At the same time, one of the most powerful tailwinds for housing demand has begun to fade.
Net migration, which surged to record highs through 2023 and early 2024, has now slowed sharply. Population growth has been a key driver of housing demand in New Zealand, particularly in major centres.
With that tailwind easing, while there is some divergence regionally, the underlying support for both house prices and rental demand is weakening. Fewer new arrivals means less incremental demand for housing at a time when supply is increasing – a combination that is likely to keep a lid on both price growth and rents.
You can see this shift already playing out in the data.
Housing values across New Zealand remain largely stagnant. According to the Cotality Home Value Index, the national median dwelling value rose just 0.17% in March – effectively flat – and remains more than 17% below the market peak reached in early 2022.
On an annual basis, values are still lower, highlighting how subdued the recovery has been, despite interest rates easing over the past year. While some South Island centres have recorded modest gains, much of the North Island has seen little to no movement.
Taken together, the data reinforce a broader point: the housing market is no longer delivering the consistent, nationwide growth that investors once took for granted.
Another long-standing constraint is also becoming more binding.
Despite the recent cooling, house prices in New Zealand remain high relative to incomes by both historical and international standards. That imbalance places a natural ceiling on how much prices can rise, particularly in an environment where significant tension is coming back into borrowing costs.
It also changes the return equation. When viewed on an inflation-adjusted basis, property looks increasingly less compelling than it once did. Real price growth is expected to be more modest and in some scenarios may even go backwards for periods of time.
Over the long term, global evidence challenges the assumption that property is the superior investment. Research from MSCI shows that equities over the long term have delivered around 5% annual returns after inflation. This compares to roughly 1-2% for residential property (according to the OECD and IMF) on an unleveraged basis.
The New Zealand experience is more nuanced, but tells a similar story when you look beneath the surface. NZX data shows that Kiwi equities have historically delivered real returns in the region of 5-7% per year over the long term, driven by earnings growth and dividends. Property, while often perceived as a standout performer, has delivered much of its return in nominal terms, with inflation-adjusted gains typically lower – particularly when assessed without the impact of borrowing.
Rental yields in New Zealand generally sit at around 3-4% before costs, and once mortgage interest, rates, insurance, and maintenance are factored in, net returns can be modest. Real capital growth has been around 2-4% per annum, but a significant portion of the strong returns seen over recent decades has also been driven by falling interest rates and the increased use of leverage, rather than purely by underlying price growth.
Another key distinction is the role of leverage. Property investors often use borrowed money to amplify returns – a strategy that has worked well in a rising market. When prices increase, gains are earned not just on the investor’s equity, but on the full value of the asset, magnifying returns.
However, leverage cuts both ways. When prices are flat or falling, losses are also amplified, while interest costs remain. In a higher-rate environment, this dynamic becomes more challenging, as investors can face negative cashflow alongside limited or declining capital gains. This asymmetry is an important consideration in a market where price growth is no longer guaranteed.
And importantly, the interest-rate environment itself has shifted. For nearly three decades, falling borrowing costs acted as a powerful tailwind for property values. That trend has now run its course. Even if rates (contrary to what many bank economists seem to think) move lower from here, they are unlikely to return to the ultra-low levels that fuelled the previous boom.
Taken together, these factors point to a market where several of the historical tailwinds for property – strong population growth, falling interest rates, limited supply and easy credit – are either weakening or reversing.
That shift is prompting investors to look more closely at alternatives.
Managed funds, once seen as secondary to property, are becoming a more central part of the conversation.
One of their biggest advantages is diversification. A single investment property represents a concentrated bet – typically on one location, one asset and one tenant stream. By contrast, a managed fund spreads investments across a wide range of companies, sectors and geographies.
This reduces reliance on any single outcome. If one part of the market underperforms, others can offset it.
A key difference is geographical exposure. Property investors in New Zealand are typically concentrated in a single market – often even a single city – meaning their returns are heavily tied to local economic conditions, interest rates and housing dynamics. Managed funds, by contrast, provide access to global markets, allowing investors to benefit from growth across different regions, industries and economies. This broader opportunity set not only enhances diversification but also reduces reliance on any one country or sector, helping to deliver more consistent and resilient long-term returns.
Liquidity is another key difference. Property transactions are slow, expensive and often influenced by market conditions at the time of sale. Managed funds are far more liquid and provide far greater flexibility, allowing investors to adjust their exposure or access capital without the same level of friction.
Then there is the question of returns relative to effort and risk.
Rental yields in New Zealand generally sit at around 3-4% before costs – and once mortgage interest, rates, insurance and maintenance are factored in, net returns can be modest. Photo / Rafael Ben-Ari, Chameleons Eye
Rental yields in New Zealand are generally modest and, once financing and operating costs are taken into account, the margin for investors can be thin. At the same time, rental income is not always as stable as assumed, particularly in softer economic conditions.
By comparison, listed companies distribute income through dividends and offer exposure to a much broader set of growth opportunities – both locally and internationally. On the New Zealand market, dividend yields are broadly comparable to rental yields, before even considering the potential for capital growth.
Importantly, managed funds allow investors to access these opportunities without needing to pick individual shares or actively manage portfolios themselves. Professional managers make allocation decisions, monitor risks and adjust positions as conditions change.
There are also structural advantages.
Managed funds operate within a relatively clear and consistent tax framework and returns are typically reinvested automatically, allowing compounding to work more efficiently over time. In contrast, property investors must continually manage cashflows, expenses and reinvestment decisions themselves.
Borrowing costs have already risen and the conflict in Iran is adding another layer of economic uncertainty, particularly through its impact on inflation and interest rates. Petrol and energy prices have soared and should the conflict drag on (as recently signalled by the Reserve Bank Governor), this could place upward pressure on the Official Cash Rate again.
In that kind of environment, flexibility becomes increasingly valuable.
Investor behaviour is beginning to reflect these changes.
Younger New Zealanders, in particular, are increasingly turning to KiwiSaver and managed funds as their primary investment vehicles. For many, this is partly a necessity, given the barriers to entering the property market. But it also reflects a different mindset – one that values diversification, flexibility and global exposure.
More experienced investors are also adapting. Rather than concentrating wealth in property, many are taking a more balanced approach, incorporating a wider mix of assets to manage risk and improve long-term outcomes.
None of this suggests that property is no longer a viable investment. It remains a tangible asset with a long history of delivering returns over time.
But it is no longer the dominant, one-size-fits-all solution it once appeared to be.
And increasingly, that points towards a broader approach – one where diversification, flexibility and global exposure play a much larger role than they have in the past.
Generate is a New Zealand-owned KiwiSaver and Managed Fund provider managing over $8 billion on behalf of more than 180,000 New Zealanders.
This article is intended for general information only and should not be considered financial advice. The views expressed are those of the author. All investments carry risk, and past performance is not indicative of future results.
To see Generate’s Financial Advice Provider Disclosure Statement or Product Disclosure Statement, go to www.generatewealth.co.nz/advertising-disclosures/. The issuer is Generate Investment Management Limited.