NZ residential rental market news, March 1

When is the housing market due to peak again, the Govt.'s "trifecta" of housing policies, and Westpac lends a whopping $875M in new housing loans in Q4.

Too long; didn't read? Here're this week's TLDRs...

The OCR decision: A Core Logic breakdown

The Reserve Bank of New Zealand (RBNZ) has kept the official cash rate (OCR) unchanged at 5.5%. 
There was speculation about an increase to 5.75%, but the decision was to maintain the current rate. 
The RBNZ is closely monitoring inflation and has a low tolerance for any unexpected increases. 
Headline inflation is reported to be declining, which is expected to lower inflation expectations and reduce wage and price pressures. 
Despite a steady OCR, the RBNZ remains vigilant about inflation and continues to express concerns. 
The Monetary Policy Statement forecasts the economy will avoid recession, with gradual employment growth, a slight increase in house prices, and inflation slowing to the target range of 1-3% by the September quarter. 
The OCR is projected to stay at its current level until at least early 2025, with potential rate cuts not anticipated until mid-next year, suggesting fixed mortgage rates will remain high for a longer period. 
High mortgage rates are expected to limit new property demand and challenge households needing to adjust existing loans to current market rates. 
The property market outlook remains relatively unchanged following the OCR decision, with mortgage rates near their peak and unlikely to decrease significantly soon. 
The labour market is expected to support but not significantly boost the property market. Migration is providing a temporary increase in property demand, particularly for rentals. 
Sales volumes may increase by 10% this year from a low base, and national average house prices could see a modest 5% rise, which is less significant compared to previous market upturns. 
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The OCR decision: An Infometrics take

Financial markets recently anticipated interest rate cuts due to weaker GDP data, leading to a drop in wholesale swap rates. 
However, market trends reversed, with more than half of the previous decline in wholesale rates being recovered. 
Infometrics leans towards the view that the Reserve Bank of New Zealand (RBNZ) has done enough tightening, amidst evidence supporting both continuation and cessation of interest rate hikes. 
Inflation has slowed more than expected, with current rates at 4.7% versus the forecasted 5.2% by the end of 2023. 
Economic growth has been weaker than anticipated, with a significant drop in GDP in September and downward revisions for previous months. 
New Zealand experienced record-high net migration in 2023, increasing the economy's capacity and easing labour cost pressures. 
Despite easing inflation and increased capacity, household budgets are still strained by rising mortgage rates, expected to reach an average of 6.3% in the next six months. 
Counterarguments suggest domestic inflation remains high, and the RBNZ is concerned about persistent inflation and the demand pressures from increased migration. 
Wage inflation remains elevated at 7.0% annually, although there are signs of easing in private sector labour costs. 
The RBNZ faces a dilemma between maintaining a tough stance on interest rates without undermining its credibility, especially if markets interpret its stance as dovish, potentially lowering mortgage rates prematurely. 
Infometrics criticises the RBNZ for its reactive approach to interest rate decisions and suggests that further rate hikes are unnecessary, given the economy is already showing signs of slowing down. 
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Housing market’s soft start to the year continues into Feb

The average value of New Zealand homes increased to $930,495 at the end of February, showing a continued rise from previous months. 
The rate of home value growth is slowing, with a 0.3% increase in February compared to 1.6% three months earlier. 
CoreLogic's figures are based on a three-month rolling basis, indicating a softening housing market. 
The slowing growth rate suggests average home values could start to decline in the coming months. 
The housing market was described as soft in January, a trend that continued into February. 
High mortgage rates and low property sales volumes are causing cautious buyer and seller behaviour, leading to subdued value growth. 
New entrants to the housing market face challenges in saving deposits and meeting loan serviceability criteria. 
Investors and existing homeowners are also affected by high mortgage rates, impacting their financial decisions. 
Despite the Official Cash Rate (OCR) being on hold, there is still a risk of rate increases, with cuts not expected in the foreseeable future. 
Short-term fixed mortgage rates, such as one and two-year loans, may remain high for some time.
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FHBs are paying less

The average price paid by first home buyers in January 2024 was $656,557, a decrease of 2.5% compared to December 2023. 
This average price was the lowest since February of the previous year, during a market slump. 
The peak average price for first home buyers was $718,000 in April 2022, according to records dating back to 2014. 
First home buyers typically purchase homes at the lower end of the market, with January's average price being 116% of the lower quartile selling price. 
Since April 2022, there has been a gradual increase in the proportion of first home buyers obtaining low equity loans (less than 20% deposit). 
In January 2024, 31% of mortgages approved for first home buyers were low equity loans, a significant increase from 16% in March 2022. 
Changes in the rate of low equity lending to first home buyers often reflect adjustments in Reserve Bank regulations on such lending. 
The average amount borrowed by first home buyers in January 2024 was $547,000, slightly down from $549,000 the year before. 
Mortgage approvals for first home buyers in January 2024 increased by 29% compared to the previous year and 6% compared to January 2022.  
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Rents settle in Q4 2023

Residential rents stabilised in Q4 2023 after increasing significantly in the first three quarters. 
The national median weekly rent remained at $580 in Q3 2023, the same as the previous quarter, but was up by 5.2% compared to Q4 2022. 
The largest annual increase in median rents was for two-bedroom apartments/units, rising by 10.9% from Q4 2022 to Q4 2023. 
Median rents for one-bedroom apartments/units and three-bedroom houses also rose, by 9.8% and 5.8% respectively, over the same period. 
Queenstown-Lakes and Whakatane saw the biggest increases in median rents across all property types, each up by $75 a week. 
Wellington City's median rent remained unchanged from the end of 2022 to the end of 2023, with the smallest increases observed in Dunedin, Nelson, Palmerston North, Selwyn, Christchurch, and Lower Hutt. 
In the Auckland Region, eight council ward areas showed no increase in median rents in Q4 2023 compared to Q3 2023. 
Rodney, North Shore, and Whau wards in Auckland experienced quarterly declines in median rents. 
Orakei and Maungakiekie-Tamaki were the only Auckland wards with increased median rents in Q4 compared to Q3 last year.  
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TA: No more rate rises in 2024

There was a recent shift in market views, suggesting the Reserve Bank of New Zealand (RBNZ) needed to further increase the Official Cash Rate (OCR) from 5.5% due to insufficient action on inflation. 
A rise in bank wholesale borrowing costs by 0.3% occurred, reducing the increased bank margins seen earlier, influenced by lower borrowing costs from the United States. 
Monetary policy is understood to have its greatest impact on inflation 18-24 months after implementation, with the RBNZ having started to raise the OCR in October 2021. 
The RBNZ's significant rate increases began in April 2022, reaching a peak rise in October 2022, indicating the policy's full impact is only starting to be seen now. 
Despite high inflation rates and wage growth, along with businesses planning price increases, further OCR hikes seem unlikely, and rate cuts are not expected soon. 
The economy shows signs of strain, with retail spending falling for eight consecutive quarters, a decrease in per capita spending, weak business investment in new equipment and systems, a decline in export value, and falling house construction volumes. 
The RBNZ's decision to maintain the OCR at 5.5% reflects these disinflationary pressures and the need for more time for the full effects of its tight monetary policy to materialise. 
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House prices will return to their peak in Q3 of 2025

New Zealand house prices are projected to return to their post-Covid peaks within less than two years, reaching the nationwide average property value of $1.098 million by the third quarter of 2025. 
Auckland and Wellington are expected to recover their peak values later, with Wellington in the second quarter of 2026 and Auckland six months thereafter. 
West Coast and Otago have already surpassed their previous peak values, with Southland and Canterbury predicted to join them later this year. Gisborne, Marlborough, Taranaki, and Waikato are forecasted to fully recover by the first quarter of 2025. 
The projections are based on the average quarterly growth rate for each region in the five years up to the end of 2019, excluding the period between 2020 and 2023 due to market volatility. 
Factors such as higher long-term interest rates, the cost of living crisis, and planned debt-to-income ratios are expected to slow the housing market's recovery. 
The pace of value growth over the next two years is anticipated to be much lower than during the boom of 2020 and 2021. 
Nationwide average property value increased by just 1% in the three months to the end of February 2024, with Auckland sales hitting their lowest monthly tally since April 2020. 
West Coast is the best performing region with a 4.7% increase over the last three months, while Marlborough and Nelson saw decreases in the same period. 
Queenstown-Lakes remains highly popular, showing a 4% growth quarter-on-quarter, with growing momentum in Wellington City and Tauranga but slowing growth in Christchurch. 
The housing market's uneven recovery is evident, with the percentage of suburbs recording quarterly value growth dropping from 90% in January to 70% in February. 
Stock levels have rebounded, with new residential listings up nearly 30% year-on-year nationwide and nearly 47% in Auckland, suggesting a shift in market dynamics potentially favouring buyers. 
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The Govt.’s "trifecta" of policies to address the housing crisis

Housing Minister Chris Bishop promises a "trifecta" of policies to drive growth in New Zealand cities and address the housing crisis. 
Bishop highlights the need for rezoning land both at the city edges and in central suburbs, alongside new infrastructure funding tools and financial incentives to tackle restrictive zoning by councils. 
BNZ economists report a shortage of housing construction to match post-pandemic population growth, with New Zealand's population growing by 145,100 in 2023. 
Immigration Minister Erica Stanford announces plans to restrict low-skilled work visas and create a long-term population plan. 
BNZ's chief economist suggests New Zealand needs to build up to 50,000 residential dwellings annually to accommodate record population growth but expects only around 35,000 might be built. 
Auckland and Canterbury are highlighted for strong building numbers and generous zoning, which has improved housing affordability. 
Chris Bishop criticises New Zealand's housing market as one of the least affordable in the OECD, with prices rising 230% since 2003 against a median household income increase of 114%. 
Bishop's plan includes making the Medium Density Residential Standards (MDRS) optional for councils, who must then zone for 30-years of housing growth if they opt out. 
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Westpac lends a net $874.4M in new housing loans Q4 2023

Westpac significantly increased its mortgage lending in the December quarter, lending a net $874.4 million in new housing loans, compared to $88.2 million in the previous quarter. 
ANZ Bank NZ was the top mortgage lender in the same quarter with a net $1.26 billion in new loans, although this was a decrease from $1.49 billion in the September quarter. 
For the calendar year 2023, ANZ was the largest mortgage lender with a net $4.23 billion in new loans, followed by Bank of New Zealand (BNZ) with $2.77 billion, and Westpac with $1.5 billion in net new mortgage lending. 
Kiwibank emerged as a significant player in the December quarter with $737.1 million in net new loans, bringing its total for 2023 to $1.74 billion and making it the third largest lender for the year. 
ASB's mortgage book decreased by $312 million in the December quarter, continuing a trend from the June quarter where it shrank by $152.2 million. Over the calendar year, ASB's book grew by only $146.4 million. 
Market shares shifted, with ANZ's growing slightly, Westpac's decreasing, BNZ's increasing, and ASB's falling, partly due to ASB charging above-market interest rates earlier in the year. 
ASB has adjusted its interest rates to be more competitive, aligning its six-month and one-year fixed rates closer to those of other banks. 
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Bridging loans are too risky

Homeowners aiming to move up the property ladder face challenges finding buyers for their current homes, as bridging finance is largely available only to those with significant equity. 
The process of moving up the property ladder, whether by selling then buying or buying then selling, carries risks of either ending up homeless or owning two unaffordable houses. 
Many opt for the safer route of making conditional offers dependent on selling their existing property, which is currently acceptable in the market. 
For those needing to make unconditional offers on a new property, a long settlement period is negotiated to allow time to sell the current home, with open bridging loans as a backup. 
Bridging finance requires a combined loan to value ratio of 70% across both properties, typically accessible to homeowners in their mid to late 40s with substantial home equity. 
Bridging finance, while providing a solution for immediate purchase before selling, adds to the cost due to interest-only loans charged at higher rates. 
The current market conditions make bridging finance nearly impossible for most, forcing homeowners to make offers on new properties conditional on selling their existing homes. 
In some cases, homeowners are unable to sell their current home for the necessary amount to fund their next purchase, resulting in missed opportunities. 
A contemporaneous settlement, where both properties settle on the same day, is often arranged by those who manage to sell their current home at a satisfactory price. 
Experts suggest selling first with a long settlement as the optimal strategy, allowing homeowners to buy their next property as unconditional cash buyers, giving them an advantage in competitive markets. 
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Non-performing housing loan ratio hits a 10-year-high 

Non-performing housing loans in New Zealand have increased by over 10% in the past month, reaching a 10-year high. 
The total non-performing loans rose by $161 million in January, summing up to $1.678 billion. 
This figure represents 0.5% of the $350.393 billion of outstanding housing loans, the highest ratio since early 2014 but still below the peaks of 1.2% seen from 2009 to 2011 after the Global Financial Crisis. 
The recent rise in non-performing loans indicates increasing mortgage stress, exacerbated by significant interest rate hikes since the second half of 2021. 
Over the past 12 months, the total non-performing loans have surged by approximately $721 million, or over 75%. 
The Reserve Bank of New Zealand (RBNZ) has left the Official Cash Rate unchanged at 5.5% and does not anticipate rate reductions until the next year, implying ongoing mortgage rate pressures. 
The overall banking system is also experiencing a rise in stress, with total non-performing loans increasing by $268 million (7.5%) to $3.82 billion in January. 
The small-to-medium-sized enterprise (SME) sector is particularly affected, with non-performing loans rising by $54 million (7.2%) to $813 million in January, nearly doubling over the past year. 
Non-performing commercial property loans and agriculture loans also saw increases, indicating a broader financial strain beyond the housing sector. 
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Landlord fined after retaliatory eviction notice was served 

A tenant was awarded $2160 in exemplary damages after their landlord issued an eviction notice following complaints about water leaking in the house. 
The Tenancy Tribunal adjudicator emphasised the importance of lawfully given termination notices, noting the significant impact of ending a tenancy. 
The case was initiated by a third-party complaint to the Tenancy Compliance and Investigations Team at MBIE regarding "water ingress" at the property and an electrical fault resulting in no power in parts of the property. 
On a specific date in November 2023, an improvement notice was issued to the landlord to address the electrical fault. 
The landlord indicated an intention to evict the tenants after receiving the improvement notice and sent a termination email within 15 minutes, claiming a desire to redecorate and live in the house. 
The Tenancy Compliance and Investigations Team warned the landlord that the termination notice was retaliatory. 
The Tenancy Tribunal found the eviction notice to be retaliatory, set it aside, and emphasised that protections are in place for tenants who stand up for their rights in their tenancy. 
The landlord's claim of wanting to move into the property was not supported by evidence, contributing to the finding of retaliatory action. 
The adjudicator noted that everyone has the right to live in a warm, dry, and safe home, highlighting the enforcement of tenant protections. 
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