Report reveals impact of new housing reforms on residential property market

It was meant to address the housing crisis – but is it working?

Report reveals impact of new housing reforms on residential property market

The New Zealand government released a new housing package in March to address the housing crisis in the country – but is it working? Independent economist Tony Alexander and the Real Estate Institute of New Zealand (REINZ) have delved into how the new housing reforms have changed the residential property market.

In the April and May joint surveys, Alexander and the REINZ recorded a dramatic decline in most measures of market activity following the reinstatement of loan-to-value ratio (LVR) restrictions and the announcements around interest expense deductibility and the bright-line test extension.

In the latest joint survey, Alexander and the REINZ gathered the views of licensed real estate agents across New Zealand at the end of May 2021 regarding the impacts of the new housing reforms on the residential property market, particularly on activity levels, first-home buyers (FHBs), and property investors.

The survey found that most elements of the market only changed slightly from a month earlier, apart from FHBs seeming to be taking a step back. The respondents said they still saw the fear of missing out (FOMO) and rising prices across New Zealand. However, interest from offshore declined, investors were still in a wait-and-see mode, and buyers remained concerned about a shortage of listings.

“The proportion of agents feeling that more investors are coming forward to sell their properties has decreased over the month,” the report said.

The survey revealed that a net 35% of agents reported seeing fewer people at auctions, statistically unchanged from the net 36% in the previous month.

“This suggests that as the month progressed, fewer and fewer people generally have been in attendance. But after a period during which auction rooms were packed, it is likely that many agents are still comparing current activity with those frenzied months rather than necessarily just the previous month,” Alexander and the REINZ wrote on the report.

Consistent with the latest data, agents also reported fewer people showing up at open homes at the end of May (a net 42% compared to the net 46% a month earlier). A net 17% of agents also reported seeing fewer FHBs in the property market, suggesting that the policy changes slowed the market down but did not necessarily bring more young buyers into play to take up the space created by a withdrawal of investors.

A net 63% of the respondents also reported seeing fewer investors in the housing market, which was the same result as the previous month.

“The reduction is coming from some very high levels of reported attendance increases of just three months ago, and the switching away from that earlier hyper level of activity is probably imparting a negative bias to this particular reading,” the report said.

“The firmly negative outcome tells us that investors have reacted strongly to the combined impact of an LVR requiring a minimum 40% deposit and planned removal of interest expense deductibility.”

Although the respondents reported seeing fewer people attending open homes and auctions, a net 32% still felt the effects of rising prices in their location. A gross 39% felt prices were rising, only 7% felt prices were dropping, and the remaining 53% either felt they were static or did not have a view.