In light of tax reforms, targeted political efforts to reign in investor activity and the seasonal effects of cooler weather, April’s sale results show skyrocketing housing inflation slowing to a simple, fast pace.

Nationally, residential sale values rose 1.8 percent month-on-month in April which is 1.2 percent above the historical rate of growth, illustrating that doom and gloom projections for capitulation are so far unfounded.

Undoubtedly, the two-tiered return of loan-to-value ratios (LVRs) coupled with tax reforms which include removing the ability for investors to deduct interest expenses from their income when purchasing an existing property has given some purchasers pause for thought, though we expect some may simply be taking the time to digest these changes with their accountants.

The latest data from the Real Estate Institute of New Zealand (REINZ) has shown an increase in bare land sales – particularly in emerging areas ripe for residential development. This, coupled with the record prices being achieved on sites in preferable zones allowing high-density development, points to property investors’ agility as they turn attention toward tax-exempt new-build properties.

Other sales data paints an interesting picture, on one hand, the REINZ reported the highest number of unconditional sales for an April month in five years, yet the country is plagued by a lack of inventory which is also the lowest for an April month since records began.

We have known for some time now that supply has everything to do with demand, and while Statistics New Zealand is presently reporting pleasing building consent issuance, which is set to meet current demand, forecasts show we need to keep building at this rate for the next five years to claw back from a severe historical deficit.

Headwinds, however, persist.

The rising cost of materials, a severe shortage of qualified and skilled labour, capacity constraints across the construction industry and a growing population once our border reopens are just a few of the obstacles standing in the way of complete parity between residential housing supply, and buyer demand.

Add into the mix interest rates remaining at historically low levels, with other asset classes offering returns nowhere near that of residential property and we have underlying support for continued value growth, albeit at a slower pace than the astronomical 28 percent we have seen in the last 10 months.

Conditions for sellers remain preferable, but for how long we wonder, Add into the mix interest rates remaining at historically low levels, given the Reserve Bank of New Zealand (RBNZ) has signalled its concern over rising household debt associated with the housing market and its preference for the use of debt-to-income (DTI) tools in managing this.

Presently, market fundamentals remain strong and there exists a degree in pent-up demand that supports value growth, however, change looms on the horizon and we expect to revise forecasts only when supply catches up, and interest rates rise.

In-depth reports:

• In its May Financial Stability Report, the RBNZ explains while our national financial system is ‘sound’ vulnerabilities relating to the housing market are ‘accumulating’. The central bank warns of rate rises, with large concern for the way this would affect recent borrowers with high levels of debt. Finding new buyers need 223 percent of their median annual disposable income for a 20 percent house deposit, the report alludes to the use of further measures to control housing inflation. While DTI limits remain on the table, the RBNZ acknowledges the integral part the housing market plays in economic health, thus we do not anticipate sudden value regression resulting from unexpected or heavy-handed policy.

• In its monthly Property Focus report, ANZ Bank says the outlook for prices is stabilising and value growth expected to be constrained by a strong supply pipeline and record building consent issuance.While borders are closed New Zealand is building enough houses to meet demand, however, there remains a historical deficit that continues to support buyer appetites. Capacity constraints, upward price pressure on materials and a shortage of skilled labour are additional variables set to impact the construction industry, our rate of growth, and ultimately property values over the next five years.

• In his May Real Estate Survey conducted in conjunction with the REINZ independent economist Tony Alexander found salespeople across the country are reporting fewer frenzied buyers in the residential marketplace. With May’s Budget announcements, recent housing reforms - especially those that pertain to property investors and their tax obligations fresh in our minds, a degree of suspense is to be expected, as buyers of all demographics absorb what shifting goalposts mean for them. Despite this, the fundamental factors driving the momentum of the housing market persist and Bayleys expects super-low interest rates, pent-up demand and low inventory will continue to support value growth.

Topical articles:

• Research firmCoreLogic’s Housing Price Index (HPI) showed nationwide property values increased 2.2 percent in May, which while being a 0.9 percent reduction on April (one of the most successful months in recent sales history) shows demand for residential property persists. In light of recent tax reforms, the reintroduction of LVRs and the seasonal effect of cooler weather, a low level of supply and unsatiated buyer appetites continue to underpin prospects for value growth, which while expected to slow, will continue to inch upward over the rest of the year.

• Property Council New Zealand has been left wanting more over the Government’s recent Budget announcements with chief executive Leonie Freeman saying it does not offer new solutions for the core issues impacting housing supply. Finding no mention of initiatives like Build-to-Rent, which are aimed at providing more stable housing options for vulnerable New Zealanders, the industry body also found May’s Budget to be light on detail and the difference action will have on creating new supply, a key contributor to rising property prices.

• Property portal OneRoof has found despite notions of an overheated housing market, New Zealand has a relatively small pool of luxury real estate (properties sold for $10 million or more) available for sale. The data shows Kiwis’ wealth is on the rise, and anecdotal evidence illustrates demand for luxury property, however, the report says a gap exists in the market for upscale homes that could compete on the global stage. A shortage of available stock at this price point could be good news for luxury sellers as new measures, announced in the Budget, allow provision for wealthy investors to enter New Zealand over the next year.

• Residential mortgage lending set a new record in March, rising some 26 percent month-on-month, finds credit bureau Centrix in its April Credit Indicator Outlook. Finding mortgage applications submitted this April to be 20 percent more than those submitted pre-pandemic, the data indicates that pent-up demand is alive and present across our residential marketplace. With many of these applications yet to be processed, and pre-approval mortgage lending a necessary step for many property purchasers, the level of enquiry points to continued demand and we expect support for sale numbers going forward.

• Using national lower quartile data from the REINZ, interest.co.nz has found the price of properties at the bottom of the housing market has declined, slightly. Cooling 1.2 percent from $598,000 in March to $591,000 in April, the website’s Home Loan Affordability Report says it shows a glimmer of hope for ‘prospective first home purchasers.’ While this could easily be attributed to an investor-led slowdown as the result of recent Government intervention, the regression is equally likely to have come from a higher proportion of townhouse, unit and apartment sales, usually lower in value than standalone homes.