NZ residential rental market news, April 14

National rent rise stalls, DTI's incoming and OCR rise affects home loan rates.

The bullet points from this week:

National rise in rent slows

Rise in residential rents in NZ may be slowing down. 
National median rent for all property types was $560 in February, down from $575 in January. 
The annual increase in median rent compared to February last year was 1.8%. 
Most bonds received by Tenancy Services are for newly tenanted rentals, which set the benchmark for market rents. 
Four regions had unchanged rents from a year ago: Northland, Auckland, Wellington, and Tasman. 
Two regions had double-digit annual increases: Gisborne and Taranaki. 
Increases in rents mostly occurred in the first half of last year, and in most places, rents stabilized in the second half of last year. 
Median rents declined in February compared to January in nine regions and remained unchanged in four regions. 
Only three regions had higher median rents in February than they did in January. 
Bond data for Auckland CBD, which is dominated by investors and international students, showed a significant drop in median rents in February. 
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Reserve Bank's paper signals DTI's

Reserve Bank of New Zealand (RBNZ) released a discussion paper on how and why house prices become unsustainable. 
The paper suggests that buyers should expect more market interventions in the future. 
The paper concludes that most central banks prefer the use of macroprudential interventions (including loan-to-value ratio restrictions (LVRs) and debt-to-income ratio restrictions (DTIs)) to control the economic effects of rapid price growth and mortgage debt. 
Interest rates are more effective than macroprudential policies at affecting house prices, but most central banks do not consider they have a mandate to use interest rates to target house prices. 
The Reserve Bank's primary obligations include maintaining price stability, financial stability, and maximum sustainable employment. 
The paper may be touched on again by the Reserve Bank when it makes a final decision over whether to implement DTIs, and formalized stress testing requirements of borrowers by banks. 
The Reserve Bank does not set a percentage target for house price changes like inflation. 
The slow decline of interest rates across the globe over the last two decades was likely to have been a factor in the boom in house prices. 
Higher interest rates can slow down housing market activity and reduce the size of price and building cycles.   
Read the article
Download the RBNZ paper

Opes' predictions

The Reserve Bank will likely introduce debt-to-income (DTI) restrictions in the next few years. 
Once this comes in, borrowing capacity will decrease, and property portfolios will likely slow down. 
The DTI limits how much you can borrow based on your income. 
The maximum DTI ratio is not announced yet but is expected to be around 6x or 7x. 
Property investors and owner-occupiers with large mortgages will be hit the hardest. 
To keep investing, renovate properties for high gross yield, use non-bank lenders, or invest in new builds. 
DTIs will officially come in sometime from March 2024 onwards. 
When DTIs come in, LVR restrictions could be loosened. 
Low-debt investors or those investing in new builds will not be impacted much.
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The OCR leads to rise in home loan rates

ANZ and Westpac have both raised their home loan rates by 40 basis points. 
ANZ raised its floating rate to 8.39%, effective April 27, while Westpac's rate will be effective from May 1. 
Westpac has reduced its fixed rates for three years and longer to 5.99%. 
Westpac's three-year rate is now 60 basis points lower than ANZ's. 
Westpac's move puts challenger banks in a tougher spot. 
Westpac also raised term deposit rates for one to 18 months, but cut rates for three to five years. 
Bonus saver account and Notice Saver account rates were also raised by Westpac.
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Cost to build shows signs of slowing

Construction costs in New Zealand are increasing, but the rate of growth has slowed down. 
The Cordell Construction Cost Index shows a 0.6% rise in construction costs in the March quarter which is well below the average quarterly increases of 2% recorded in 2021 and 2022. 
The annual growth rate has decreased from 10.5% to 8.5% in the three months to March. 
The worst of the construction materials crisis is over, according to CoreLogic Chief Property Economist Kelvin Davidson. 
The rate of growth in costs to build a residential home is at its lowest since late 2020. 
Rising interest rates have caused a drop in the number of new homes being consented, which would ease demand pressures. 
The availability of important materials such as plasterboard has improved, and timber prices have stabilised to some degree. 
Metal components are showing a similarly flatter trend for prices too. 
The pipeline of housing that's already been approved remains large, so the slowing influence on actual output volumes and construction cost growth may take a while to show through clearly. 
The widespread devastation caused by Cyclone Gabrielle and rebuild requirements may place new upwards pressure on construction costs as resources are redirected to that work. 
The longer-term trend points to a continued slowdown in cost inflation as new-build workloads ease into 2024 and capacity pressures become less acute. 
Demand incentives such as tax advantages for people to invest in new-build properties should give developers some degree of confidence to keep bringing forward new projects. 
Download the report
Read the article

What regulations are in store for property managers?

The proposed regulation of residential property management will be enforced in 2026, with the Real Estate Authority acting as the regulator 
Fines will be imposed for unsatisfactory conduct, misconduct, and criminal offenses 
A tiered licensing structure for individuals and organizations will be introduced 
There will be different licensing classes with specific training, experience, and practice requirements, including a provisional license with restrictions, licensed residential and supervisory property managers, and licensed residential property management organizations 
The scope of the regulation does not include Kāinga Ora, Community Housing Providers, and private landlords with less than six properties 
Healthy Homes Standards compliance timeframes for private rentals, Kāinga Ora, and Community Housing Providers have been extended 
New notice periods for ending tenancies due to family violence have been introduced 
Landlords will be required to provide a 90-day notice for no cause terminations instead of the previous 63-day notice.  
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