Housing set for big slow, bank says
House prices will slide over the next four years as new Government policies frighten investors out of the market, one of New Zealand’s largest mortgage lenders is warning.
Westpac has forecast that over the next four years, house prices across New Zealand will drop by 5 per cent, with a slightly larger fall centred around Auckland.
The predicted fall, in sharp contrast to the 30 per cent increase in nationwide house prices seen in the past four years, was expected to spill into the wider economy, as nervous households trim spending.
Auckland’s previously booming housing market slowed considerably during 2017, amid concerns around housing affordability and as global interest rates crept higher.
The new Labour-led Government has promised to take steps to improve affordability, both by increasing housing supply and potentially cutting some sources of demand.
As well as Kiwibuild, a statebacked plan to build 10,000 houses a year, Labour has said it will remove a loophole known as negative gearing, which allows investors to use losses on a property to offset other income reducing overall tax liability.
‘‘We think Government policy is going to be a key factor that dampens housing market senti- ment,’’ Westpac senior economist Satish Ranchhod said, adding that the impact of new policies would have the biggest impact on investors.
‘‘A lot of the strength that we’ve seen in recent years was driven by investors.
‘‘But a lot of the policies that are going to be introduced are really going to change that environment for investors.’’
While low interest rates and a general shortage in Auckland would prevent prices from falling sharply, the lack of investor demand was expected to weaken the market.
‘‘The tightness in Auckland’s housing market is going to persist for some time, that’ll provide some floor under prices.
‘‘But we think those confidence effects that are going to come from a change in Government policy will be quite an important factor that’s going to sap a lot of heat from the housing market,’’ Ranchhod said.
A weaker housing market was expected to have a direct impact on spending, as home owners felt less confident.
‘‘New Zealanders do hold a lot of their wealth in terms of housing assets, and when we see softness in house prices we also expect that we will see softness in spending.’’
Since the formation of the new Labour-led Government, business confidence has plunged, according to a monthly survey by ANZ, led by a lack of confidence among the agricultural sector.
On Tuesday the influential quarterly survey of business opinion (QSBO) will be released by the New Zealand Institute of Economic Research.
BNZ said the QSBO survey may show less of a fall than other recent confidence surveys, because it had less emphasis on the farming sector.
The bank’s senior economist Craig Ebert was also more upbeat about the state of the country’s housing market.
He predicted that Real Estate Institute figures for December, expected to be released this week ‘‘will show a resilient market, with signs that inflation is far from dead and buried, along with turnover that’s recovering post the election’’.