The Tax Working Group released its recommendation in late February that a capital gains tax should be introduced on residential investment properties – a plan which was scrapped in late April. The latest ASB housing confidence survey largely captures the period in between these announcements, and the results imply that most respondents expected a capital gains tax on residential investment property would have a fairly material impact on the housing market.
"Despite the capital gains tax being ruled out, we still expect that many investors may remain on the sidelines this year as investors navigate a variety of recent policy changes that will impact investment property ownership," says Tuffley.
"We will be keenly watching our next quarter’s housing confidence survey to see how much (if any) of the fall in house price expectations is reversed," says Tuffley.
The majority of respondents remained on the fence when it came to sentiment around whether it was a good time or not to buy with 50% saying it was neither good nor bad. Overall, the net balance was slightly more positive that the previous quarter – up to net 4%. Cantabrians remained the most positive, though this optimism had waned slightly.
"With the housing market in Canterbury heating up and housing market conditions starting to tighten, we were unsurprised to see buying sentiment gradually waning in Canterbury, with just a net 8% seeing it as a good time to buy – down from 12% in January," says Tuffley.
"We are surprised how balanced sentiment remained throughout the rest of the country, where the housing market in most regions is very tight and very hot. A net 2% of respondents see now as a good time to buy in the North Island (excluding Auckland) and a net 2% see now as a bad time to buy in the South Island (excluding Canterbury)," says Tuffley.
There had been steady improvement in buying sentiment throughout the country over the past year, Tuffley says, despite markets in many regions remaining very competitive and house prices growing strongly.
"We expect lower interest rates will increase the demand for housing in these areas and for market conditions to continue favouring sellers outside of Auckland, Canterbury, Northland and the West Coast of the South Island," says Tuffley.
Several of the Labour Government’s housing policies had reduced investor demand at the margin Tuffley says, including the Healthy Home Bill, ring-fencing tax losses on rental properties, and restrictions on foreign buyers. He said this would likely impact the Auckland housing market the most.
"We expect the Auckland housing market trends to remain driven by first-home buyer appetite.In Auckland flat house prices vs. growing household incomes has seen an improvement in affordability – albeit from extremely stretched levels. We expect Auckland’s house-price-to-income ratio to continue to gradually fall, with the Auckland market achieving a 'soft landing'," says Tuffley.
The full ASB Housing Confidence Survey for the three months to April 2019 will be available online at www.asb.co.nz Other recent ASB reports that also include housing commentary can be accessed via a Search page https://reports.asb.co.nz by selecting the keyword 'Housing'.