Saturday, February 24, 2024

New Zealand house prices should rise slower, economists say


Economists said the housing market had already built up the speed needed to hit the expected peak in house price growth of this cycle

House prices should rise at a slower rate because of new Government policies designed to help first-home buyers (FTBs), but anyone hanging out for a big crash could be disappointed, economists say.

The New Zealand Government announced on Tuesday that it was removing property investors’ ability to deduct mortgage interest from their rental income tax bill, extending the bright line test, lifting caps for First Home Loans and grants, and offering $3.8 billion to fund infrastructure.

The deductibility change in particular was expected to prompt investors to reassess their purchase plans.

Economists said the housing market had already built up the speed needed to hit the expected peak in house price growth of this cycle, which ANZ expects to be 27 per cent year-on-year (YOY) and Kiwibank nearly 30 per cent.

But ANZ’s chief economist, Sharon Zollner said the changes announced meant that might fall back to something “more normal” a bit faster than would otherwise be the case. We’re unlikely to see house price falls on the back of this, although the risk of that has increased.

She said house prices had been rising to the point where a fall seemed inevitable, anyway.

Zollner said the change to deductibility would prompt some investors to reassess their plans. It would “cool the heels” of anyone thinking about growing their portfolio, she said, which would mean less head-to-head competition between first-home buyers and investors at auctions.

Paul Conway, BNZ’s chief economist said “every little bit” would work to cool the housing market but this would not be sufficient to address the core problems. Other changes, such as work on the Resource Management Act, changes in the Auckland Unitary Plan and a reduction in population growth would also help.

There are reasons to think we will not see double-digit house price inflation going forward, he said.

Kiwibank chief economist Jarrod Kerr said the moves would take some heat out of the market. A slowdown in the second half of this year had already been expected due to the reintroduction of loan-to-value restrictions. Today is another kick to investors.

He said the deductibility change could mean a big bill for people with a large portfolio of investment properties, and could affect their ability to buy more. It will definitely cool the market from an investor point of view. Will it cause house prices falls? I don’t think so with the housing shortage we still have in place.

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