Residential Property No Longer Stacks Up as an Investment

The allure of residential property as an investment is waning in New Zealand. According to Reserve Bank figures, the number of mortgages approved for residential property investors has halved over the last decade. In July 2016, 5862 new mortgages were approved, compared to just 2766 in July this year.

The decline in investor activity can be attributed to a combination of factors, including flat or falling house prices, rising mortgage interest rates, and uncertainty around tax policies. Furthermore, the long-term trend of house prices growing faster than rents has reduced rental yields for investors.

Tracking residential rents compared to lower quartile house prices since 2012 shows that while median rent increased by 83% over the period, lower quartile house prices rose by 134%. This means that if an investor purchased a property at the January 2012 lower quartile price of $250,000 and rented it at the median rent of $325 a week, they could have generated rental income of $16,900 a year, representing a gross return of 6.8%.

Fast forward to June 2026, and the same property would cost $585,000, with a median rent of $595. The potential rental income would be $30,940 a year, providing a gross rental yield of just 5.3%. However, this figure is before accounting for expenses such as rates, insurance, maintenance, and management fees.

Assuming an interest rate of 5.26% on a mortgage of $351,000, the weekly payments would be around $546, leaving just $49 to cover other outgoings. This suggests that many investors are likely to be in a negative cash flow situation, making it difficult for residential property to stack up as an investment.

The graph below shows how much cash would be left each week if an investor bought a property at the prevailing lower quartile price, rented it at the median rent, and paid for a 60% mortgage at the prevailing rate. The amount has declined from $101 in June 2016 to just $49 in June 2026.