2017: The year in review
Friday 29 December 2017
Turbulence and upheaval characterised 2017 and housing relating issues were one of the issues of the year – but much of the news was not good for investors.
By Miriam Bell
With the hard-fought election dominating the year and ending in a surprise victory for the Labour-NZ First-Greens coalition, it’s no surprise that uncertainty dogged the housing market.
However, for investors, the biggest impact of the election was two-fold.
Firstly, it intensified the strong vein of anti-investor rhetoric that was already apparent in public discourse.
Secondly, and more practically, the new government plans to introduce a suite of housing related policies which are set to impact on investors in a range of ways – and it has gone about doing so at a running pace.
One of the new government’s first moves was to confirm that negative gearing will be abolished and that the bright line test will be extended from two years to five.
The Healthy Homes Bill, which had been wending its way through Parliament for some time, has been passed and is now law.
It will establish minimum standards for insulation, heating, ventilation, draught stopping, drainage and moisture in all rental properties.
While the requirements of the standards are not specified in the legislation, the government aims to have the standards set with in the next 18 months.
The new government is now fast tracking its legislation banning foreign buyers from buying existing houses and has established its promised Tax Working Group which will be looking at a capital gains tax among other possible changes.
Investor advocates say the planned tax changes are likely to have a big impact on new investors and speculators, while the Healthy Homes legislation will increase costs for landlords which will lead to increased rents.
They warn this could result in less people going into the provision of rental property and further reduce the already-tight supply of rental stock.
Meanwhile, the country’s housing market slowed markedly in 2017.
While election-related uncertainty is likely to have been a contributing factor for this, the market moderation was happening anyway.
And it was largely due to the impact of the Reserve Bank’s third round of LVRs and the tightening up of bank lending.
In real measures, sales and price growth declined throughout the year – particularly in the once super-hot market of Auckland.
Year in review data from REINZ shows that the national median price increased by 11.2% to $540,000 in the January to November 2017 period, as compared to 16.1% in the same period last year.
It shows that the Auckland region’s median price increased by 6.7% to $880,000 in the January to November 2017 period, as compared to 18.2% for the same period last year.
But national sales volumes in the January - November 2017 period totalled 68,787 which is an 18.1% decrease on the same period last year.
In the Auckland region sales volumes in the January - November 2017 period came in at 20,142 which is a 23.2% decrease on the same period last year.
REINZ chief executive Bindi Norwell says 2017 was an interesting one with one of the wettest winters in a long time and the uncertainty created by an election.
“When you combine those factors with the LVR impacts and the tightening of bank lending, it’s certainly kept the industry on its toes.
“But now the warmer weather has returned, there is the prospect of reduced LVRs in the New Year and there is more certainty post-election, we’re looking forward to things returning to normal.”
Make no mistake though, commentators believe the market has normalised and there won’t be a return to the heady days of turbo-charged price growth seen in 2015 and 2016.
Property Institute chief executive Ashley Church says that the market is now doing exactly what they’ve been consistently predicting for over two years.
“Rather than crashing, it is settling into much lower house price growth before it slows down to virtually zero price growth for the next three to five years”.
“That has nothing to do with anything that either National or Labour have done – it’s simply how the kiwi residential property market works.”
Tougher investor regulations and a flatter housing market aside, the Reserve Bank delivered some good news for investors at the end of the year.
Not only has the Bank put plans for controversial debt-to-income ratios (DTIs) on hold for the time being, but it will be easing the LVRs from 1 January 2018.
For investors the changes mean that 5% of banks’ new mortgage lending will be able to go to investors with deposits of less than 35%, as opposed to 40%.
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