What Labour’s big plans for housing mean for you
The newly elected Government has big plans to crack down on property speculators and overseas buyers, and to build more affordable homes writes Bayleys head of research, Ian Little.
BUYER BEHAVIOUR WILL CHANGE ALONG WITH the types of development built over the next few years. Many purchasers will be faced with buying new versus buying existing properties and that will require a lot more understanding of how our property market is forecast to evolve.
New rules from a new Government
Our new government has big plans for housing in New Zealand with an assortment of new property-related policies to be introduced in the first 100 days in office, with many more to follow over the remainder of the first term.
The policies introduced provide a more equitable housing sector, which has in recent years seen prices increase at a faster rate than many countries in the Organisation for Economic Co-operation and Development.
In summary the new government’s policies aim to:-
• Restore the balance between demand and supply
• Deliver more affordable homes to a wider group of prospective home owners.
• Restrict the short-term incentives of buying and selling
• Curb purchasing ability of local and offshore speculators
• Reform the rental market
The first two points above require a dedicated focus on how we supply property. The policies look for us to build more homes, faster and for a cheaper price in locations that inevitably need to be supported by efficient means of public transport.
The last three policies focus on the perceived advantages which property speculators have over other buyer sectors e.g. first time buyers and also the outcomes for renters. The policies therefore target the incentives around profiting from short-term buying and selling of property, reducing the number of investors in the market that crowd out other potential purchasers while making investors more accountable for any inadequate delivery in their accommodation services.
A new housing framework
The eight key components that provide the framework of our new residential market include:
1. Introducing the KiwiBuild Programme
Labour’s KiwiBuild programme will build 100,000 high quality, affordable homes over 10 years, with 50% of them in Auckland. Standalone houses in Auckland will cost $500,000 to $600,000, with apartments and townhouses under $500,000. Outside Auckland, houses will range from $300,000 to $500,000. Government could purchase 30 percent to 40 percent of a development’s units. A number of policies to increase the building workforce has been recommended such as apprenticeships and special KiwiBuild work visas.
2. Relax contentious development controls
Remove the Auckland urban growth boundary and free up density controls. This will give Auckland more options to grow up and out and master plan new developments of scale in new locations. New developments, both in Auckland and the rest of New Zealand, will be funded through innovative infrastructure bonds.
3. Foreign investment changes
Labour will be introducing new policy and regulation with the Overseas Investment Office (OIO) that will see all existing homes being classified as ‘sensitive’ under the Overseas Investment Act. The intent is to ban foreign (excluding Australians) speculators from buying existing New Zealand homes thereby removing one of the drivers which has, in the opinion of the new government, been ‘pushing prices out of reach of local first home buyers’.
4. Bright-line test extension
Extend the bright line test from the current two years to five years. This will target speculators who buy houses with the aim of making a quick capital gain. Current exemptions from the bright line test will continue.
5. Intention to remove negative gearing
While no definitive timeframes have been provided yet, Labour has a desire to see investors no longer being able to use tax losses on their rental properties to offset their tax on other income, a practice called negative gearing.
6. Rental reforms
A number of policies to potentially be introduced including changes to notice periods, timing of rent increases, banning letting fees, allowing minor alterations for fixed term renters, implementing a 'Healthy Homes Guarantee Bill' and landlord grants of up to $2,000 for upgrading insulation and heating.
7. Changes to the housing mix
Government policy along with demographic changes, the high cost of housing in many of the country’s major centres and new building technology will combine to radically change the mix of properties which are released to the market over the next few years.
The changes will be most obvious in locations such as Auckland, Queenstown, Tauranga and Hamilton where the pressure to provide more affordable homes is at its greatest.
The push for greater intensity of land use has been in place within Auckland for a number of years and now this template will become more common elsewhere. Well-designed townhouses and apartments have proved to be popular with buyers looking for a more affordable entry into the housing market particularly in areas that have a high level of amenity and are well connected by public transport.
New building technologies such as modular homes will become more common enabling a cost effective means of producing greater numbers of affordable homes faster than traditional building methods allow.
8. Buyers to have more options... and more decisions to make
The impact of the new government’s housing policies on residential development will provide purchasers with a great number of options, particularly at the more affordable sector of the market. New construction is likely to be dominated by higher intensity development with smaller floorplates and increasingly via new technologies, such as modular housing given the government’s push to provide first home buyers with greater opportunities.
Buyers will benefit from owning a new home which will be efficient and require minimal maintenance. These advantages will have to be weighed against the appeal of owning existing standalone homes which offer more space, gardens and more car parking.
Should the new policy framework be successful, first home buyers will see a wider range of opportunities to enter the market. With more off-the-plan developments likely coming to market over the next few years, buyers can benefit from a number of financial advantages in this sector such as fewer loan-to-value restrictions and, in many cases, a lower entry cost. Buyers though must undertake high levels of due diligence to minimise the risk of buying in to a project that ultimately fails to meet expectation.
While purchasers should always buy, primarily, based upon their own requirements, one eye should focus on the future with thought being given to the likely saleability of the property at a future date. Issues such as other developments within the area, changing demographics and plans for public transport should remain front of mind.