Housing policy changes have had little effect on the NZ market

Three months on from the New Zealand government’s housing policy, CoreLogic reveals the changes are yet to have a discernible impact on the market.

CoreLogic Head of Research Nick Goodall admits it’s “still early days”, after the New Zealand (NZ) government policy was announced on 23 March this year.

“It’s hard to disentangle the government’s bright-line extension and tapered removal of interest deductibility from other measures, such as higher deposit requirements,” Mr Goodall said.

“However, as more time passes, the tax changes in particular should more clearly curtail purchases of existing properties by mortgaged investors. This could be heightened by the incentive for investors to look at new builds if the government allows interest deductibility on these properties for an extended period.

“First-home buyers (FHBs) have been keen to buy new properties of late, so this diversion of investors’ focus from existing property to new builds could have an unintended negative consequence on FHBs, who have already been struggling under the weight of rapidly rising home values and growing affordability constraints.”

When conducting the analysis, CoreLogic drew on four primary market indicators:

Weekly flow of new listings in NZ

CoreLogic Chief Property Economist Kelvin Davidson said there hasn’t been a spike in new listings since the announcement from the NZ government.

“There doesn’t seem to have been a rush to exit the market by existing landlords. Instead, they are taking their time and assessing their options,” Mr Davidson said.

“To us (CoreLogic), the large bright-line tax bill that would await some landlords if they sold straightaway and also the lack of ‘trusted’ alternative investment options are key factors here.”
Source: CoreLogic

Annual percentage change in rents

“Although it’s inevitable that some landlords will have raised rent off the back of the changes, it’s not really showing through in aggregate,” Mr Davidson said.

“The stock measure is still just ticking along at normal rates, and although the flow measure has accelerated, it’s hard to extricate how much of that might be due to landlords wanting to recoup costs versus genuine supply/demand pressures versus perhaps, even some kind of ‘catch up’ after last year’s COVID-related rent freeze.”
Source: Stats NZ

Valuation volumes

While there are signs that sales volumes have eased, Mr Goodall says it’s not obvious that this is really due to markedly softer demand.

“Our data on the trend for volume of valuations ordered by banks indicates that borrower/valuations activity, which is an early indicator of demand, is still pretty solid,” he said.

“At the same time, it’s the shortage of listings/choice that’s probably playing a role in limiting agreed sales, too. In terms of prices, there is some evidence of a slowdown, but not much.

“Using data from our very latest unconfirmed sales records, the premiums buyers are paying over and above CVs have eased back in the past month or two, but not dramatically so.”
Source: CoreLogic

Mortgage investors’ share of purchases

CoreLogic’s analysis reveals the only key indicator that has shown obvious signs of change in recent months is the buyer mix.

Mr Davidson explained on their buyer classification series, NZ’s mortgage investors’ marketshare has dropped from 29 per cent across January to March, to just 25 per cent in May.

“Even then, it’s more likely that this is actually due to measures other than the March tax changes, such as the fact that investors have been required by lenders to stump up a 40 per cent deposit for the past five to six months now,” he said.

“Compared to the last time investors were required to have 40 per cent deposits (from October 2016 to January 2018), the evolution of mortgaged investors’ market share has so far been similar in both cycles.

“With the extra attention investors are getting this time around, surely there has to be a chance that their share will ultimately fall below the previous trough.”
Source: CoreLogic

“Overall, our data and analysis shows the tax changes on their own haven’t had any real impact so far,” Mr Goodall said.

“But it’s really important to reiterate that it’s hard to isolate the effects of one rule from another. It’s also early days, and we think the tax changes will in fact bite harder as time goes by.”

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