Housing affordability improved in 2025, but unevenly and with regional variance

Affordability for those seeking a new tenancy and people entering the housing market has continued to improve across both saving for a deposit and servicing a mortgage. As we noted in our last feature on First Home Buyers, it’s unusual to see both deposit affordability and mortgage serviceability improve at the same time.

This is because when interest rates fall, mortgage affordability might improve, but deposit affordability will decline as lower rates translate to house prices rising. 

What is CHAI (and why is it different)? 

CHAI looks at affordability through a simple but powerful lens: how housing costs are changing relative to household incomes, rather than rents or house prices or mortgage interest rates in isolation. So, it gives an indication of direction of travel – is affordability improving or worsening - as opposed to whether something is affordable or not.

It tracks three things:

• Rental affordability: changes in rents for new tenancies compared with income growth 
• Deposit affordability: changes in house prices compared with income growth
• Mortgage serviceability: changes in incomes over mortgage interest costs (which are calculated by tracking the change in interest rates and house prices)  

This makes CHAI especially useful for understanding entry level pressures, rather than conditions faced by existing owners.  

We should note here, though, that indicators do not reflect differing experiences of affordability. They compare the change in median household income relative to overall house and rent price movements, as well as changes in average home loan interest rates. However, individual experiences of affordability will vary, for example households with incomes lower than the median. Experience of affordability will also differ for households that do not experience median income growth or that pay different home loan interest rates or rents.

So, the numbers - rental affordability is still improving, but momentum is slowing

Nationally, rental affordability improved 3% over the year to December 2025, extending the recovery that began in late 2023. However, this is slower than earlier in 2025, when affordability was improving at an annual rate of over 4%. The reason is straightforward: whilst incomes are still rising, rents are still falling, but not as fast as they were.

In other words, the affordability gains are continuing, but the tailwinds are easing.

What’s the regional picture?  

The national picture hides very different regional dynamics.

• Wellington:  The improvement in rental affordability in the capital peaked in September 2025 at 11% but dropped back a little in December to 8%. This was due to a change in rent price inflation, so whilst rents were still falling, they weren’t falling by as much (-6% compared to -4% in December 2025).
• Canterbury: After a year of improving rental affordability, conditions slightly deteriorated in the December quarter as rental inflation picked up to 2.8% so that the change in rental affordability fell back to 0%.  
• Otago: Rental affordability has been improving since late 2024, driven by a dramatic slowdown in rental inflation, from a peak of 12% in mid-2023 to just 0.7% by December 2025, resulting in rental affordability rising 3% over 2025.

These examples show that local supply, population flows, and income trends matter.

Deposit affordability: falling prices in the north, rising incomes in the south

Nationwide deposit affordability improved 4% over 2025 as incomes grew 3% and house prices fell 1%.  Again, however, the North and South Island painted a different picture with deposit affordability improving in both cases, but for different reasons:

• In much of the North Island, affordability gains came more from falling house prices. In Auckland prices fell 4% and incomes rose 2%, resulting in a 7% improvement in deposit affordability.  
• Likewise, Wellington house prices fell 8% over the year, but incomes rose 3%, delivering an improvement in deposit affordability of 12%.
• In most of the South Island, affordability improved, but not as significantly because house prices didn’t fall as much, or even rose in some areas with Canterbury, Otago, and Southland all recording positive house price growth

Mortgage serviceability: the quiet hero

Mortgage serviceability remained positive in all regions, largely because borrowing costs have been falling since their 2022 peak. Lower interest rates have increased purchasing power for new buyers and offset some of the pressure from still high house prices.

But this support may be temporary.

The Reserve Bank has signalled that the OCR is at its low point, with possible increases toward the end of 2026. Global cost pressures, including those linked to geopolitical tensions, could accelerate that timeline, and already longer-term interest rates are rising.

Where to from here?

Rental affordability gains are slowing, but as rents are unlikely to increase significantly in the near term, we shouldn’t see affordability decline in 2026 at a nationwide level, unless net migration picks up unexpectedly. 

Likewise, house price growth will also remain suppressed for the near term, so as long as wage growth continues, the affordability of deposit and mortgage serviceability shouldn’t decline much. However, if interest rates rise more than expected, we might see mortgage serviceability decline further.