NZ residential rental market news, July 7

Both sides of the rent control debate, banks raise their home loan rates, and a housing watchdog is recommended.

This week's TLDRs...

Westpac, ANZ, ASB, Kiwibank raise home loan rates

Four major banks have raised their home loan rates, adding pressure on mortgage holders. 
Westpac increased its two-year fixed standard and special rates by 20 basis points, with changes also made to three-year and four-year rates. 
ANZ raised its six-month and one-year fixed rates by 20 basis points, while lowering the four-year and five-year rates. 
ASB and Kiwibank also raised their fixed mortgage rates earlier this week. 
In May, Reserve Bank Governor Adrian Orr indicated that the official cash rate had peaked, but the next OCR decision will put that call to the test. 
Kiwis paid $3.8 billion in home loan interest during Q1 2023, the highest amount recorded since 2014. 
Data from credit bureau Centrix revealed an increase in the number of Kiwis missing mortgage repayments in May. 
Mortgage arrears rose to 1.32% of the active population in May, the highest level since March 2020. 
19,500 mortgage accounts are past due, a 34% increase compared to the previous year. 
More households are yet to roll off fixed-rate mortgages, indicating potential further challenges for homeowners. 
The average rate paid on mortgage lending in April was 4.63%. 
These rate hikes add to the financial burden faced by mortgage holders and indicate the ongoing impact of rising interest rates on the housing market. 
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Refixing 'bomb' due to drop for many households

Many households in New Zealand will face higher mortgage rates as their low-rate deals come to an end. 
Around 33.1% of households in New Zealand have a mortgage, according to the 2018 census. 
There are nearly 1.26 million home loans across 1.09 million customers in New Zealand. 
The standard one-year fixed mortgage rate in May was 7.18%. 
Around 10% of mortgages in New Zealand are on floating rates, which are higher than fixed rates. 
Approximately 50.4% of mortgages in New Zealand are due for refixing over the next 12 months. 
Some customers may have already refixed at a higher rate and will have to refix again. 
Refixing from a very low rate could increase mortgage repayments by $15,600 annually for $500,000 of debt. 
First-home buyers are likely to be hit hardest by higher rates as they bought at higher prices and lower rates. 
Home loan arrears rose to 1.32% in May, the highest level since March 2020. 
Despite the rate hikes, the majority of customers are managing their mortgage repayments well, but banks have processes in place to support those in need. 
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Property price falls accelerate

Property values in NZ continued to decline in June, with a monthly rate of decline of 1.2% compared to 0.7% in May. 
Auckland experienced the largest decline in property values, down 3.0% in June. 
The national annual rate of change is now 10.6% below the previous year's level. 
Stretched mortgage affordability is constraining demand and contributing to the acceleration of property value declines. 
The variable results across the country suggest that the housing market trough is not far away. 
The nationwide average house value is still higher than pre-COVID levels but has fallen by over $130,000 from its peak. 
It is more important to assess key market drivers and recent changes when setting expectations for the housing market. 
The flow of properties listed for sale has been weak, resulting in a reduction in the overall volume of properties on the market. 
Reduced supply, high net migration, increased confidence, looser credit requirements, and near-peak mortgage interest rates have supported demand. 
Stretched affordability and high interest rates are likely to keep a lid on demand, leading to a more stable and balanced market once the bottom is reached. 
Housing affordability in NZ is worse than in Australia, with more than 50% of the average household income required to service an 80% LVR mortgage. 
House prices have shown inconsistent trends throughout 2023, with monthly rates of change regularly dipping and recovering. 
Property values in different cities vary, with Auckland experiencing the largest decline, Christchurch holding relatively firm, and Wellington showing improving trends. 
The property market remains diverse, with some areas reaching a trough while others may have further to decline. The worst of the downturn is generally over for most areas. 
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Download the House Price Index

The rent control debate...

Don't be so quick to dismiss it

The Green Party's "Pledge to Renters" was quickly dismissed by others, including the Prime Minister, who ruled out rent controls as part of a potential coalition. 
Critics argue that rent controls attack landlords and create a black market for rental deals, while economists generally view rent controls as counterproductive. 
Research on first generation rent controls, which involve freezing rents below market levels, does not fully capture the Greens' proposal. 
Second and third generation rent controls, which allow for rent increases within specified limits, offer more nuanced approaches. 
Rent control policies can vary across countries, with different provisions and trade-offs to address anticipated issues. 
The New Zealand rent control debate lacks nuance and fails to consider what kind of rent control might work for specific purposes. 
Renters in New Zealand face a housing affordability crisis, with a significant portion spending a high percentage of their income on housing costs. 
Rents have increased faster than mortgage payments over the past 15 years, highlighting the need for a policy response. 
The Greens' policy should be considered as a legitimate approach to improving renters' lives if understood in a multidimensional manner. 
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It will worsen the NZ housing market for all

The Green Party's proposal to cap annual rent rises at 3% would lead to more landlords selling their properties, worsening the rental property shortage, according to the Property Investors Federation. 
The association also warned that rent controls could result in more rental deals happening in the black market, where tenants have fewer protections. 
The proposed policy would cap rent increases at 3%, the rate of inflation, or 1% less than annual wage growth, whichever is lowest. 
The Greens compared the 3% cap to the upper end of the Reserve Bank's inflation target band. 
Some landlords and economists have expressed concerns that rent controls could reduce the supply of rental properties. 
Peter Lewis, vice president of the Property Investors Federation, questioned the logic of singling out rents for price controls when rents have been rising at a rate lower than inflation. 
Lewis suggested that restoring the ability for landlords to offset mortgage interest costs against taxable income would be a better way to assist renters. 

Linked below is a clip of Steve Goodey appearing on AM with some interesting insights. 
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Watch the interview

Dwelling consents down but record high new home completions

Auckland continues to see record-high completion of new homes, despite a slowdown in new dwelling consents. 
In May, Auckland Council issued 1499 Code Compliance Certificates, the highest number for that month since 2013. 
The rolling 12-month figure shows a record of 14,767 new dwellings completed in the Auckland Region. 
The completion of new homes suggests a solid pipeline of residential construction work, and the impact of the decline in building consents may not be seen until 2024 or 2025. 
The decline in building consent numbers may affect the building industry in Auckland, as fewer new projects are expected to start, allowing resources to focus on completing existing projects. 
The high number of completed homes in Auckland may contribute to relatively constrained rent increases, despite increased immigration since the easing of pandemic restrictions. 
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Auckland house sales back to pre-pandemic levels

Auckland house sales have increased and are more in line with pre-Covid patterns. 
Barfoot & Thompson reported 711 sales in June, up 8.7% from the previous three months' average of 654. 
Sales were also up 3.9% compared to June last year. 
The housing market in Auckland appears to be returning to a sense of normality and stability. 
Median prices in June increased by 4.2% to $995,000 compared to May. 
The average sale price rose by 2.5% to $1.09 million in June. 
However, prices were still down from last June, with a decrease of 13.3% for median prices and 5.2% for average sale prices. 
When comparing current prices to 2019, both the median and average sales prices are around 17% higher. 
Multi-offer bids on properties have increased, indicating growing confidence in the market. 
Barfoot & Thompson had 1266 new listings in June, similar to the same period last year. 
While there is speculation that the market might be nearing the end of its downturn, CoreLogic's latest data suggests there may still be market volatility and some areas could experience further price falls. 

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Aussie's prestige market is booming

Australian residential housing market has been a focus of concern with falling house prices and potential interest rate hikes. 

1. The prestige market appears to be booming and generally immune to interest rate movements. 
2. Luxury properties continue to attract staggering prices, with the prestige buying cohort largely unaffected by interest rate rises. 
3. The entry level price for the top ten highest value sales in Australia increased to A$52 million. 
4. Seven of the top ten properties were in Sydney's eastern suburbs and three in Melbourne's Toorak. 
5. The strength of the market is evident in the case of businessman Arthur Tzaneros, who saw a gain of 56% in less than two years. 
6. Sydney is ranked ninth globally for 'super-prime' sales, with 76 sales above US$10 million. 
7. Australia is forecasted to have a net inflow of millionaire migrants higher than any other country, with many coming from Asia and Africa. 
8. Australian cities, including Melbourne and Sydney, rank highly in the Global Liveability Index. 
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NZ at the bottom of the list of global house price growth

New Zealand has the second-slowest rate of house price growth globally, according to the Knight Frank Global House Price Index. 
Average house price increases across 56 countries slowed to 3.6% in the year ending March. 
New Zealand was ranked 55th out of 56 countries, with a price decrease of 13% in the year to March. 
South Korea had the biggest decline in prices, down 15.7% annually. 
Turkey ranked first with prices up 132.8% annually, largely due to rampant inflation. 
The United Kingdom, Australia, and Canada experienced price falls of 3.1%, 5%, and 6.9%, respectively. 
Global house prices are under pressure as central banks try to rein in inflation, with the slowest annual rate of increase since 2015. 
New Zealand's housing market has seen a significant correction, but there are signs of an exit route from the global housing slowdown. 
Market conditions remain diverse, and while the downturn may be ending, a significant rebound is not expected due to affordability constraints. 
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Beware: Accommodation scams are on the rise

Accommodation scams are increasing, with as many recorded in the first six months of 2023 as in the entire year of 2022. 
Scammers use various tactics, including posing as property management companies, creating fake listings on platforms like Airbnb and Facebook Marketplace, and impersonating well-known booking websites. 
Netsafe, an online safety organisation, received 28,000 incident reports last year, with victims losing approximately $35 million to scams. 
Accommodation scams alone resulted in $2.5 million in losses. 
The true figures are likely higher, as this type of crime is often under-reported. 
Scammers take advantage of recognisable brands and create lookalike websites to deceive victims. 
The high cost of living and housing crisis make people more vulnerable to accommodation scams, as they may be enticed by below-market rental offers. 
The Real Estate Institute (REINZ) has also noticed an increase in online scams related to rental listings. 
REINZ emphasised the need for renters to be cautious, verify identities, avoid paying money upfront, and insist on in-person meetings and written agreements. 
Property management companies should educate their staff about online scams and inform clients about best practices to prevent falling victim. 
Both renters and property management companies need to be aware of the signs of scams and take precautions to protect themselves from fraud. 
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Don't expect OCR raise or interest rate cut

Homeowners should not expect a surprise increase in the official cash rate from the Reserve Bank of New Zealand (RBNZ) this week. 
However, those hoping for a quick interest rate cut to alleviate mortgage burdens may be disappointed. 
The four major banks have already raised mortgage rates to levels not seen in over a decade, creating apprehension ahead of the RBNZ's announcement. 
The RBNZ has indicated that the last rate hike occurred in May, with the cash rate expected to remain at 5.5% until mid-next year. 
Inflation will be a key factor in determining the RBNZ's actions, and the second-quarter Consumer Price Index figures, to be published on July 19, will provide insights into inflation levels. 
Positive economic indicators and business and consumer confidence surveys suggest that New Zealand's economy is emerging from the recession. 
Inflation in Australia has decreased, with the Reserve Bank of Australia keeping its cash rate unchanged. 
The NZIER's Quarterly Survey of Business Opinion will play a role in determining the cash rate, as it reflects factors such as labor availability and wage inflation. 
The latest QSBO results indicate a stronger economy and lower inflationary pressures, which could influence the RBNZ's decision. 
The ideal outcome for Wednesday's announcement would be no significant changes in monetary policy. 
The decision of the Reserve Bank of Australia regarding interest rates is important for New Zealand, as it can impact the strength of the New Zealand dollar and generate inflation. 
Economists do not expect a cash rate cut in New Zealand before February next year, considering historical rate cycles and global inflation trends. 
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