NZ residential rental market news, December 1

Coalition policies that affect landlords (and their impacts), what will the 2024 housing market look like, and 200,000 home loan accounts are past due.

Too long; didn't read? Here are this week's TLDRs...

November insights from Realestate co nz

Certainty around governmental leadership, the economy, and the maintained OCR at 5.5% contributed to positive market sentiment in November 
Selling by auction remained the most popular method, constituting almost a third of all listings. 
There was a national increase in new listings of 5.2% YoY. 
The national average asking prices were generally stable in November with Coromandel experiencing the most significant YoY decrease, down 14.3%. 
Demand for property went up, with searches per listing increasing by 18.3% and engagements per listing up by 45.0%. 
National stock remained flat YoY in November, with a 1.5% decrease. 
Over the last 12 months, demand for property has been trending upwards. 
Gisborne, Hawke’s Bay, and Wellington experienced the most significant increases in demand, indicating high competition in these regions. 
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TradeMe’s Property Price Index

National average asking prices increased by 2.4% to $860,750 month-on-month, the most significant rise in almost two years. 
Hawke’s Bay experienced the highest property price growth, with a 4.1% surge in average asking prices reaching $771,600, while Hastings and Napier also saw substantial rises. 
Auckland, despite an 8.1% year-on-year decline, remains the most expensive region, with an average asking price over a million dollars at $1,054,800. 
In contrast, the West Coast sees a 7.3% increase, maintaining affordability at $469,900. 
Property supply across New Zealand dropped by 6% year-on-year, with Wellington recording a significant 26% decline from October last year. 
Overall property demand increased by 7%, notably in Gisborne (16% rise) and Hawke’s Bay (14% increase) compared to September. 
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Where are prices going up and where are the highest valued properties?

The CoreLogic House Price Index reports a 1.1% increase in the average value of NZ homes from September to November. 
This is a 4.5% decrease compared to November last year. 
Average values increased in most main centres: Dunedin saw the highest rise at 2.9%. 
Tauranga was the only major centre with a decline, showing -0.6%. 
Banks Peninsula experienced the largest increase in average values at 8.3%, while Wairoa had the biggest decline at -9.6%. 
Queenstown-Lakes has the highest average dwelling values at $1,731,508, and Buller has the lowest at $341,899. 
Despite growing sales volumes, the market hasn't taken off due to a low base. 
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Construction costs have stabilised while number of consents plummets

Stats NZ reports a 20.6% decline in new dwelling consents nationwide over the 12 months to October, dropping by over 10,000. 
Standalone houses experienced the largest decline at -26.2%. 
Main centres also saw a decline in planned residential construction: Auckland (-24.1%) and Tauranga (-21.0%). 
QV's CostBuilder database shows a 4.9% increase in the average cost of building a standard three-bedroom home over 2023. 
This is a decrease from the 11.3% increase in the year to November 2022 and 14.7% in the year to November 2021, indicating a moderation in recent cost increases. 
Construction costs have stabilised in the second half of the year due to an improved global economic outlook and fewer supply chain issues related to the Covid-19 pandemic. 
The most significant trade price change was for reinforcing steel, which decreased by 16.9%, mainly due to a favourable exchange rate. 
Infrastructure costs went up by 7% due to higher plant hire and drainage costs, and demolition costs increased by 5.1% due to higher plant hire and tip fees. 
Factors such as stabilised fuel costs, declining inflation, and expected near-peak interest rates, along with increased migration addressing labor shortages, are keeping rising costs in check. 
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ANZ: Expect a decline in house prices

ANZ economists express a slightly bearish outlook, expecting a decline in house prices this year. 
October's 0.4% rise in house prices was weaker than anticipated, leading to a revised 2023 forecast predicting a 0.4% decline in house prices (previously a 0.2% rise). 
Forward indicators of sales and new listings suggest potential further softness, and if momentum doesn't recover post-election, the 2024 forecast may also face a downgrade. 
New residential listings surpass year-ago levels, increasing supply and making it challenging for house prices to rise significantly in the coming months. 
The report notes a large existing inventory that needs to decline before meaningful price increases can occur. 
ANZ anticipates it will take years for residential property prices to reach the highs of the 2021 peak. 
Weaker than expected labor market conditions lead ANZ to soften expectations about the OCR, and they no longer expect the Reserve Bank to increase the OCR next year. 
ANZ, as New Zealand's largest residential mortgage lender, holds a total loan exposure of over $105 billion as of September 30. 
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FHBs are active but increasingly cautious

In October, 2,437 new mortgages were approved for first home buyers, a slight increase from September but slightly less than in August. 
FHB' share of the housing market has remained unchanged for the last five months, consistently at 37% since June. 
The percentage of low equity loans approved to FHBs with less than a 20% deposit decreased from 32% in August to 29% in October. 
The average amount borrowed by FHBs in October was $617,564, the lowest since April. 
Interest co nz estimates the average amount FHBs paid for a home in October was $677,347.
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Number of houses for sale up 37% in Coromandel, down 22% in Wellington

The Reserve Bank expects the house price recovery to extend to 2026, despite a recent upward revision in the pace of recovery. 
Turnover in housing varies across regions, with Whenuapai, Auckland, having the fastest rate of turnover (8.2%) and Waihi Beach having the lowest (1.2%). 
In November, the number of houses for sale increased in Coromandel (37.4%), Central North Island (22.1%), and Northland (19.8%) but decreased in Gisborne (-20.5%) and Wellington (-22%). 
Suburbs still furthest down relative to peak include Hutt Central (-29%), while Mornington, Wellington, showed the largest increase from the trough (8%).
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Number of home loan borrowers behind approaches 20,000 and continues to grow

Almost 20,000 home loan accounts are past due, a 25% increase from a year ago, according to credit bureau Centrix. 
In October, 1.29% of home loans were past due, up from 1.25% in September, indicating a continuing upward trend. 
As loans are refinanced to higher rates, the trend may extend into 2024. 
Mortgage demand was down 7.7% in November compared to the previous year. 
Clients seeking help due to mortgage trouble increased to 7%, up from 4% in the first quarter. 
The Reserve Bank anticipates further mortgage challenges, expecting the average rate on outstanding mortgages to increase from 5.4% to 6.4% by mid-2024.
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House-flippers push Otara prices back to the $1m mark

Otara hit $1 million house sales in 2020 but saw prices plunge over 13% afterward. 
The latest figures show Otara is one of the country's fastest-growing suburbs, with a 7% increase in average property value to $767,000 in the three months to November. 
This growth is attributed to flippers renovating old stock for families, and the suburb attracts buyers seeking freehold land with large sections. 
Big families are buying renovated homes, appreciating the work done, with some properties selling for $900,000 or more. 
Ray White Manukau co-owner expects Otara prices to bounce back to $1 million by early next year, driven by families and cautious developers. 
Developers are more cautious this time, considering infrastructure capacity and potential costs before purchasing properties for development. 
Property flippers are back on the scene, with renovated properties seeing significant price increases in Otara. 
Developers are becoming more active in Papatoetoe after prices rose too high in Flat Bush, and more vendors entering the market are expected to boost prices.
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‘Business as usual’ as the OCR stays the same

The RBNZ decided to keep the OCR unchanged at 5.5%, in line with expectations. 
Data since the last decision showed CPI inflation decreasing and the unemployment rate rising, aligning with expectations. 
The Committee's highlighted the high population growth's impact on demand and maintaining inflation above the target. 
The incoming Government's policy program will be assessed for its implications on economic activity and inflation as it is incorporated into official forecasts. 
No change in the Bank's mandate to focus solely on price stability was mentioned. 
The surprising element was the refreshed OCR track, with an upward revision to the OCR peak to 5.69 in September 2024, delaying the expected OCR cuts until the end of 2025. 
The likelihood of raising the OCR again in this cycle remains low. 
The RBNZ's firm stance on the OCR reduces the chances of significant falls in shorter-term mortgage rates within the next 12 months. 
This is expected to limit housing market activity and prices, especially if job losses increase. 
The slow and patchy housing market recovery is anticipated due to stretched affordability, high mortgage rates, and potential caps on debt-to-income ratios in 2024. 
Sales volumes are expected to rise, but even with a 10% growth next year, they would remain at a low level, and price gains of 'only' 3-5% in 2024 would not be surprising.
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Tony Alexander’s commentary on the OCR decision – and what it means for 2024

Record net migration is expected to increase pressure on rents and encourage house buying, leading to a potential recovery in the house construction sector around early 2025. 
The Reserve Bank's decision to leave the OCR unchanged at 5.5% was anticipated, but its comments were more hawkish than expected, citing additional inflation from the migration surge. 
Despite a more rapid easing of the labor market, the Reserve Bank sees the migration boom contributing to overall inflation and stronger household spending. 
They debated between leaving the cash rate unchanged and raising it, with no consideration for a rate cut which allows for one potential rise in the cash rate next year. 
The likelihood of a cash rate increase in 2024 is considered low, as the Reserve Bank awaits new government policies, potential negative impacts on farm incomes from El Niño, and the expected slowing of wages growth due to high migration inflows. 
Current high mortgage rates continue to impose restraint on buyers, with little evidence of frenzy or increased demand from investors. 
Rising costs for insurance, maintenance, and council rates, along with high mortgage rates, make property investment less favourable for investors. 
The window of opportunity for young buyers to make a purchase remains open, but it may close when inflation outlook improves and interest rates start moving lower, potentially influenced by debt-to-income rules introduced next year. 
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$1.675M property goes to auction with $1 reserve

An elderly homeowner in Papatoetoe may sell her uninhabitable home for $1, motivated to move to a newer residence. The 1950s property, valued at $1.675 million with $1.65 million in land value, is listed with a $1 reserve auction, attracting potential interest from developers due to its zoning. Despite needing significant work, the $1 reserve could entice buyers, and the agent notes limited initial interest, potentially offering a bargain. The auction is scheduled for next Tuesday. 
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Opes Partners: A new Govt. policy overview 

Interest deductibility is coming in quicker—60% this tax year, 80% in 2024/25 and 100% in 2025/26. 
The Bright-Line gets rolled back to 2 years from 10. 
Tenancy rule changes reduce risks for investors, including 90-day "no clause" terminations and shorter notice periods - If you want to move back into your property, you only have to give 42 days notice rather than 63. 
And soon, pet bonds will be introduced. 
There will also be attempts to make it easier to get a mortgage through rewriting the CCCFA. 
Easier regulations for building granny flats and minor dwellings will be introduced, allowing construction with only an engineer's report. 
National plans to pay councils to approve more consents, stimulating building activity. 
They will also look at forcing councils to rezone land for the next 30 years of population growth, making more land available for building. 
Demand for properties is expected to rise quickly with the new policies. 
Supply-side factors will take time to implement, ranging from 6 months to 2 years for house construction. 
The interplay of increased demand and gradual supply enhancement may lead to a swift rise in house prices, as indicated by the Reserve Bank's revised prediction of a 5.2% increase next year. 
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The new policies’ impact on the housing market

National’s Foreign buyer tax is off the table, removing any potential impact. 
The accelerated timeline for Mortgage interest deductibility may have a limited impact due to low rental yields and high interest rates. 
Potential brightline test changes (a cut from 10 years to 2) haven’t been mentioned, suggesting they will go ahead. This could see an increase in both purchases and sales in the market. 
The RBNZ has been told to focus on inflation, a change from their past mandate to consider employment, and earlier, house prices. This will have little impact as the RBNZ’s actions as of late have been focused on inflation.  
Under the new coalition government, landlords will be able to evict tenants without providing a reason or applying to the Tenancy Tribunal, which investors have said will make them more likely to ‘take a chance’ on tenants. 
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Estimated $900M price tag on interest deductibility and uncertainty remains

Residential landlords may reclaim taxes under the National-Act coalition deal, a move considered unusual and unorthodox. 
The accelerated restoration of interest deductibility, allowing landlords to claim 80% in the upcoming tax year, accelerates the process a year earlier than expected. 
CTU economist Craig Renney estimates the additional cost of this acceleration to be around $900 million for the new government, contributing to a widening financial gap in the tax package. 
The retrospective nature of these changes raises concerns, as landlords would receive rebates on taxes already paid, potentially rewarding them without benefiting tenants. 
Practical challenges arise for landlords as they navigate uncertainty in paying taxes under the existing or anticipated laws, with potential penalties for underpaid liabilities if not clarified before Christmas.
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Wellington house prices affected by change of government

Wellington's housing market appears especially weak, with sales at multi-decade lows, a 2% month-on-month price drop, and extended days to sell. 
ANZ attributes Wellington's weak market to public sector job cuts, as government ministries downsize and implement hiring freezes. 
Population growth in Wellington is slower than the rest of New Zealand, and the city is consenting fewer dwellings per 1000 people. 
Limited housing supply may eventually support Wellington's market, but it could take time to see the impact. 
Historically, Wellington's housing market performs differently under Labour-led and National-led governments, with a potentially more pronounced effect this time. 
ANZ economists suggest a situation where Wellington's house prices remain steady while prices rise elsewhere, given positive prospects for national house prices.
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