Notwithstanding the global pandemic, the NZ housing market has hogged the local media headlines as well as the domestic political and market narrative. House price inflation is rampant (22% yoy and climbing). There is the view that the circa $1.5 trillion housing market has become a one-way bet, benefitting property owners and bolstering investor demand at the expense of those wanting to get onto the housing ladder. Something needed to be done.
Last week, the Government rolled out a trifecta of policies to bolster housing affordability and provision (see our take). Ultimately, we need to build more homes, but it will take time for the $3.8bn Housing Acceleration Fund to bear fruit. In the interim, the Government has moved to slow the buying demand from residential property investors, who typically account for around 30% of all property purchases and own more than 600,000 rental properties. Moves to extend the bright-line test from 5 years to 10 will effectively see a longer lock-in period for property investors and fewer property sales.
However, the policy that caught the most attention was the removal of interest rate deductibility from investor housing. Starting from October this year, deductibility will be reduced in 25% increments and will be fully phased out by April 2025. This policy will generate a significant amount of additional tax to be paid by property investors and will weigh on investor cashflows. The nationwide impacts would be in the region of $0.5-$1bn per annum according to our estimates. The impacts will uneven and will hit property investors with higher levels of debt and smaller cashflow buffers. It will lower the purchase price for dwellings that investors would be willing to pay. It could also trigger widespread increases in dwelling rents as landlords seek to recoup higher after-tax costs.
There could be more to come. In May the RBNZ will be reporting back to the Government on whether to impose debt-to-income limits and to curb interest-only mortgage lending for investors. Considering more than 40% of investor lending over the past year was interest only, the impacts on investor cashflows and demand could be sizeable.
What will be impacts of these policies be? The simple answer is that we do not know at this early stage. Our initial thinking is that house price growth will slow more sharply than we had factored in, but that the policies will not necessarily trigger outright price falls. Broader economic activity would also be weaker than it would otherwise be, while higher rents could add to NZ CPI inflation. We will be closely monitoring the housing market over the next few months with a focus on property listings, sales volumes, house prices and dwelling rents. Stay tuned. firstname.lastname@example.org.
Originally hailing from sunny Nelson, Jane moved to Auckland to join the ASB team in 2008. As Senior Economist, Jane's main focus is co-ordinating the team’s macro-economic forecasts. In this key role, Jane was thrilled by the team’s twice consecutive win of the Consensus Economics Forecast Accuracy award.
During her decade-long career in economic forecasting, Jane has gained a thorough knowledge of the New Zealand economy. Her current focus is on New Zealand GDP growth, including both manufacturing and the construction sectors. She has spent time forecasting most sectors of the economy, including inflation, trade, housing, labour and financial markets.
Prior to joining ASB, Jane honed her macro-economic forecasting skills at the Reserve Bank of New Zealand. Jane is a qualified scarfie, attending Otago University and graduating with a Bachelor of Commerce in Economics with 1st class honours. In 2014, she took a career break from ASB to travel the world and learn to snowboard.
Mark joined ASB in 2017, with over 20 years of public and private sector experience working as an economist in New Zealand and the UK.
His resume includes lengthy stints at ANZ and the Reserve Bank of New Zealand, and he has also worked at the Bank of England, HM Treasury and the New Zealand Transport Agency. Mark's areas of specialisation include interest rate strategy, macro-economic analysis and urban economics.
Born and bred in the Waikato, Mark studied at Waikato University where he graduated with a Master of Social Sciences, majoring in Economics.
Mark's key strengths are the ability to use his extensive experience, inquisitive nature, analytical ability, creativity and pragmatism to dig a little deeper and to deliver common sense solutions to tackle complex problems.
When not at work Mark likes to travel, keep fit and spend time with his friends and family.
Mike joined ASB in 2019 armed with almost 15 years of experience in applied macroeconomic and financial markets analysis.
Mike's career has been all about distilling the risks and opportunities of economic and financial market trends for business. Basically asking the "what does it all mean" question. Mike's enthusiasm and skill for drawing out practical, commercial insights from the murky world of economics has been honed over a relatively broad base of experience.
After spending the early part of his career on the tools at the Reserve Banks of both NZ and Australia, Mike had a lengthy stint at BNZ where he was NZ’s top-ranked currency strategist. His regular and topical macro research also saw him pick up several FX forecast accuracy gongs from Bloomberg.
Drawn in by the prospect of putting strategy into practice, Mike moved from Wellington to Auckland in 2013 to join Fonterra as GM Treasury Risk Management. In this role, Mike lead Fonterra’s macroeconomic research output, and was responsible for the strategy and execution of Fonterra’s foreign exchange, debt, and interest rate hedging programmes.