As tense as it has been shocking, the theatrics which overshadowed New Zealand’s general election have all but abated, leaving us with a new coalition Government led by the Labour Party alongside New Zealand First and the Greens.
Ending nine-years in opposition, the new Labour-led Government has indicated that its main focus over the next three years will revolve around social and economic infrastructure.
But what effect will this change of the guard have on New Zealand’s residential housing market, asks Bayleys’ property reporter Katharina Charles.
The central pillar in the new Government’s strategy for housing. Labour has revealed plans to build 100,000 affordable homes across New Zealand in 10 years – with half of these in Auckland.
Priced under $600,000 and measuring no more than 100 square metres, homes built under the ‘KiwiBuild’ initiative are aimed at filling a gap in the current market for affordable housing.
“While early criticisms have circulated around the effect a flood of new supply will have on existing home values, we expect that larger homes in desirable areas will retain their values,” says Bayleys Research manager Ian Little.
“However interesting, various constraints across the construction and financial sectors have the potential to cause disruption for the Kiwibuild initiative.”
Showing a population increase of 2.1 percent in the year to June 2017, figures from Statistics New Zealand show that during the same period Auckland alone gained an additional 42,700 new residents.
“Assuming there’s an average of three people per household, that’s around 14,233 new homes required per year. Contrast this with figures which show that only around 7,000 new homes were actually constructed in Auckland last year, and we’re left with a significant shortfall.”
“To combat a shortage of labour, the Government has estimated it needs approximately 5,000 more tradespeople to meet its Kiwibuild projections, which it expects to fill through a visa scheme which will fast-track temporary work visas for tradespeople, bring qualified Kiwi tradies back from overseas and ramp up apprenticeships,” Little says.
Tightly intertwined with New Zealand’s positive economic performance and the country’s issues with housing supply, questions around immigration became one of the election’s most contested topics with Labour and New Zealand First holding true to their strategy to increase housing supply and cut migration.
Despite migrant numbers steadily decreasing since the peak of 71,000 in the year to June 2017, a reduction in migration to the tune of 30,000 per year may be on the cards – with cuts targeted at reducing the number of students and unskilled workers.
“Economists have predicted that migration will remain relatively stable despite changes, driven by the increasing number of New Zealand residents returning home, and nationalistic policies abroad causing more Kiwi’s to stay put,” Little says.
“Theoretically, cutting migration and increasing housing supply sounds like the silver bullet to New Zealand’s supply shortage, however constraints around construction, credit availability and skilled labour mean that local council are already falling well-short of development targets.
“This could impact the housing sector, hampering efforts to attract the skilled labour necessary to build homes and facilitate economic growth through our dairy, forestry and horticultural sectors.
“However, we do not expect values for existing properties to be affected. With an estimated 40,000 home shortfall in Auckland alone, we see demand from Kiwi’s will fill the void (if any) left by immigration.”
It appears throughout coalition negotiations Labour and New Zealand First have been closely aligned by their stance on banning foreign purchase of New Zealand homes, which they hope to achieve by strengthening the Overseas Investment Act and working closely with the Overseas Investment Office (OIO) to ensure a register of foreign ownership is better regulated.
“While banning the sale of New Zealand property to foreign investors has been emphasised by both parties, we don’t expect these restrictions will severely impact the local housing market,” Little says.
“Apart from current numbers around foreign ownership being virtually impossible to quantify, current lending restrictions have already ensured that borrowing money is harder for those who cannot prove a local income,” he adds.
While further policy announcements will be made over the coming months, early indications show that across the country there will be a shift from large-scale roading plans toward public transport initiatives, with a significant funding commitment to modern transport infrastructure.
“The Government has so far revealed a $15 million, 10-year plan to build a rapid transit network including light rail to Auckland’s Airport, and just this week Housing Minister Phil Twyford and Infrastructure New Zealand are said to be discussing the concept of a new satellite city around Pukekohe, south of Auckland,” says Little.
“Urban development and infrastructure has long been one of the country’s bug-bears, exacerbated by the sudden growth in migration and tourism.
“Initiatives like the newly announced light rail network in Auckland have the potential to create development opportunities between the private and public sectors to create new communities around transport links.
“Labour has flagged the idea of removing limits on Auckland’s urban boundaries and this, in conjunction with improved transport infrastructure has the potential to improve value gains for residential property in areas previously deemed inaccessible - especially to the west and south of Auckland,” Little says.
“Despite financial policy targeted at curbing investment activity across a rampant national housing market, it appears investors will be the biggest affected by the change in Government,” says Little.
“Proposing to end the negative gearing loophole which allows investors to offset losses on rental property against income tax, we suspect there may be softer interest in residential property from the investment market, however it is worthwhile to note that there are plenty of willing first-home buyers and owner-occupiers ready to take their place.”
The new Government has also confirmed an extension from two to five years under the ‘bright-line test’ originally established in 2015. This will see those who buy and sell investment property within five years pay tax on capital gained.
“When the bright-line initiative came into effect, there was little to no impact for the residential housing sector and we expect it will be the same this time around. However it will be interesting to see whether we experience more market activity before year-end as those waiting for the original two year expiry offer their properties to market,” he adds.
Among the initiatives aimed at investors, the new Government has proposed significant changes to the rental property market, requiring properties to meet minimum standards for heating and insulation set out under the Healthy Homes Bill (already in its second reading in Parliament), abolishing ‘no-clause’ tenancy terminations and limiting rental increases to once a year.
“More stringent guidelines for rental properties could further reduce interest in the sector, with some investors seeing the new standards as not worth their while.
“This could open up further opportunities for buyers at the lower end of the market including first home buyers and those on low-to-middle incomes, however in the long-term it could also impact the health of the rental sector with fewer properties available on the market for rent,” Little says.
“While a number of factors (credit criteria, construction costs and uncertainty) have combined during the election period to dampen residential sale volumes, it was pleasing to see that values showed stability – and we are now seeing more market activity driven by renewed confidence following policy announcements and the country’s recent economic performance.
“This stability indicates that many New Zealander’s expect value gains across residential property, underpinned by the imbalance between supply and demand which despite the new Government’s best intentions, looks set to prevail for the time-being.
“There remains a strong appetite for residential property, with investment in housing still viewed as one of the most lucrative medium to long-term investment options and over the coming 12-months, we expect to see greater uptake from the first-home buyer and owner-occupier market along with small yet steady value gains.
“While we anticipate that sale values will continue a slow-and-steady creep upward spurred by low interest rates and buoyant economic performance, any reduction in the median sale value of residential property will likely be the result of more supply aimed at the lower end of the market, as opposed to a reduction in demand,” Little says.