The Great New Zealand Housing Divide: Why the South Island is Surging While the North Stalls

While national median house prices in New Zealand edged up 0.4% in January 2025, a deeper look reveals a starkly divided market. Excluding Auckland, prices rose 1.4%, but this masks a dramatic divergence: the South Island is experiencing a boom, while Auckland and Wellington continue to languish. The gap isn’t just persisting; it’s widening, signaling a fundamental shift in New Zealand’s property landscape – and a potential reshaping of where Kiwis choose to live and invest.

The Tale of Two Islands: A Regional Breakdown

Recent data from the Real Estate Institute paints a clear picture. The West Coast hit a record high of $480,000, a 9.3% year-on-year increase. Southland, Otago, and Canterbury followed suit with gains of 5.7%, 6.7%, and 3.4% respectively. In contrast, Auckland and Wellington remain 23.6% and 26.9% below their post-Covid peaks. Nelson is the only other region experiencing a decline, falling 8.9%.

This isn’t a temporary blip. Over the past five years, Auckland prices have fallen 1% annually, and Wellington 3%. Meanwhile, Christchurch has seen a 5.4% annual increase, Queenstown 8.1%, and Invercargill 5.2%. Otago and Southland are also at record highs, demonstrating a sustained trend of southern strength.

Migration, Commodity Prices, and Affordability: The Driving Forces

BNZ chief economist Mike Jones attributes this divergence to a confluence of factors. A slow but steady migration south is underway, as people seek more affordable living options and a different lifestyle. The strong performance of the primary sector is injecting cash into regional economies, bolstering incomes. Crucially, affordability plays a significant role. Southern markets offer a more attractive price-to-income ratio than the inflated markets of Auckland and Wellington.

“It’s becoming more and more difficult to even talk about the New Zealand housing market as an entity,” Jones notes, “because it is so divergent amongst those regions.” He anticipates this divergence will continue, with the South Island maintaining its momentum while the North Island struggles to regain its footing.

Oversupply in the North, Opportunity in the South

Auckland’s more aggressive supply response – a surge in new construction – has contributed to its oversupply. However, construction activity is now picking up again, even with relatively low population growth. Wellington also faces an oversupply issue, exacerbating the downward pressure on prices.

Property investment coach Steve Goodey highlights the lack of yield in Auckland. “I’m advising clients not to go there for cash flow if that’s what they are after,” he says, favoring smaller towns with potential for growth. His recent investments are in Invercargill, Whanganui, and Hawera, demonstrating a clear shift in investor sentiment.

Looking Ahead: The Future of New Zealand Property

Economists predict a national average house price rise of around 5% this year, but this figure is likely to be skewed by the strong performance of the South Island. Auckland and Wellington are expected to lag behind, while cities like Invercargill and Nelson could see even stronger growth. This regionalization of the market isn’t a short-term phenomenon; it’s likely to persist for the foreseeable future.

The Rise of Regional Hubs

The trend suggests a potential reshaping of New Zealand’s urban landscape. Smaller cities and towns in the South Island are poised to become increasingly attractive hubs for both residents and investors. This could lead to increased infrastructure investment, job creation, and a more balanced distribution of population across the country.

Implications for Investors

Investors should carefully consider the regional dynamics of the New Zealand property market. While Auckland and Wellington may offer potential for long-term capital gains, the short-term outlook is less promising. The South Island presents opportunities for both cash flow and capital growth, but careful due diligence is essential.

The Role of Remote Work

The increasing prevalence of remote work is likely to further accelerate the shift south. As more people are able to work from anywhere, the constraints of living in expensive urban centers are diminishing. This could lead to a sustained increase in demand for housing in more affordable regional locations.

Frequently Asked Questions About the New Zealand Housing Market Divergence

Q: Will Auckland and Wellington house prices ever recover to their previous peaks?

A: While a full recovery is possible, it’s unlikely to happen quickly. The oversupply issue and relatively slow population growth will continue to weigh on prices in the short to medium term. A significant shift in economic conditions or government policy would be needed to trigger a more rapid recovery.

Q: What are the best regions to invest in right now?

A: Southland, Otago, and Canterbury are currently showing the strongest growth potential. However, it’s important to conduct thorough research and consider your individual investment goals before making any decisions.

Q: Is this trend sustainable?

A: The fundamentals supporting the South Island’s growth – migration, commodity prices, and affordability – appear to be relatively strong. However, economic conditions can change, so it’s important to monitor the market closely.

The diverging fortunes of New Zealand’s housing market represent a significant turning point. The era of Auckland and Wellington dominating the property landscape may be coming to an end, replaced by a more balanced and regionally diverse market. Understanding these trends is crucial for anyone looking to buy, sell, or invest in New Zealand property.

What are your predictions for the future of the New Zealand housing market? Share your insights in the comments below!