Speed and timing now crucial, leaders say
A National-led government is likely to restore confidence and spur increased activity from investors, which will help to boost supply of housing, including rental properties, industry leaders say.
But their attention now turns to the how quickly the incoming government will put its pre-election promises into action.
Christopher Luxon will soon become New Zealand’s 42nd Prime Minister after the party won a total of 50 seats based on the total votes counted.
The exact makeup of the new Government is still to be confirmed, with final results due on November 3. National and ACT currently have sufficient seats to govern, albeit by a thin margin, and final counts will determine whether New Zealand First is needed to form a coalition.
The National Party has promised to unwind the Credit Contracts and Consumer Finance Act (CCCFA), restore 100% interest deductibility on rental properties and roll back the bright-line test from ten years to two years.
Policies will help to address imminent housing, rental shortage
He referred to data showing a reduction in building consents since December 2021, coupled with high net migration (Statistics New Zealand revised seasonal adjustment estimates show an annual inflow of 110,000).
“With a National Government, the question turns to how quickly will they put in place the polices and promises they’ve made,” Jackson said.
National said it would unwind interest deductibility rules, restoring full deductibility in April 2026, while ACT has listed interest deductibility and the bright-line test as being among the things that would go within its first 100 days in Government.
Jackson said that bringing the bright-line text back to 24 months, which would aid in the freeing up of some of New Zealand’s housing stock, was needed. Equally, the phased-in interest deductibility and restoration of confidence in property investment is “crucial”, he said.
“We’ve got to find houses one way or another and I think looking back to the private sector to engage in property investment and the housing of people is pretty prudent at the moment,” Jackson said.
The winding back the CCCFA to a principals-based rather than a prescriptive approach is another policy that Jackson considered positive for the industry.
Hawkes Bay Property Investors Federation president Sharon Cullwick (pictured above second from left) said that the winding back of interest deductibility was a significant win for property investors, noting that the timing for full restoration would determine their re-entry into the market.
Cullwick noted that property holding costs, such as rates and insurance, had increased and that Residential Tenancies Amendment Act, introduced in February 2021, significantly reduced landlords’ options.
She also acknowledged that 26,000 people were homeless and that net migration had jumped, making it more difficult for tenants to find homes.
“My big concern is tenants … tenants can’t find houses,” Cullwick said.
“We’ve got 100,000 people coming into the country … we’re still so short on houses.”
While Cullwick acknowledged the need to support first home buyers, the country needs investors to be active to increase rental supply, she said. She noted that increased market activity lifts confidence in building and development, which increases overall housing supply.
“When investors coming back into the market, there will be more pressure on developers to develop more and start putting more house supply in the economy…it gives confidence to everyone,” Cullwick said.
National Government favourable for investors, property market - mortgage advisers
Haven Mortgage Advisers head of mortgages Nigel Perkins (pictured above second from right) said that he expected that the mortgage and finance industry would react favourably to a National-led government.
“Their policies face straight into some of the harsher perceptions under the previous tenure, softening the stance that property investors were bracketed alongside highly profitable property developers, and needed to be addressed - and addressed they were,” Perkins said.
Referring to the timing of the original phased removal of tax deductibility coupled with rampant interest rate rises as “brutal”, Perkins said that National’s plan to unwind the changes would be a favourable development in what was now a “rather maligned” investor space.
“This rather quickly saw so many ‘Mum and Dad’ investors impacted, and many, rather stressed. Having to fund newly created tax bills after already absorbing new cashflow shortfalls, was a bridge too far for many,” he said.
“Worse, they had the additional disadvantage of possibly not being able to easily quit a property, [as] the bright-line/capital gains testing period extended out to a lengthy ten years,” Perkins said.
The easing of both interest deductibility on rental properties and a reduction in the bright-line test would provide any leveraged property investor with more capacity to “make better decisions” on what is right for them, he said.
“As the weight of interest rates continues to bite, I suspect we’ll see a number of rental properties across the country on-sold, as soon as the bright-line timing reduction is incepted,” Perkins said.
NZ Mortgages managing director and head of lending Nathan Miglani (pictured above far right) said that a National-led government would bring “immediate momentum” in the property market.
“The country needs a little momentum and property investors will now be actively buying rentals,” Miglani said.
Miglani said that in October, first home buyers were the main source of business at NZ Mortgages, representing around 60% of market share in new lending. Investors represented 5%, after refinances (20%) and existing owners buying and selling (15%).
CCCFA wind back, foreign investor policy viewed as positive
Perkins said that National’s focus on winding back some of the unintended consequences of the CCCFA should mean that banks are able to further refine their residential credit availability without incrimination or fear of prosecution of senior staff.
The enablement of foreign investors purchasing at over $2m would likely have some impact in the top 5% of the market space, he said. While this was not expected to have significant bearing on the wider market, Perkins said that real estate agents were welcoming a further “shot in the arm” that this change would likely provide.
“All things point to stronger lender, borrower, and property market settings, but I wouldn’t fear any sort of repeat of the 2021 property value upheaval, [as] interest rates will likely keep things in reasonable check for some time yet,” Perkins said.
“And of course, now lurking not so deeply in the tool cabinet of the RBNZ Governor is the ultimate trump card should the market show any sign of over-heating once more - the potential field leveller that is next year’s DTI restrictions,” he said.
What do you think of the 2023 General Election result and is there anything you’d like the incoming Government to address? Share your thoughts in the comments section below.