The past few months have been a wild ride for those involved in Property Finance. It was only a few months ago that NZ was reeling from nationwide lockdown and mainstream economists were predicting house price declines between 7 and 15 per cent. However, the New Zealand housing market has fared far better than expected, and many economists and lending institutions (including the RBNZ) are now having to revise their forecasts upward.
It would seem that the strength of the government’s fiscal response and RBNZ’s unwavering commitment to keep rates low were largely underestimated. House price data published by REINZ for September 2020 confirmed record breaking volumes and sale prices across the country. For September, median house prices across NZ increased by 14.7% YOY to a new record high of $685,000, while Auckland’s median house price increased by 12.6% YOY to $955,000 (also a new record high).
Perhaps the most obvious shift in buyer sentiment has been visible in auction rooms where bidding wars are now the norm, not the exception. In our experience, properties that have attracted the most attention are those that have immediate development potential or large land holdings (land banking). Developers have come to the realisation that under the unitary plan, townhouse developments can be accommodated on almost any residential zone (with the exception of residential single house). The increase in property values that has occurred over the past six months (particularly for development sites) has been astonishing to witness considering the weakened state of the local economy.
With all eyes on COVID-19 and subsequent rebound, the General Election’s has almost been entirely overlooked by market pundits. As property people, it is important to keep our ears to the ground regarding potential policy changes, limitations, and regulations around the property market. Below we explore the impact elections have historically had on the property market and policy changes that are worth keeping an eye on moving forward.
Past Elections and Their Effects on the Property Market
Historically, the approach of a General Election has always drawn the eyes of investors and owner-occupiers. This is because a change in government can result in changes to policy and regulation that can ultimately impact how people spend their money. Taxes and regulation that are likely to increase the costs of owning property will result in investment away from the sector while an easing of regulation and reduction of costs will incentivise investment.
It is important to note that investor and owner-occupied markets are two different sectors and government policy has similarly made a clear distinction between them. Historically, the investor market has been the focus of regulation and tax adjustments while the owner-occupied market has been largely left alone.
Colliers’ monthly research report on New Zealand’s property market provides interesting insights around the six most recent NZ General Elections. By plotting the total monthly sales, national monthly building consents, and net optimism versus pessimism around the six elections, Colliers uncovered some key statistics.
The 2014 General Election
In 2014, the Labour party promoted a Capital Gains Tax as well as restrictions on the ability of overseas entities to buy Kiwi residential properties. These restrictive policies prompted property investors to take a step back as they grappled with the uncertainty of potential policy changes that could affect their assets.
National opposed Labour’s stance on these policies, and once National won the General Election in 2014, the investment property market surged with renewed vigour.
Colliers cited one particularly interesting statistic, as it sheds light on the differing effects of restrictive policies for investors and owner-occupiers:
“Total mortgage lending to investors increased from $1.167 billion in August 2014, a month prior to the election, to $1.421 billion in October, an increase of 21%. The uplift for first home buyers and other types of owner-occupiers was just 8.6%”.
– Colliers NZ August Research Report
This significant change in investment lending indicates that owner-occupiers did not hold back nearly as severely as investors in the approach to the election, as the new restrictive legislation held no significant barriers.
What about 2020?
For the coming election, predictions are erring towards minimal changes in the property market. At the time of writing, no significant restrictive legislation around property has been brought to light by either of the dominant parties and the notion of a “capital gains” tax appears to have been forgotten. That being said, below we explore some of the policies that are likely to be key determinants for investors and developers over the coming term.
Labours introduced the Healthy Homes Standards in 2019, which set minimum heating, insulation, ventilation, moisture and drainage. The new standards are to apply to new tenancies entered into after 1 July 2021 (and to all rental homes from 2024). This will require investors to upgrade their rental properties if they do not meet the required code.
National says the current government’s Healthy Homes standards are unfair on landlords and should be relaxed. National has also stated that they would repeal the Residential Tenancies Amendment Act including changes to no longer allowing landlords to end a periodic tenancy without a reason. In this sense, a national win would see more favourable terms offered to property investors.
For developers, perhaps the greatest change could come from repealing the Resource Management Act (RMA). The repealing of the RMA has been endorsed by Act and National for some time however in a pollical U-turn, Labour too has put their backing behind this motion. The RMA imposes overly restrictive planning rules on developers and home builders; where replacing the RMA with a separate Environmental Protection and Urban Development Act could see increased development activity and improved housing affordability. Part of this process involves the removing the Metropolitan Urban Limit. Ultimately the effectiveness of any such policy will lie in its delivery.
Beyond the above, it is fair to say that the immediate future of the New Zealand property market resides not in political changes or policy but rather the economic, financial, and demographic changes resulting from COVID-19. Thus far, sales and investment activity has remained strong and we continue to talk to investors and developers as to ways they can leverage their strong cash positions in the low interest rate environment. We expect investment in property to accelerate as the country pulls out of the recession.
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Written by Ben Friedlander