There is some hope on the horizon for hopeful home-buyers, with the Real Estate Institute observing the start of "a gradual slowdown in the pace of price growth".
While house prices were "considerably higher" in December 2021 compared to December 2020 - an annual increase of 21.5 percent - Real Estate Institute NZ (REINZ) chief executive Jen Baird sees a silver lining.
"We are noting signs of deceleration in annual price growth compared to previous months," she said in REINZ's latest property market report for December 2021.
"While the market remains confident, the impact of rising interest rates, tighter lending criteria and changes to investor taxation restrictions are starting to shift dynamics.
"In particular, the amendment to the Credit Contract and Consumer Finance Act (CCCFA) on 1 December 2021 - which requires stricter scrutiny of borrowers' financial health - seems to have had an immediate effect."
But who is it benefitting? Certainly not first-home buyers, according to several housing market insiders, including Baird.
"Feedback from several regions notes a falloff in buyer numbers - particularly first-time buyers - as a result," Baird said of the amendment to the CCCFA.
Century 21 New Zealand owner Tim Kearins made similar observations.
"Unfortunately, it's first-home buyers who are bearing the brunt of it," he said of the Government's lending restrictions that took effect in December - restrictions that were intended to keep loan sharks and predatory lenders at bay.
"The reality is only a handful of first-home buyers are now allowed to borrow more than 80 percent, so most are falling well short with their deposit. On top of that, significantly fewer mortgage applications are being approved because banks now need to conduct ultra-conservative assessments on all new borrowers."
How did lending get so tight?
House prices have been inflated thanks to historically low interest rates and lack of supply. The Reserve Bank dropped interest rates in response to the COVID-19 crisis to encourage lending and keep the economy stimulated, which led to soaring demand for houses.
Across New Zealand, 83 percent of suburbs saw a median value rise of $100,000 or more in 2021, according to new CoreLogic data. There are now 31 suburbs with median values of $2 million or more - 28 in Auckland, one in Wellington (Seatoun), and two in Queenstown.
But this is now tipped to change with the Reserve Bank slowly increasing interest rates and tightening conditions for mortgage lending, and the Government cracking down on investors and risky borrowing.
In November, the Reserve Bank tightened restrictions on lending, with a 2013 measure known as loan-to-value ratio (LVR). LVRs were removed in response to the economic impact of COVID-19 in 2020 and later reinstated in March last year.
Banks are now only able to lend 10 percent of their new lending to owner-occupiers wanting to borrow more than 80 percent of a house's value. For investors it's at a maximum of 5 percent of new lending to borrow more than 60 percent of a property's value.
On top of that, banks are now declining loans due to prospective borrowers spending too much on takeaways, drinks from a dairy and Christmas shopping, thanks to the CCCFA changes.
It's not a good look for Labour who promised to help first-home buyers.
Commerce and Consumer Affairs Minister David Clark has called for an investigation into new home loan regulations to be brought forward amid concerns banks were adopting too hard a line with the guidelines.
"I'm pleased the Government has asked the financial regulators to bring forward their investigation as to whether the CCCFA is being implemented as intended," says Kearins.
"These latest statistics will be a wake-up call to the Government and Reserve Bank. If they continue to tighten the screws too hard, the very people they're trying to protect will be the ones most adversely affected."
What's the Government's plan?
As house prices soared in 2020, the Government in March last year launched a suite of policies aimed at helping first-home buyers into the market, including the controversial move to end tax deductions on interest costs for rental properties, as investors made up the biggest share of buyers in the market.
It's expected to pocket the Government $800 million from landlords.
The Government further cracked down on property investors by increasing the bright-line test - the tax on property investment - from five to 10 years, however it will be kept at five years for new-build investment properties to help incentivise supply.
The Government also tweaked income caps for state deposit assistance, though it isn't keeping up with inflation.
In a rare display of bipartisanship, Labour and National in October jointly announced a law change to speed up the process of forcing councils to allow more apartment blocks throughout the biggest cities in New Zealand.
Tier 1 councils - Auckland, Hamilton, Tauranga, Wellington and Christchurch - must enable intensification in their plans by August 2022, brought forward by one year. The new law allows three homes up to three storeys, to be built on most sites without the need for resource consent.
The Government has also allocated $3.8 billion for housing infrastructure and those tier 1 councils have to deliver at least 200 new homes to be eligible.
Labour's initial plan to help first-home buyers flopped. KiwiBuild promised 100,000 affordable homes in 10 years but so far just 1296 KiwiBuild homes have been delivered in three years. You can read more about that here.
The Government's focus turned to finding new ways to help first-home buyers, such as progressive homeownership, which has resulted in 53 new households.
The Government has made significant gains in delivering state houses, though not all of them have been new-builds, as Newshub explained in July. Housing Minister Megan Woods has set an expectation that new-builds be prioritised.
There are good signs. Annual figures for the last nine months show more new homes have been consented than ever before - 48,522 new homes were consented in November, up 26 percent on the previous year.