NZ residential rental market news, May 10

FHBs thrive, the primary threat to NZ's housing market in 2024, and property values climb despite volatility.

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

First Home Buyers Thrive in Buyer-Friendly Market, Showing Strong Q1 Activity 

First home buyers (FHBs) constituted 26% of property purchases in Q1 of 2024, up from the long-term average of 21%. 
CoreLogic’s First Home Buyer Report reveals an increase in FHB activity and a shift in market conditions favouring buyers. 
Despite high mortgage rates, FHBs are utilising low-deposit lending options, government grants, and sometimes compromising on property location or type. 
The median price paid by FHBs dropped to $695,000 in Q1 2024 from $699,000 in 2023 and $715,500 in 2022, indicating better value purchases. 
FHBs are not typically buying the cheapest properties; their median purchase price is above the lower quartile of all buyers. 
High FHB activity is recorded across all major urban centres, with significant shares in cities like Wellington and Hamilton. 
In smaller centres like Rotorua, Palmerston North, and Invercargill, FHB activity is also above average, likely driven by affordability and lifestyle choices. 
Kelvin Davidson predicts continued robust FHB activity into 2025, influenced by stable factors despite potential changes in regulations like LVR and the Brightline Test. 
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Consumer Spending Drops as Economic and Job Security Concerns Mount

The latest Spending Plans Survey shows a significant deterioration in consumer spending intentions, with a net 36% of respondents planning to cut spending over the next 3-6 months. 
This negative sentiment is worse than earlier in the year and marks a steep decline from the four-year average of -4%. 
Specific spending cuts are planned across various sectors, with notable decreases in spending on motor vehicles, eating out, and household items. 
The only areas where spending is expected to increase are groceries and international travel, the former due to price increases and the latter due to pent-up demand post-pandemic. 
Concerns about job security have spiked, with a record 50% of respondents worried about their employment, up significantly from earlier in the year. 
Real estate market insights reveal a sharp decline in open home attendance and a diminishing fear of missing out (FOMO) on property purchases. 
The residential real estate market showed some improvement mid-last year but has since plateaued and is now experiencing slight declines. 
Economic projections suggest that conditions may not improve until interest rates decrease, potentially by the end of the March quarter next year. 
Overall, the outlook for housing and various other sectors remains bleak, with a focus on survival into 2025. 
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House Values Stagnate Amid Economic Pressures and High Interest Rates 

House values dipped slightly in April, with a national average decrease of 0.1%, reflecting a buyer's market due to increased listings. 
National average house value stands at $933,633, still 11% below its peak. 
Variability across main centres, with Dunedin, Wellington, and Hamilton experiencing modest increases, while Christchurch, Tauranga, and Auckland saw declines. 
High mortgage rates, around 7%, and low 'forced seller' numbers due to stable employment are influencing the market dynamics. 
The housing market is experiencing a cooling in buyer interest amidst a rising cost-of-living crisis and recessionary concerns. 
Stats NZ reported a 1% increase in household living expenses for the quarter ending March, with unemployment rising to 4.3%. 
Financial concerns are prevalent, with 70% of New Zealanders worried about money, influenced by inflation and interest rate concerns. 
Mortgage arrears have decreased slightly but remain higher than last year, reflecting ongoing financial pressures on households. 
Rental prices have hit record highs, with the national median weekly rent reaching $650, a significant year-over-year increase. 
The Reserve Bank noted increasing challenges in home insurance affordability, particularly for high-risk properties. 
New government regulations aim to prioritise families in emergency housing, reducing reliance on such accommodations as long-term solutions.  
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Buyer's Market Dominates as Economic Uncertainty Impacts NZ Housing and Employment

Current New Zealand housing market is predominantly a buyer's market, as indicated by a recent survey where a net 50% of real estate agents identified stronger buyer motivation. 
High availability of listings, with a 23% increase over nine months, reaching a nine-year high of 30,400 units, contributes to buyer power. 
Economic uncertainty is impacting buyer confidence; a significant portion of agents reported increasing concerns about job security among potential buyers. 
Unemployment remains low at 4.3% but the job market has tightened, particularly affecting young people who face higher rates of unemployment and unrealistic employment expectations. 
This economic pressure is likely pushing more young people towards further education to gain qualifications during tough times. 
Consumer and business sentiment are notably low, impacting spending and economic activity across sectors. 
A substantial decline in new building consents reflects broader economic challenges and a downturn in house construction. 
The Reserve Bank is expected to maintain high interest rates for the foreseeable future, though there is anticipation of cuts beginning before the end of the year. 
Businesses are still planning price increases, which could delay monetary policy easing as inflationary pressures persist.
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Job Losses Emerge as Primary Threat to NZ Housing Market in 2024

The latest Financial Stability Report from the RBNZ indicates a robust banking system but highlights risks including job losses and potential debt-to-income caps still under consideration. 
Recent Stats NZ data reveals a slight increase in the unemployment rate from 4% to 4.3% in Q1, attributed partly to job cuts rather than an increase in workforce participation. 
The rising unemployment, coupled with high mortgage rates, poses a risk to the housing market, suggesting that house sales and prices may not increase significantly this year. 
The CoreLogic House Price Index shows national average property values remaining flat in April, reflecting the balance of power shifting towards buyers amid high mortgage rates and increased property listings. 
Despite a significant decrease in dwelling consents, the numbers remain higher than the post-GFC lows, suggesting a reduced risk of housing shortages and price spikes. 
Upcoming data is expected to show a continuation of borrowers opting for short-term fixed loans, anticipating potential drops in mortgage rates. 
First-home buyers are expected to maintain a strong presence in the property market, as indicated by upcoming CoreLogic Buyer Classification figures. 
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New Home Consents Drop, Building Costs Rise Amid Shrinking House Sizes

New dwelling consents have significantly decreased by 37.4% since Q1 2022, with only 7717 homes consented in Q1 2024. 
Despite the decline in consents, the average estimated build cost of new homes has risen by 17.3% over the same period. 
The average size of new homes has decreased by 30% over the last 14 years, from 202 square metres in 2010 to 141 square metres in 2024. 
The cost per square metre for new builds has increased by 21.6% in the last two years, from $2695 to $3276. 
Regional variations in build costs exist, with Canterbury and Otago recording the lowest and highest costs per square metre, respectively. 
Interest co nz's analysis includes detailed data by dwelling type and major urban region, available on their Residential Dwelling Consent Analysis page.    
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Provincial Areas Hit Hard by Steep Decline in Building Consents 

Residential construction downturn is expected to significantly impact both provincial and major centres, potentially hitting provincial areas harder. 
Building consents in March decreased by 26.2% year-on-year, with 2931 new dwellings consented across the country. 
The steepest declines in building consents were observed in provincial regions such as Marlborough, Gisborne, Tasman, Taranaki, Manawatu/Whanganui, and Hawke's Bay. 
Major urban areas in the upper North Island also experienced declines, although not as severe as in provincial centres; Wellington Region, however, saw a 27.9% increase in consents. 
Some regions like Northland, West Coast, Southland, and Nelson recorded increases in building consents, though the numbers in Nelson, West Coast, and Southland were relatively small. 
Overall, the North Island saw a 27.8% decrease in building consents, while the South Island experienced a 21.2% reduction. 
There were also significant drops in consents for all types of buildings, with retirement village units experiencing the largest decline at -32.9%. 
The downturn has serious financial implications for companies involved in residential construction, including builders, subcontractors, and material suppliers. 
The estimated value of new dwelling consents in March was $1.302 billion, marking a $474 million decrease from the previous year.  
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Rotorua Struggles with Property Growth Amid Housing and Reputation Challenges 

Rotorua's property growth has been significantly impacted by the use of motels for emergency and social housing, leading to perceptions of increased crime and safety concerns. 
Property values in Rotorua increased by only 13% post-Covid, significantly less than other cities where values more than doubled. 
The negative public perception linked to homelessness and the use of motels for housing has deterred potential residents and investors from moving to Rotorua. 
Local real estate agents and residents have expressed concerns about street violence and intimidation, impacting the city's reputation and property market. 
Efforts to improve Rotorua's image are being discussed, focusing on its natural attractions and strategic location, to attract new residents and investors. 
The Government plans to end the use of motels for long-term emergency housing in Rotorua by the end of 2025. 
Rotorua's property market challenges are also attributed to investors selling older rental properties due to new healthy homes requirements and a general downturn in the property market. 
The city's tourism industry, crucial to its economy, suffered during Covid but is showing signs of recovery with the return of international visitors. 
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NZ Property Values Climb Despite Market Volatility, with Christchurch and West Coast Leading 

Property values across most New Zealand suburbs have risen substantially over the past four years, despite a volatile post-Covid market. 
The majority of homeowners have seen value gains endure through both a market boom and a recent slump. 
OneRoof’s research highlights that property value growth from May 2020 to 2024 outpaced the growth from the previous four years in 323 suburbs. 
The initial post-Covid surge in property values was driven by low interest rates and border closures, significantly increasing homeowner wealth on paper. 
Despite a sharp increase in OCR leading to a market slump with an average 14% drop in property values, the market has started recovering, growing by over 3% since the slump ended. 
As of April 2024, property values are on average 29% higher than in May 2020, with significant increases in 57 suburbs. 
Only three suburbs have seen property values decline since the start of the pandemic, while three others have seen neutral growth. 
Christchurch and the West Coast have experienced significant value surges, with some suburbs nearly doubling in value. 
The slump affected over half of the country’s suburbs, with many experiencing slower growth rates compared to the previous four-year period. 
Christchurch’s post-Covid price rise was attributed to affordability, an influx of renovated homes, and its attractiveness to new residents seeking a better lifestyle and job opportunities. 
The West Coast has become appealing for remote workers due to affordability and lifestyle, contributing to property value increases.   
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Mortgage Borrowers Favour One-Year Rates Amid Speculation on OCR Cut 

The one-year fixed interest rate is currently the most popular choice among mortgage borrowers in New Zealand. 
Economists speculate that the Reserve Bank of New Zealand (RBNZ) might lower the Official Cash Rate (OCR) as early as November, although the RBNZ itself predicts cuts only from mid-next year. 
Both ASB and ANZ have recently lowered their mortgage rates, with ANZ reducing its six-month and one-year fixed home loan rates by 10 basis points. 
RBNZ data from March indicates that 42.1% of all new owner-occupier lending was on one-year fixed terms, the highest since June 2021. 
Eighteen-month fixed terms are also gaining popularity, with usage increasing from 9.8% to 13.0%. 
Borrowers are avoiding longer fixed terms of two and three years, due to expectations of declining interest rates, with these options falling to historical lows. 
Total residential investor lending has increased, with a significant portion opting for one-year fixed terms. 
The total share of new residential lending on fixed interest rates rose to 81.7% in March. 
Overall, total new residential lending in March reached $5.7 billion, a slight increase over the previous year. 
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Westpac NZ Sees Strong Mortgage Performance Amid Interest Rate Rises

Approximately 65% of Westpac New Zealand's mortgage customers are more than three months ahead on their repayments as of March 31, mitigating the impact of hardship despite rising interest rates. 
Westpac's Chief Executive, Catherine McGrath, reported that only about 22% of their customers are on fixed-rate mortgages below 5%, indicating most have transitioned through the major rate hikes. 
The rise in wages in New Zealand has aided customers in managing higher mortgage costs, with many having anticipated increases due to being on fixed-rate terms. 
Interest-only mortgages in Westpac's portfolio have decreased slightly to 16% from 16.5% six months earlier, suggesting less need for financial relief options. 
Westpac's mortgage lending significantly increased to $1.44 billion in the six months ending March, up from $333 million in the previous period, capturing about 28.5% of the mortgage market. 
Enhancements to the refinancing process, reduced from four days to 24 hours, have been credited with boosting Westpac’s market share. 
Westpac has experienced a 14% growth in lending to first-home buyers, offering various purchasing options including shared equity schemes and leveraging family relationships. 
Westpac reported a 20.3% increase in net profit for the six months ending March 31, reaching $562 million, with a significant reduction in provisions for bad debts. 
The bank's total deposits decreased by 1% to $78.8 billion, attributed to customers opting for higher-interest term deposits and market competition. 
Westpac reviews its deposit rates weekly, ensuring competitive offers are always available in the market.  
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Rentvesting Rises as Strategy Amidst Australian Housing Challenges  

"Rentvesting" is gaining traction as a strategy for Australians to own an investment property while renting in a preferred location. 
This approach allows individuals to benefit from the capital gains of a property they own, whilst living in an area that suits their lifestyle. 
Despite its advantages, rentvesting faces challenges such as slower capital appreciation in cheaper properties and high costs in urban apartments. 
Investment properties attract various additional costs like higher mortgage rates, capital gains tax, and property management fees, which can diminish returns. 
Negative gearing benefits are limited, especially for median income earners, making this strategy less attractive for them. 
The impact of rentvesting on housing affordability is uncertain, but it could potentially distort supply and demand dynamics in different regions. 
Ultimately, increasing the overall housing supply is suggested as a more effective solution to the housing affordability crisis.  
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Engineer Guilty of Massive Forgery Scandal Affecting 1000 Homes 

Jonathan Beau Hall, an engineer, pleaded guilty to 113 forgery charges related to signing engineering documents with forged signatures. 
The fraud was discovered in May after a complaint to Engineering New Zealand, which then involved the police. 
Hall, as director of Kodiak Consulting Ltd, submitted forged producer statements for 1000 home designs to various councils, using the identities of two chartered professional engineers. 
These documents, essential for council approvals, falsely assured that the designs met compliance standards. 
The forgery has potentially compromised the safety of properties across 42 districts and undermined trust in the engineering profession. 
Homeowners affected by this fraud will have a note added to their Land Information Memorandum, which can only be removed after correcting the design errors at their own cost. 
Hall is scheduled for sentencing at Rotorua District Court on Friday, 9 May at 11:45 am.  
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