NZ residential rental market news, April 5

Coalition targets major housing reform, Buying vs renting, and Unpaid rent causes woes for landlords.

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

New-Build Price Premium Expected to Shrink Amid Tax Changes 

New dwellings' price advantage over existing properties expected to diminish due to less favourable tax rules. 
CoreLogic NZ reports new builds were 6% more expensive than existing homes but demand may shift. 
New-builds previously benefitted from exemptions in bank lending restrictions and tax incentives. 
Construction sector downturn and tax changes are predicted to cool demand for new developments. 
Challenges in securing pre-sales and an increase in listings could lead to new-build discounts. 
Despite potential price gap reduction, new houses are still valued for better insulation and lower maintenance costs. 
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Housing Market Shows Modest Gains Amid Varied Regional Recovery 

CoreLogic's House Price Index increased by 0.5% in March, contributing to a 1.1% rise in property values for the first quarter of 2024. 
The average property value across the country now stands at $934,806, marking a 3.2% increase from September's low point but still 10.4% below the recent peak. 
The recovery in the housing market has been uneven, with notable increases in Wellington (0.9%) and moderate gains in Christchurch, Dunedin, and Auckland, while Tauranga and Hamilton saw slight declines. 
High mortgage rates are a significant challenge for borrowers, affecting decisions on new loans and the repricing of existing mortgages. 
The RBNZ's projections suggest the OCR may not decrease until next year, indicating that shorter-term fixed mortgage rates might not reduce for another six to nine months. 
A surge in listings activity in early 2024 has increased buyer choices and cooled property prices, shifting the market balance from sellers to credit-approved purchasers. 
In Auckland, property values showed varied performance across different areas, with Rodney and North Shore experiencing growth, while other areas saw stability or declines. 
Regional data for March also displayed mixed results, with some areas seeing growth and others experiencing declines, reflecting the overall inconsistent recovery in the housing market. 
Looking ahead, the housing market faces challenges, with sales volumes and property values expected to rise slowly by historical standards. 
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Mortgage Lending Surges as Market Shows Signs of Recovery

Mortgage lending in February rose 28% year-on-year, with a total of $4.9 billion lent. 
Seasonally adjusted mortgage value increased by 4% from January. 
Market shows signs of returning to normality, with an increase in the number and value of mortgages. 
First home buyers remain active, though numbers are falling with many awaiting interest rate decreases. 
RBNZ doesn't anticipate OCR cuts until next year, but banks and financial markets expect earlier cuts. 
The share of new mortgages to first home buyers slightly decreased from January, but is up year-on-year. 
Investors' share of new mortgages decreased slightly from January and is significantly lower than the 2016 peak. 
Average mortgage loan size has increased across the board; however, investors are taking out smaller loans. 
The share of new mortgages to other owner-occupiers rose, maintaining the majority of the market share. 
The value of new mortgages to first home buyers and investors increased significantly compared to last year. 
The total number of new mortgages written in February increased substantially from January and year-on-year. 
New mortgages for a change in loan provider, as well as top-ups and property purchases, saw significant annual increases. 
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NZ Housing Market Softens with Declining Listings and Price

New listings and average asking prices in March declined compared to February, indicating a potential softening of the housing market. 
Despite this, March new listings increased by 23.9% compared to the same period last year. 
The national average asking price fell nearly $20,000 from February to March but rose 2.7% year-on-year. 
The total unsold housing stock at the end of March was the highest since May 2015, suggesting a shift towards a buyer's market. 
The increase in stock levels from February to March, despite fewer new listings, indicates buyers may have more negotiating power. 
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Flat NZ Housing Market Forecast Amid Immigration and Policy Changes

Bank economists forecast a flat housing market for NZ, with a slight increase in house prices expected. 
Immigration remains strong, and recent government policy changes favour landlords, potentially impacting the market. 
The RBNZ kept the OCR at 5.5% and predicts a 3.4% rise in house prices this year, despite the economy entering a recession in the last quarter. 
Most economists have not significantly revised their forecasts, citing many factors influencing the housing market. 
There's potential for mortgage rates to decline slightly if the RBNZ has finished increasing the OCR. 
The labour market's future impact on household incomes and housing demand is uncertain. 
The gap between new-builds and existing property prices may narrow, with new-builds currently at a premium. 
High net migration and tax changes are expected to support demand, but the overall outlook remains modest. 
Interest rates are anticipated to decrease later this year, contributing to a gradual market recovery. 
Population growth and a significant underbuild of houses are likely to put pressure on both rental and housing markets. 
Investors are advised to consider the potential for future tax policy changes when making decisions. 
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NZ Property Values Rise with Significant Gains in Canterbury and West Coast

Property values increased in 60% of NZ suburbs year-on-year, with the most significant rises in Canterbury and West Coast. 
Mataura saw the largest percentage increase in property value, up 19.5% to $306,000. 
Merivale experienced the most substantial dollar increase, with property values jumping $252,000 to $1.594 million. 
Christchurch and Queenstown-Lakes outperformed other major metros in property value increases. 
Auckland, Hamilton, and Tauranga saw slower recovery, with just over half of their suburbs experiencing value increases. 
Only 21 suburbs have reached or exceeded their post-Covid peak values. 
A surge in market listings has given buyers more bargaining power, slowing the pace of property value growth to 0.5% over the quarter. 
Property values in most regions showed minimal growth in the three months to March 2024, with Bay of Plenty and Gisborne experiencing decreases. 
Economic factors such as interest rate cuts and changes to the bright-line test and interest deductibility are influencing the housing market. 
Agents attribute market performance to affordability, value for money, and proximity to amenities, with external buyers contributing to demand in top suburbs.  
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Upward Mobility on Property Ladder Remains Affordable for Kiwis

Despite high mortgage rates, moving up the property ladder remains affordable for many Kiwis. 
Interest.co.nz data highlights the feasibility for a couple, who bought their first home 10 years ago, to afford a median-priced home now. 
A couple could potentially have 50% equity for a median-priced home, making mortgage payments manageable. 
Ten years ago, the lower quartile price was $280,000, which could sell for $595,000 now. 
The net equity after selling and costs could be $392,309, allowing for a 50% deposit on a $790,000 home. 
Mortgage payments would be about $600 a week, taking up 26% of the couple's after-tax income. 
This affordability is consistent across most regions, with slight variations in places like Auckland. 
In Auckland, homeowners could achieve a 49% deposit on a median-priced home, with mortgage payments up to a third of take-home pay, still considered affordable. 
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Coalition Targets Major Housing Reform by June, Easing Regulations

The Coalition Government aims to implement major housing policy reforms by June's end, focusing on zoning, public housing, rental regulations, and construction materials. 
Prime Minister Christopher Luxon is enforcing a corporate approach with quarterly action plans to ensure ministerial accountability and progress. 
Four key property market reforms include optional Medium Density Residential Standards (MDRS) for councils, a response to the Kāinga Ora review, changes to rental regulations, and easing restrictions on building materials. 
The Act Party claims credit for making MDRS optional and influencing other reforms, advocating for less centralised control over zoning to alleviate housing pressures. 
Housing Minister Chris Bishop plans to redefine zoning rules to ensure a 30-year land supply for development, alongside fast-track consenting and new local government funding tools. 
The Kāinga Ora review, led by former Prime Minister Bill English, is examining the agency's financial sustainability, with expectations of opening public housing to more providers. 
Proposed rental market reforms include restoring no-cause evictions and allowing higher bonds for pet owners, aimed at easing regulations for landlords. 
The government intends to relax restrictions on building materials, allowing the use of products approved in major overseas markets to combat high costs and supply disruptions. 
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Government Eases Overseas Building Product Rules to Aid Affordability 

The Government plans to ease the use of overseas building products to improve affordability. 
This initiative will recognise standards from trusted overseas jurisdictions and require consent for products meeting or exceeding NZ standards. 
The move aims to make building or renovating homes easier and counter supply chain disruptions. 
Industry experts welcome the change but caution about the need for detailed regulation and consultation. 
Concerns remain about ensuring products suit NZ conditions, particularly given past issues with materials failing under local environmental stresses. 
The process of implementation and its impact on market competition and prices is expected to take time. 
The initiative could pressure local manufacturers to remain competitive, potentially stabilising or reducing prices. 
There's caution regarding the acceptance of overseas products by banks and insurers, highlighting the importance of maintaining NZ's building standards.  
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National Median Rent Hits Record High in January 2024 

National median residential rent reached a record high of $608 a week in January 2024. 
This represents a $28 (+4.8%) weekly increase from December and a $33 (+5.7%) increase from January last year. 
National median rent was stable at around $580 weekly in the latter half of the previous year. 
The data, sourced from bond payments for new tenancies, indicates future rent trends. 
Auckland's median rent remained at $650 a week since September, after rising from $600 in the first half of the previous year. 
Otago saw a significant rent increase in January, from $520 to $675, driven by the influx of university students to Dunedin. 
The number of bonds received in Otago has been declining since January 2017, indicating a possible decrease in the popularity of student accommodation.  
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Landlords Plan Rent Hikes Amid Growing Housing Demand and Investment Challenges  

Monthly surveys provide insights into consumer thoughts, business experiences, and real estate market trends. 
Despite rising costs like insurance and maintenance, landlords plan to raise rents by an average of 5.6% in the coming year. 
This planned rent increase is above current inflation but reflects the limits of what the market can bear. 
High interest rates are making property investment less financially viable, despite a need for more rental accommodations. 
New Zealand's population growth, driven by immigration of lowly skilled workers, is increasing demand for housing. 
Landlords report it is easier to find good tenants now, with a record net 27% saying so, likely due to increased population. 
Preference in tenant selection may increasingly factor in aspects like pets, children, or tattoos. 
Construction prospects are worsening, with developers struggling to sell multi-unit developments off-the-plan. 
The future may see labor shortages in construction, exacerbating housing issues as skilled workers might move abroad. 
The potential decrease in landlords planning to hold their properties long-term could further reduce rental stock.   
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Buying vs Renting: Long-term Ownership Often Outpaces Renting in NZ   

Buying vs renting in NZ is a complex decision influenced by financial and emotional factors. 
Initial years of homeownership often cost more than renting, but long-term, owning becomes cheaper. 
Analysis assumes an 80% LVR, median house prices, and median rents from 1999 to 2023. 
Key assumptions include a 20% deposit, median house price purchases, and median rents. 
Homeownership costs are estimated at 1% of the median house price annually. 
Savings return is assumed to be 100 basis points below the 1-year mortgage rate, with interest taxed at 30%. 
The analysis considers simple, cumulative, and discounted cash flows, as well as potential capital gains and savings. 
Home buying advantages include leverage on house price increases, but risks include higher mortgage rates, price declines, and income loss. 
Decision-making is influenced by expectations on rents, interest rates, and capital gains, but many variables and assumptions make outcomes uncertain. 
Despite challenges, many still count on capital gains and non-financial benefits like security of tenancy.  
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Challenges for NZ Investors Amid Recession and Mortgage Repricing  

"Mum and Dad" investors face challenges with low gross yields and high mortgage rates, requiring significant cash top-ups. 
Long-term investors are in a more comfortable position, benefiting from rental growth and reduced debt levels. 
The lack of mortgaged investors potentially makes property acquisition easier for first-time buyers, dependent on deposit and bank criteria. 
New Zealand experienced a technical recession with GDP falling in recent quarters, attributed to RBNZ's interest rate hikes aimed at reducing inflation. 
The possibility of an OCR cut later in the year is slightly increased by weak economic figures, though not certain. 
Mortgage lending is showing a slow recovery, driven by house purchasing activity, with high equity borrowers leading the way. 
A significant portion of existing mortgages will undergo rate repricing within the next year, possibly leading to repayment issues. 
Upcoming ANZ sentiment measures for March could indicate trends in confidence and inflation expectations, potentially affecting OCR decisions. 
The labour market's positive trend aids mortgaged households in adjusting to current interest rates. 
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Mortgage Repricing Risk Looms as New Lending Rises and Market Adjusts 

59% of NZ's existing mortgage loans are due to reprice within the next year, potentially increasing homeowner repayment stress. 
Reserve Bank data shows $4.9 billion of new lending in February, marking the seventh consecutive increase. 
Low deposit lending remains controlled, with most going to first home buyers. 
New-build property prices may underperform compared to existing homes due to cooling construction sector and changing tax rules. 
Business and consumer confidence fell in March, yet inflation indicators are showing a slow decline. 
Upcoming Stats NZ data may reveal growth in filled jobs for February but a potential fall in new dwelling consents.  
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High Interest Rates Stifle NZ Housing Market Growth

High interest rates and a rise in house listings are suppressing price growth in New Zealand's housing market. 
CoreLogic's House Price Index increased by 0.5% in March, with a total rise of 1.1% over the first quarter of 2024. 
The national housing market is balanced, described as "not too hot, not too cold." 
The increase in house listings early in the year has shifted the market from favouring sellers to favouring credit-approved buyers. 
The average property value in March was $934,806, a 3.2% increase from the previous month but still 10% lower than the peak. 
Mortgage rates continue to challenge borrowers, with new tax incentives for property investors considered insufficient to offset high interest rates. 
Wellington experienced the strongest price growth among the main centres at 0.9%, with other cities like Christchurch, Dunedin, and Auckland also seeing gains. 
Tauranga and Hamilton saw slight declines in property values. 
The Reserve Bank's OCR is expected to start decreasing next year, implying that short-term fixed mortgage rates might not reduce for another six to nine months. 
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Unpaid Rent Challenges Mount for NZ Landlords Amid Tough Economy

Landlords are pursuing nearly $1.3 million in unpaid rent from tenants across New Zealand for the early months of 2024. 
An Auckland tenant owed $33,000 in rent arrears over a 21-day period. 
The Tenancy Tribunal issued orders for rent arrears in 431 out of 684 decisions in January and February 2024, roughly half of the previous year's figure. 
The New Zealand Property Investors Federation (NZPIF) suggests the problem of unpaid rent is widespread, but many landlords do not pursue tenants due to the difficulty of recovering funds. 
Changes to the Residential Tenancies Act allow landlords to take eviction actions if tenants are five working days behind in rent on three occasions within 90 days. 
Despite legal provisions, landlords face delays and challenges in obtaining Tenancy Tribunal hearings and enforcing rent arrears orders. 
The economic climate contributes to increasing rent arrears, affecting previously reliable tenants. 
The rise in costs for landlords, such as rates and insurance, alongside compliance and maintenance expenses, has made providing rental properties less viable. 
Tenants often refrain from reporting maintenance issues due to fear of rent increases. 
The housing shortage is exacerbated by a decline in rental property supply, with some landlords exiting the market due to low returns compared to other investments. 
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NZ Mortgage Arrears Rise Amid Higher Interest Rates and Sales Slump 

Mortgage arrears in New Zealand increased to 1.51% in February, reaching the highest level since January 2020. 
The number of non-performing home loans (90+ days overdue) rose by 44% year-on-year. 
Mortgage arrears for loans taken out since the OCR rate hikes began (since October 2021) have also risen. 
Mortgage applications are down 6% from last year, though new mortgage lending increased by 5% in February year-on-year. 
Non-mortgage lending, particularly new vehicle loans, decreased by 4% year-on-year. 
Despite a month-on-month decrease in overall credit arrears, year-on-year arrears are 8.1% higher, similar to 2018 levels. 
Vehicle loan applications dropped by 16% year-on-year due to declining new car sales. 
Business credit demand increased by 7%, with significant rises in hospitality, retail, and transport sectors. 
Defaults rose sharply in the property/rental sector (100% increase), retail trade (41%), transportation (34%), and construction (23%). 
Hospitality businesses, facing weak demand, rising costs, and staff shortages, are more than twice as likely to fail compared to typical businesses.  
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Sharp Decline in NZ Home Consents Amid Broader Construction Downturn 

New dwelling consents decreased by 24.8% year-on-year to February, with 36,276 new dwellings consented. 
This decline was evident across all dwelling types: townhouses and home units down 16.9%, standalone houses down 24.0%, apartments down 49.2%, and retirement village units down 45.3%. 
The total value of new dwelling work consented fell by 18.6% to $16.22 billion from $19.93 billion in the previous year. 
Structural alterations to existing dwellings saw a slight increase of 0.7%, totalling $2.494 billion in consents. 
The total value of residential construction work consented dropped by 16.5% to $18.714 billion. 
Non-residential construction consents were up 3% to $9.907 billion, despite a decrease in total floor area by 8.1%, indicating possible inflation effects rather than actual growth in work volume. 
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Multi-Unit Property Developers Face Growing Pressures Amid Rising Listings

Property developers in the multi-unit sector face worsening conditions due to a 21% increase in properties listed since last July, reaching a high not seen since late-2015. 
Stock levels in Auckland are 15% above the long-term average, contrasting with the rest of the country, which is 25% below average. 
The densification efforts in Auckland, spurred by the Unitary Plan, present financing challenges for developers due to high land holding costs and cautious lending by banks. 
Developers have turned to second-tier financiers with higher interest rates, increasing the pressure to sell units amidst buyer wariness and financing difficulties. 
Deals are being offered to attract buyers, but consumer sentiment has dropped sharply, influenced by recession and job layoffs, making sales more challenging. 
Developers are under pressure from financiers to generate cash to meet debt obligations, with some showing signs of distress through increased outreach for marketing and promotional support. 
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First Home Buyers' Market Share Drops in February  

First home buyers' share of the housing market declined in February, reaching the lowest since April 2022. 
RBNZ reported 2019 new mortgages for first home buyers in February, making up 35.5% of REINZ's reported sales. 
This trend suggests a decrease in first home buyers' market share, which had been above 40% for most of the last year. 
First home buyers appear more price constrained this year, with the average price paid in February at $661,000, slightly down from the second half of last year. 
The average price paid by first home buyers was 111% of REINZ’s lower quartile price in February, the lowest ratio since July 2022. 
Despite the downturn, the first home buyers' market is not expected to collapse but shows signs of volatility. 
Preliminary data and anecdotal evidence suggest increased activity from existing homeowners and investors, with first home buyers becoming less dominant.  
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Uninhabitable Wellington Homes Withdrawn from Liquidation Sale

Six Wellington houses, previously on the market due to liquidation, have been withdrawn from sale. 
The properties, valued at nearly $10 million, were part of a liquidation sale by Shazwal Investments. 
Shazwal Investments aimed to renovate these houses over 30 years but went into liquidation last September. 
One out of the seven properties listed for sale by the liquidator was sold; the remaining were removed from the market. 
The houses were listed by real estate agency Tommy’s, with a range in value from $455,000 to $4.1 million. 
The properties were marketed as renovation projects, not demolitions, and are located across Wellington and the Hutt. 
A house on Frederick Street was sold separately to a trader planning to complete renovations and resell. 
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ANZ Eases Lending Rules, Boosting Investor Power in Housing Market   

ANZ has eased lending rules for rental property investors, increasing the percentage of rental income considered in loan applications. 
This change applies to both new and existing homes, simplifying the application process by including rates and insurance in rental income calculations. 
The adjustment aligns ANZ with other banks and is a response to the government reintroducing interest deductibility for all rental properties from April 1. 
Mortgage adviser Gareth Veale suggests this could significantly increase investors' buying power, potentially affecting first-home buyers by increasing competition for properties. 
Previously, ANZ reduced the income allowed from rental properties more for existing homes than new builds; this disparity has been adjusted to treat all rental income similarly. 
BNZ already treated rental income from new and existing properties the same, but ANZ's new rules offer slightly more favourable conditions for borrowers. 
While positive for investors, these changes may lead to more competition with first-home buyers for the same housing stock. 
CoreLogic's chief economist notes that despite these lending and tax changes, high interest rates remain the primary barrier for new mortgage commitments.  
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