In New Zealand’s long and storied romance with the property market, the “mum and dad” investor has always been a central character.
By Michael Rehm for The Conversation
With equity ready to draw on, they’ve traditionally accounted for between a third and half of all residential sales – driving a flow of bank credit, but also a steady rise in house prices.
In 2026, however, there are strong signs these market movers are sticking to the sidelines, or getting out of the game altogether.
A recent survey of 200 mum-and-dad landlords by independent economist Tony Alexander points to a sharp shift in sentiment, with a record number (38%) planning to sell and relatively few (12%) seeking to buy.
The latest Cotality data suggests they’re still somewhat active in the market – investors with mortgages were behind a quarter of national sales in the first quarter of the year – but not at the levels seen in the past.
At the same time, various pressures have been changing the economics of property investment.
Those 200 surveyed investors singled out concerns about higher running costs, rising council rates, ongoing challenges in securing reliable tenants and economic uncertainty over the Iran war.
That uncertainty is further illustrated by new figures showing sellers have been slashing asking prices by tens of thousands of dollars, with some still trying to offload houses they bought at the market’s 2021 peak.
For many smaller investors, it appears the model that once relied on steady capital gains is becoming harder to sustain.
Credit, costs and a changing market
In New Zealand and around the world, arguably the single biggest driver of housing markets is bank credit, or debt.
Real estate values depend not only on supply and demand, but also on the purchasing power of buyers. As few people have enough cash to purchase property outright, most rely on bank credit.
Housing market commentators often benchmark New Zealand prices against their peak in late 2021. This happened to coincide with amendments to the Credit Contracts and Consumer Finance Act, which tightened how banks assess lending affordability.
Although politicians reversed course six months later, the restriction in housing credit reduced homebuyers’ aggregate purchasing power. House prices have yet to recover to their 2021 highs.
Another squeeze on housing credit came with the Reserve Bank’s debt serviceability restrictions, called debt-to-income limits. These cap how much borrowers can take on relative to their income: six times income for owner-occupiers and seven times for investors.
While these limits weren’t formally introduced until mid-2024, they were added to the Reserve Bank’s policy toolkit during the market’s June 2021 peak, with banks phasing them in gradually.
At the same time, two-year fixed mortgage rates more than doubled, from 3.46% in April 2021 to 7.60% in October 2023. Right now, they’re sitting closer to the mid-5% range, easing from their peak – but still well above recent lows, with a risk of further hikes.
With the housing boom now fading into the distance, many New Zealanders are confronting an uncomfortable reality: house prices do not always rise, and capital gains are not guaranteed.
That caution is already showing up in the data.
Recent figures point to softer sales volumes and subdued buyer activity, with rising borrowing costs and wider economic uncertainty – including the prospect of further inflationary pressure from the Middle East crisis – weighing heavily on confidence.
The current market malaise affects everyone, but mum-and-dad investors arguably face the toughest conditions. Without capital gains, rental property can be a poor investment given the risks involved.
A reset for the housing market?
For investors having to top up mortgage payments out of their own income because rent no longer covers the costs, the warning signs are clear.
Because these investors are major users of mortgage lending – often borrowing against existing equity to buy more property – a large-scale exit would slow the flow of housing credit that has long underpinned rising prices.
That would be disruptive and destabilising to what has long been a key plank of New Zealand’s economy. Yet a pullback by small-scale investors could also have positive effects elsewhere in the market.
New Zealand is grappling with deepening housing inequality, with a widening divide between those who own property and those locked out of it.
Average house prices may have fallen over recent years, but they still sit at around 7.2 times the median household income. In some regions, such as Queenstown Lakes and Thames-Coromandel, price-to-income ratios remain well into double digits.
With fewer investors competing for existing homes, price pressures could ease, improving access for first-home buyers, encouraging more stable, institutional build-to-rent developments and shifting the market away from speculative gains.
There may also be opportunities to redirect capital into more productive uses.
Funds withdrawn from housing could instead flow into lower-risk, income-generating assets such as Kiwi Bonds or other government-backed investment vehicles, offering steadier returns while supporting broader public investment.
That kind of shift could provide investors with steadier returns, while helping rebalance a housing system that has long relied on ever rising prices.
Michael Rehm is an associate professor in property at the University of Auckland.
This article was republished from The Conversation under a Creative Commons licence.