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The BulletinNovember 13, 2023

First home purchasers rushing back as door closes again on foreign buyers

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Rich foreigners looking for a NZ bolthole and young couples looking for their first home could both see their hopes dashed in 2024, writes Catherine McGregor in this excerpt from The Bulletin, The Spinoff’s morning news round-up. To receive The Bulletin in full each weekday, sign up here.

Door to NZ housing market slams shut to prospective foreign buyers

In another weekend of tight-lipped public appearances by the coalition talks’ key players, what wasn’t said became a news story in itself. Asked three times whether he stood by his campaign promise to reverse the foreign buyers’ ban on certain high-priced houses, incoming PM Chris Luxon refused to comment – suggesting to many that the policy is dead in the water. NZ First leader Winston Peters was a vocal supporter of the ban at the time of its introduction and it’s “inconceivable” that he’ll let foreign buyers back in, says Council of Trade Unions economist Craig Renney. He made the comment in a Twitter/X thread accompanying his Herald column (paywalled) on the many challenges to Luxon’s tax plan posed by NZ First and Act. The loss of the 15% foreign buyers tax will “put a $3bn hole” in the tax plan, says Renney, who suggests it could be filled by cancelling the promised landlord tax breaks – namely reinstating mortgage interest deductibility and reducing the bright line test to two years. “These cost at least $2.3bn & offer little in economic benefit or value to the taxpayer,” he adds.

First home buyers back in force

At the other end of the property market, competition is heating up. First home buyers now account for 27% of the market, a record high, CoreLogic reports. High interest rates and cost of living pressures have been offset slightly by the nationwide downturn in property values, with the median price paid by first home buyers falling from $720,000 in 2022 to $690,000 in 2023 to date. Those lower prices won’t be around for long, according to the latest Reserve Bank survey of expectations. On average, the 37 business leaders and economic forecasters surveyed predicted overall house prices would rise 4.84% by this time next year, and 6.22% in two years’ time. Newsroom’s Jonathan Milne spoke to some of the Reserve Bank’s panel, who agree that high migration and the more favourable tax treatment promised to landlords are driving prices higher. But it may only be a blip. Debt-servicing costs, low yields for investors relative to interest rates and a likely fall-off in migration could all lead to a steep fall in the market in 2025, Gareth Kienan of Infometrics tells Milne.

A new approach to increasing housing supply?

Speaking to Q&A, economist Shane Martin said he doesn’t expect many changes to housing policy under the incoming government. Martin, who specialises in urban planning and housing issues, says National’s approach to housing is “80% the same plan as Labour’s”, despite National’s u-turn on Medium Density Residential Standards, which allow for higher density housing in most urban areas without resource consent. More important, says Martin, is that National still supports the National Policy Statement on Urban Development (NPS-UD) which requires councils to zone for housing density along rapid transit stops. Increasing supply is the key to solving the housing crisis, agrees Matthew Birchall, a research fellow at the NZ Initiative. Writing in the NZ Herald, he calls for local councils to be incentivised to support development with a cut of the tax revenue that comes with population growth. “National’s build-for-growth incentive payments and Act’s GST-sharing scheme will be steps in the right direction,” he says.

Economists sharply divided on OCR moves

What about interest rates? Like almost every other mortgage-holder, I’m bewildered about which direction they’ll move next year. That’s because the experts have split into two opposing camps, says Dan Brunskill of interest.co.nz. “Hawkish forecasters believe inflation has become embedded in the New Zealand economy and the central bank will have to lift the [official cash rate] further and hold it higher for longer. Dovish forecasters think the meteoric monetary policy tightening will be more than enough to quell inflation and interest rates will have to be cut as economic activity buckles.” One of the most prominent hawks is Westpac economist Kelly Eckhold, who thinks RBNZ will likely raise the OCR again in February, and hold it there until the end of 2025. Kiwibank’s Jarrod Kerr is predicting the opposite. He thinks the first rate cut will occur in May 2024 and the OCR will gradually be reduced to 3% over the following two years. Me? I’m confused as ever.

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