Stagnant rents tipped to last a whole year
OPINION: I’m going to say it: The housing party is definitely over.
It probably already was. The real estate industry claimed that the slowdown of recent months, with turnover down more than a quarter on the year before, was due to little more than pre-election uncertainty.
But the change has felt more fundamental than that.
The banks have cut down their mortgage lending dramatically and borrowers have been turned away on deals that might have been a sure bet just six months or a year ago.
Loan-to-value restrictions layered on top of that bank caution kept many budding property investors out of the market; now they are required to have at least 40 per cent equity in any deal.
With Labour as the next government, things aren’t going to turn around and take off again any time soon.
The current housing market conditions should be seen as the new normal for the next couple of years, at least. Whether we’re talking a plateau in prices or a more significant fall from here will remain to be seen.
There are predictions of as much as 13 per cent price falls over the next three years. A few factors at play will affect whether that proves to be true.
Immigration
Population growth has been cited as a big part of the reason for house price growth in Auckland, in particular. The city hasn’t had enough new building to keep pace with the growing population.
If Labour and NZ First do turn off the immigration tap, you’d expect some of that demand to disappear. Basic economics then would suggest that the same amount of supply with less demand would mean lower prices – or prices rising less quickly.
But much of the population growth is a result of New
Investment
It’s hard to avoid the fact that some of the price gains have been driven by investment activity.
Investors are the single biggest buyer class in the market, if you separate out first-home buyers from ‘‘movers’’.
With the prospect of tighter regulation of the way they run their rental properties, it is likely that few will rush to buy until they get a clear picture of what the new environment will look like.
Factor in the reality that the big capital gains of the past five years have vanished, and many will sit on the sidelines. The prospect of a capital gains tax shimmering on the horizon won’t make them feel any more optimistic, either.
Some may sell if the new government makes landlording an unprofitable experience. If Labour goes ahead with plans to ring-fence tax losses from property, many landlords may no longer be able to justify ‘‘topping up’’ mortgages if rent does not cover their repayments.
Foreign ownership
A hard line by the new government on who can buy property in New Zealand could have a big effect on the market.
Requiring foreign buyers to purchase only newly constructed property could help boost supply – as before, it’s a refer to the supply and demand equation.
Building
Labour is promising a large-scale building programme to provide affordable housing. Whether it can meet its targets will have to be seen. If there’s less immigration, there might not be enough builders to do the work.
In either case, more affordable homes will probably come at the expense of more expensive homes, which may make higher-priced properties dearer.
Real estate agents won’t be pleased at NZ First leader Winston Peters’ choice, but everyone will be better off if house prices level off and incomes rise, allowing New Zealanders to buy homes to live in – even if they are not the sure-bet get-rich-quick investments they once were. New Zealand rent has stayed stagnant for almost a year, according to Trade Me Property.
The national median weekly rent remained at $450 for the past
10 months, up 2.3 per cent on September 2016.
It is the first time in more than seven years that national weekly rent has remained the same for so long, head of Trade Me Property Nigel Jeffries said.
‘‘We could be looking at a full year of flat rent at this point, which is welcome news for tenants.’’
But small houses outside Auckland had seen rents increase.
‘‘It now costs tenants almost
$20,000 a year to rent a one- to twobedroom house after the median weekly rent crept up 7 per cent to
$375,’’ Jeffries said.
The price hike was largely driven by small houses outside Auckland, which climbed 10 per cent in the past year to $330 a week, costing tenants additional $1560 a year.
The median weekly rent in Auckland fell $10 to $520 in September, but was still up 4 per cent on last year.
Rent in Wellington remained at $450 a week, and was up 9.8 per cent year-on-year.
‘‘Wellington experienced huge growth earlier this year, but since March it’s mirrored the national average, sitting at $450 a week. Auckland has also been relatively flat,’’ Jeffries said.
Bay of Plenty jumped $25 in September to $450 a week, and Northland rose $20 to $395 a week.
‘‘The Bay of Plenty is once again level with Wellington as our second most expensive region,’’ Jeffries said.
Meanwhile, South Island rent had dropped.
The median weekly rent in the West Coast and Marlborough regions dropped 6 per cent to $235 and $320 respectively.
Canterbury rents fell 2.5 per cent on last year to $390 per week.
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