The move is part of the biggest planning reform seen in New Zealand for decades, with further change for locations across the country expected under the National Policy Statement on Urban Development (NPS-UD).

The Reserve Bank of New Zealand (RBNZ) towed the company line this month, following market expectations of a 50 basis point (BPS) raise in the Official Cash Rate (OCR), taking it to three percent.

Widely anticipated by the majority of financial markets, the move had little effect on the spectrum of mortgage lending rates, which have stopped rising for fixed terms of two or more years recently.

A reduction in wholesale lending rates abroad and growth fears for the global economy has meant retail banks are passing rate drops on to customers. However, it is in Kiwis’ best interests that this doesn’t spur another round of frenzied residential purchases.

In this month’s Monetary Policy Statement, as it raised the OCR to the highest level seen in seven years, the RBNZ increased its OCR Track. The central bank now expects Kiwis to see a 3.5 percent OCR by the end of this year, with a peak of 4.1 percent by June 2023.

The change underpins its commitment to inflation control. Against a backdrop of relatively rapid recent wage growth in the private sector, observers expect any significant uptick in residential sales could see the RBNZ bring out the big guns to dampen consumer demand.

Despite this, the government’s decision to loosen migration settings for international workers in the construction, tourism and health sectors could add some upward momentum, as are strong employment prospects, accrued equity gains and stabilising mortgage lending rates.

Through the next 12 months and beyond, Kiwis will surely be more considered in their residential purchases as a muted growth outlook limits borrowing appetites. Though we have seen how stagnating supply drives market momentum and with supply constraints and worker and materials shortages impacting construction firms’ ability to provide new housing, there will be an element of demand underpinned by the historical lack of housing supply.

The outlook for spring looks bright, and new listings have already started to filter through the Bayleys offices, pointing to a renewed confidence in market dynamics. While funding constraints may impact the ability of some borrowers to pay too-high prices, movers continue to use savings and property gains to make their move and regions across the country anticipate this will encourage a good level of activity through September.

In-depth reports:

• ANZ Bank’s latest Property Focus report says there is no space for green shoots in the economy. It notes the RBNZ would rather keep raising the OCR to reduce household borrowing capacity than see growing house prices feed inflation. With the economic focus firmly on wrangling headline inflation back to its target zone, it appears the housing market is settling into a new pace as opposed to a temporary blip. If average values were to rise significantly again this year, we’d expect a quick response from the RBNZ, which have the integrity of the country’s financial system front and centre.

• In its 10th National Construction Pipeline Report 2022, commissioned by the Ministry of Business, Innovation and Employment (MBIE), says construction activity will fall steadily from last year’s peak. This will be driven by difficulties facing New Zealand’s building and construction sector, as higher interest rates and lower market confidence impacts building activity. The forecast shows despite noting record building consent issuance - which has chipped away at the edges of New Zealand’s lack of available housing supply - demand for homes will persist as economic factors impact Kiwi builders’ ability to produce new homes at scale and pace.

• New research has found New Zealand’s residential property sector is exposed to significant river flood risk with implications for homeowners, lenders, insurers and property professionals. While the research focused on risk and damage through river flooding, the increasing occurrence of adverse weather events is poised to add layers of complexity to the purchasing process for properties in certain coastal, riverside or flood-prone areas. Bayleys expects this will increase the cost of compliance for development, with the potential of fewer homes in these areas. However, fewer planned properties may also have an upward impact on property values, with scarcity adding an element of competition as Kiwis continue their love affair with waterside homes.

Topical articles:

• Independent economist Bernard Hickey has told 1 News there are few Kiwis that need to worry about negative equity, and he expects residential values across markets like Auckland and Wellington will primarily rebound next year. Citing a resilient financial system that now has twice as much equity in reserve as they did circa the Global Financial Crisis (GFC), increasing migration, and fixed mortgage rates which have recently stopped rising; there remain several influential factors that are encouraging Kiwis to transact.

• Over the past month, New Zealand’s big four banks (ANZ, ASB, BNZ and Westpac) have all cut some of their fixed mortgage lending rates. Wholesale cost of funding reductions originating from growth fears in America and Europe mean banks in New Zealand are responding by passing reductions to customers through retail rates. While this may encourage some house hunters to transact, the RBNZ will likely be keeping a close watch on movements across mortgage lending rates, with continued cuts likely to spur more drastic inflation control from the central bank.

• The RBNZ stands behind the use of financial tools to stimulate the economy during the pandemic, despite observers saying it went too far, inflating asset prices and causing inflation. Despite criticism, the central bank continues to run its Funding for Lending Programme (FLP) which allows retail banks to borrow at cheaper rates circa the OCR. While the FLP is due to be wound down in December, its continued use is incongruent with the current tightening cycle and could play a role in anecdotal evidence that banks are increasing their appetites for loans.

• Climate change remains a crucial consideration for local and central government agencies, with Auckland Council’s proposed transport emissions plan detailing what’s required to achieve a 64 percent reduction in the city’s transport emissions by 2030. The plan, which observers say is ambitious, leans on initiatives like vehicle conversion to electric technology, increased use of paths, cycleways and public transport, as well as reductions in freight and shipping. Turning around Kiwis’ reliance on cars will require connected communities and a sustained programme of residential development to provide new homes and infill housing in places with capable infrastructure and amenities.

• A recent study by Horizon Research has found that 78,000 adult Kiwis – or two percent of the population expect they will have to sell a property to manage the debt burden brought about by rising interest rates. The research found Kiwis most worried about their financials had a good level of income, with two children at home. However, the RBNZ says strong employment prospects and borrowers being stress tested at higher mortgage lending rates mean households are in a good position to manage higher debt repayments. The research also found demand for homes could exceed supply over the coming year, which will continue to support residential assets from falling too far in value and putting highly-leveraged homeowners into negative equity.