The real estate scenario has changed drastically in countries like New Zealand, Canada, but for Australia the scene is different. Sydney homeowners have spent the better part of two decades being told property only goes one way. Across the Tasman, and further afield in North America, plenty of people used to believe the exact same thing.
New Zealand and Canada are now living proof that the story doesn’t always end well. Both rode extraordinary property booms through the pandemic years, only to watch values slide for the better part of half a decade afterwards. Australia is only just starting down that same road, and the experience of these two economies offers a pretty useful preview of what might come next.
Two Booms, Two Busts, One Common Trigger
The numbers out of New Zealand’s housing market are genuinely startling. Due to inflation real estate has been on the upside since 2010 and saw an all time high in early 2022. It has been recorded that in these 12 years New Zealand’s real estate has surged over 164 per cent. In Canada this uptick is even more, 150 per cent in the same stretch. In Australia, despite already having some of the priciest housing on the planet, prices rose a comparatively modest 40 per cent after inflation across that window.
Then came the rate shock. Once Russia’s invasion of Ukraine sent inflation spiraling globally, central banks everywhere reached for the same blunt tool. New Zealand’s Reserve Bank moved first and hardest, pushing its cash rate to 5.5 per cent. The Bank of Canada wasn’t far off, taking its own rate to around 5 per cent. The Reserve Bank of Australia, by comparison, stopped hiking once it reached 4.35 per cent, a gap in interest rates that turned out to matter enormously.
Why the Losses Ran So Much Deeper Overseas
Rate settings alone don’t explain the full picture. Immigration policy played an outsized role too. Canada deliberately clamped down on arrivals, including international students, choking off a major source of housing demand almost overnight. New Zealand didn’t need to impose restrictions at all — its own citizens simply left in droves, chasing better-paid jobs across the Tasman as unemployment climbed at home. That exodus took pressure off local housing demand in a way policy never could.
Australia took the opposite path. Migration kept flowing in at levels well beyond what the construction industry could match, which is part of why prices here held up so much longer than they did in either of its Pacific neighbors.
Unemployment tells a similar story. Joblessness on both fronts climbed well past domestic levels, with some Canadian cities, including Toronto, seeing rates push up towards 9 per cent. Combine job losses with steeper borrowing costs and it’s little wonder household budgets buckled, dragging retail spending and broader confidence down with them.
The Ripple Effects beyond Real Estate
A housing downturn rarely stays contained to housing. In both economies, weaker values have fed directly into softer household spending, with retailers reporting difficult trading conditions on both sides of the ledger. The Canadian economy carries the added complication of US tariffs weighing on growth, adding another layer of pain on top of an already fragile property market.
Domestic conditions aren’t immune to the same dynamics. Economic growth here is expected to stay below 2 per cent this year, leaving policymakers little room to move if the slowdown starts to bite harder than expected. Even well-known retailers have already flagged tougher conditions ahead, a sign that the wealth effect from years of rising prices may be starting to fade.
Governments Are Already Reaching for the Levers
Ottawa isn’t sitting on its hands. Having tightened immigration two years ago, policymakers are now trying the opposite move on housing supply, with government efforts underway to buy up unsold apartments and convert them into affordable housing rather than let developers absorb crushing losses.
The Kiwi downturn, meanwhile, has started to stabilise without yet showing genuine signs of recovery. Supply there remains tight, but with demand still soft, the turnaround homeowners are hoping for hasn’t materialized.
What Australia Can Actually Learn
The clearest lesson from overseas is that interest rates matter far more than most households appreciate. Smaller hikes here bought time, but they didn’t provide immunity — they simply delayed the reckoning. With borrowers now carrying mortgages worth several times what they were relative to income decades ago, even modest changes to borrowing costs can inflict outsized pain compared with the double-digit settings of the 1980s and 90s.
The other lesson is about balance. Neither New Zealand nor Canada expected their downturns to run this deep or last this long. Australia would do well to treat their experience as a warning rather than someone else’s problem.