WELLINGTON (REUTERS) – New Zealand on Tuesday (March 23) introduced a raft of measures to cool its red-hot housing market, slugging investors with new taxes and promising to boost supply after housing affordability fell to its lowest ever.
Prime Minister Jacinda Ardern also pledged more support for first home buyers and foreshadowed further steps to come, with the country’s central bank currently reviewing proposed curbs on some types of lending.
“The need for further action is clear,” Ardern told a news conference. “The last thing our economy needs right now is a dangerous housing bubble. But a number of indicators point towards that risk.” New Zealand’s success in combating the coronavirus fuelled an already hot property market, as returning Kiwis and investors parked their funds in real estate, pushing house prices up 23 per cent in just 12 months, far ahead of wage growth.
Billions of dollars in government stimulus and historically low interest rates have further inflamed the market, making it the least affordable amongst the 36 wealthy Organisation for Economic Co-operation and Development (OECD) nations.
Investors are now the biggest property buyers in the country of 5 million, with 40 per cent of sales in the final quarter of 2020 made to owners of multiple properties. Last year, 15,000 people bought homes who already owned 5 or more properties.
However, the strong market has also made any changes to housing policy politically sensitive.
In a much-anticipated announcement, Ardern doubled the so-called bright-line test – the time that investors need to hold a property for to avoid paying tax – to 10 years.
New measures will also prevent investors from offsetting interest on loans as an expense against their rental income.
Opposition National Party leader Judith Collins slammed the measures saying more taxes on landlords would only push rents higher, and make homes more unaffordable for first home buyers.
The policy was another KiwiBuild, Collins said, referring to an earlier project by Ardern to build 100,000 affordable homes that was scrapped in 2019.
“Fewer houses get built, rents go up, more money, and another name, that’s it,” she said.
Political courage
Economists and analysts said it was too early to determine what impact the measures would have on the market.
“It’s bold,” ANZ Bank chief economist Sharon Zollner said.
“There are lots of people who love their property dearly, and for them its essentially a tax increase. So tax increases always requires political courage.” Zollner said some investors may decide to offload property.
“It will have an impact on property demand from here, if nothing else, because the outlook for house price inflation is now tilted to downside and risk of house price falls has risen,” she said.
The New Zealand dollar dropped 0.3 per cent on Tuesday, settling at $0.7136, and bond yields declined.
Ardern also said the government will speed up the pace and scale of house building with a new NZ$3.8 billion (S$3.6 billion) fund, and announced more support for first-time home buyers.
Income caps to get housing financial assistance will be lifted to NZ$95,000 from NZ$85,000 for single buyers, and to NZ$150,000 from NZ$130,000 for two or more buyers from April 1.
Restrictions on interest-only loans to speculators and a proposal on debt-to-income ratios are still being considered, and the Reserve Bank will report back on these in May.
“Its a good start. It’s not going to fix housing overnight, no policy would have. But it shows the government is listening,” said Brad Olsen, senior economist at Wellington-based economic consultancy firm Infometrics.
“But the proof is always in the pudding. Will these measures be executed well? The government has always had trouble with that.”