Dropping Rental Prices in New Zealand: What’s Driving the Shift and What to Expect From the RBNZ and Banks

New Zealand’s rental market is undergoing a significant transformation in 2025, with a notable drop in average rents across major cities, a surge in available listings, and a shift in power towards tenants. This change is being driven by an oversupply of rental properties, changing demographic patterns, and broader economic factors. As the Reserve Bank of New Zealand (RBNZ) and major banks assess these developments, their next moves in lending policy and interest rates will be closely watched by landlords, tenants, and investors alike.

The State of the Rental Market: Supply Up, Prices Down

Record-High Rental Listings and Softening Rents

• The number of available rental listings on Trade Me is up 31% compared to May last year, which itself was 41% higher than the year before. This marks the highest level of rental supply in nearly a decade, with Auckland, Wellington, and Canterbury leading the surge.
• Wellington’s average rental price fell 7.2% year-on-year to $647 per week, and Auckland’s dropped 3.3% to $702. The national average rent is down by $14 a week, offering tenants potential annual savings of around $700.
• Vacancy rates have risen sharply, especially in Auckland (just under 4% vacant) and Wellington (nearly 5%), reflecting a “townhouse glut” from the completion of a five-year construction boom and more investors turning unsold properties into rentals.

Regional Variations

• While most regions are seeing softer rents, Central Otago and Lakes buck the trend, with average rents at an all-time high of $870 per week, up 3% year-on-year. This is attributed to continued demand from high-value tenants and strong tourism.
• In Dunedin, despite a 14% rise in rental prices, the market is showing signs of oversupply, with listings at a 10-year high and properties taking longer to lease.

What’s Causing the Shift?

Key Drivers

• Oversupply of New Builds: A large pipeline of new townhouses and apartments, especially in Auckland and Canterbury, has come to market. In Christchurch, 28% of listings are townhouses, compared to 15% in Auckland.
• Changing Demographics: More young people are staying with family due to the cost of living, or moving overseas, reducing demand for rentals.
• Short-Term Rentals Converting to Long-Term: With fewer tourists, many former Airbnbs and holiday homes are being listed for long-term rent.
• Investors Holding Properties: A slow sales market has prompted investors to rent out properties instead of selling, further boosting supply.

Impact on Tenants

• Tenants now have more choice and bargaining power. Landlords are competing for quality tenants, often softening rents or offering incentives.
• Renters’ advocates advise locking in lower rents with 12-month contracts and doing thorough market research before moving.

The Economic Backdrop: Cost of Living and Housing Market

• Despite the recent drops, rents remain high by historical standards, having risen 25% since the start of Covid.
• The cost of living crisis means any savings from reduced rents are quickly absorbed by essentials like food and heating.
• The housing market, meanwhile, is forecast to see moderate price gains in 2025, with banks predicting an average 6–7% rise in house prices over the year.

What to Expect From the Reserve Bank and Banks

RBNZ’s Position

• The RBNZ has kept the Official Cash Rate (OCR) steady in recent months, as inflation remains above target but is showing signs of easing.
• With rental prices softening and housing supply up, there is less pressure on the RBNZ to raise rates further to cool the property market.
• However, the central bank will be watching for signs of renewed house price inflation, which could prompt a more hawkish stance if lending and investor activity rebound.

Bank Lending Policies

• Major banks have tightened lending criteria over the past two years, with higher deposit requirements and stricter income tests for investors.
• With rental yields under pressure and mortgage rates still elevated, some investors may exit the market or hold off on new purchases.
• If the oversupply persists and rents continue to fall, banks may remain cautious in lending to landlords, focusing instead on owner-occupier borrowers.
• Any future drop in the OCR or a clear downward trend in inflation could see banks gradually ease lending standards, especially if house price growth remains moderate.

Outlook for Renters, Landlords, and Investors

For Renters

• Expect continued choice and possible further rent reductions in oversupplied markets, especially Auckland, Wellington, and Canterbury.
• Secure favourable lease terms while the market remains in your favour.

For Landlords

• Be prepared for longer vacancy periods and the need to offer competitive rents or property upgrades to attract tenants.
• Consider the impact of lower yields and higher mortgage costs on investment strategy.

For Investors

• Monitor RBNZ and bank policy for signs of easing, but factor in the risk of continued soft rents and slow capital gains in the near term.
• Diversification and a focus on high-demand regions (like Central Otago and Lakes) may offer better returns.

Summary

New Zealand’s rental market in 2025 is firmly in favour of tenants, with record-high rental listings, softening rents, and greater competition among landlords. The RBNZ and banks are likely to maintain a cautious stance on lending, watching for inflation and house price signals before making any significant moves. For now, tenants can expect more choice and some relief on rents, while landlords and investors face a more challenging environment requiring flexibility and strategic planning.