of the lending that underpins business growth is tied directly to residential property. Without rising house prices, that access to capital shrinks.
Beyond borrowing, property values also shape confidence. If homeowners feel wealthier because their house has gone up in value, they’re more likely to spend on holidays, dining, or upgrades. But with prices stagnant and interest rates still high, many are holding back, choosing to save instead.
Why House Prices Matter for Businesses
So, can the economy recover if house prices don’t? Businesses face the same psychology as households. If property values are down or equity has disappeared, owners are less likely to hire, expand, or invest in new equipment. That caution feeds into lower economic growth.
At the same time, banks make it easier to borrow against a house than against a business. Even profitable companies with trading history often find it hard to secure lending. Without changes to how capital flows into productive industries, the economy risks being locked into the property cycle.
Tax policy and foreign investment could help rebalance things. Smarter tax incentives for businesses, rather than heavier property taxes, may encourage growth. Likewise, overseas investment is valuable – but it needs to be directed into businesses and productive assets, not just more property.
Opportunities in a Flat Market
There are winners in a flat housing market. First-home buyers benefit from slower auctions and reduced FOMO. Instead of chasing rising prices, they can save without the market racing ahead. That shift from auctions to negotiation also gives new buyers more room to move and reduces the risk of overcommitting to oversized mortgages.
Key Takeaways
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The property market makes up around 15% of New Zealand’s GDP.
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Flat house prices reduce household equity and borrowing power, slowing spending and business investment.
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Small businesses often rely on residential property for lending, tying growth directly to the housing market.
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Confidence matters: when people feel wealthier, they spend more, boosting the economy.
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First-home buyers benefit from a stagnant market with slower auctions and more negotiation.
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Tax incentives and smarter foreign investment could help the economy grow without relying solely on rising house prices.
Next Steps:
Whether you’re a first-home buyer or looking to grow your property portfolio, Lighthouse Mortgages can help you navigate today’s market and plan your next move. Book a discovery call here.
If you’d like to learn more, check out these other episodes below.
For a no obligation discussion to see how we can help you on the path to wealth, please contact us.
Disclaimer:
The information in this article is general information only, is provided free of charge and does not constitute professional advice. We try to keep the information up to date. However, to the fullest extent permitted by law, we disclaim all warranties, express or implied, in relation to this article – including (without limitation) warranties as to accuracy, completeness and fitness for any particular purpose. Please seek independent advice before acting on any information in this article.
