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Chris Bishop Press Conference
12 April, 2024
Market News

NZ residential rental market news, April 12

Sam Nicholls
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The reintroduction of no-cause terminations, one boarding house's $37,000 fine, and when will be the next OCR cut?

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

NZ Construction Costs Stabilise, Annual Growth Rate Set at 3-4% for 2024 
    Construction cost growth in New Zealand has decreased to below the long-term average. 
    The Cordell Construction Cost Index (CCCI) saw a 0.5% rise in Q1, less than half the usual 1.1%. 
    Yearly construction cost increase is at a near eight-year low of 2.3%, significantly down from 10.4% in Q4 2022. 
    A peak in dwelling consents was recorded at over 51,000 in May 2022. 
    Normalisation of supply chains and a reduction in house-building activity have eased cost pressures. 
    Most construction costs have stabilised since the end of 2023, with no notable changes in product or labour rates. 
    Current construction costs are 25% higher than pre-COVID levels despite the slowdown. 
    The decrease in new dwelling consents indicates a continued softer construction phase. 
    Stable costs allow for more accurate pricing by builders and cost assurance for consumers. 
    Expected annual growth rate of construction costs for 2024 is projected at 3-4%, preventing further spikes. 
    Read the article

Auckland New Home Completions Reach Record High Despite Consent Drop 
    Auckland continues to see high completion rates for new homes despite a decline in building consents. 
    In February, a record 1583 new dwellings received Code Compliance Certificates (CCCs), a 36% increase from last year. 
    CCCs are issued upon building completion and are a direct measure of new housing supply. 
    It typically takes about two years from issuing a residential building consent to the completion and issuance of a CCC. 
    Nationally, the number of dwellings consented in the year to February 2024 fell by almost 25% compared to the previous year. 
    The high number of completed homes in Auckland reflects projects started before the decrease in consents and may include clearing backlogs of residential building work. 
    Although a slowdown in completions is expected eventually due to fewer new projects, current completion rates remain strong. 
    Over the past year, 18,642 new dwellings in Auckland received CCCs, a record for any 12-month period, with a monthly average of 1554 completions. 
    Read the article

Mixed Trends in NZ Property Values with Slow Growth and Regional Declines
    Residential property values in New Zealand showed mixed trends in Q1, rising on average but varying by region. 
    The national average home value increased by 2.2% over three months to $924,734, but remains 13.1% below the 2021 peak. 
    Queenstown saw the highest quarterly growth at 2.7%, with Wellington and Christchurch also seeing increases, though at slowing rates. 
    Auckland experienced a decline in average dwelling value by 0.2%, continuing a downward trend from the previous quarter. 
    Other regions such as Whangarei, Hamilton, Rotorua, and Hastings also recorded declines in property values. 
    The housing market is described as "flat" by QV's Operations Manager, indicating minor overall changes amidst economic challenges. 
    A surplus of listings is providing buyers with more choices, which helps keep price pressures down, though high interest rates and lending restrictions are still impacting the market. 
    Read the article

Auckland Real Estate Agency Fails Amidst Market Downturn, Creditors Unlikely Paid
    Client First Realty in Auckland has collapsed, citing poor market conditions as the reason. 
    The agency, directed by Tarragon Mann, ceased operations on March 31. 
    Unsecured creditors are owed approximately $245,116, with additional debts to Inland Revenue of around $119,078. 
    The liquidator, Boris van Delden, has indicated that unsecured creditors are unlikely to receive any payout. 
    Tarragon Mann attributed the failure to high operational costs and low sales revenue. 
    The company also faces about $178,970 in unsecured debts to related parties. 
    Legal proceedings involving the company are ongoing, with liquidators advising against continuing these in court. 
    Auckland's housing market has seen a significant drop in sales, with recent totals falling well below the yearly average. 
    The Real Estate Authority reported a decrease in active sales licences over the past year. 
    A modest recovery in the housing market is expected this year, with a projected increase in turnover. 
    Read the article

New-Build Home Premiums Expected to Shrink Amid Market Pressures
    The price premium for new-build homes over existing homes in New Zealand, currently at 6%, is expected to decrease. 
    CoreLogic analysis indicates narrowing price differences between new and existing homes due to economic pressures. 
    Developers are increasingly offering discounts to stimulate sales amid rising interest rates and economic uncertainty. 
    Increased costs and financing pressures are squeezing developer margins despite new builds typically offering higher quality. 
    Historical data shows new-build premiums have varied significantly, from 15% to as low as -2% after the Global Financial Crisis. 
    Recent changes in tax regulations reduce new-build advantages by allowing interest rate deductibility for all investment properties and shortening the bright-line test from 10 to two years. 
    Loan to Value Ratio (LVR) rules continue to favour new builds, potentially supporting demand. 
    A decrease in building consents suggests a forthcoming reduction in new-build stock, which might sustain current price premiums. 
    High migration is expected to boost long-term demand for new homes, although current effects are more visible in the rental market. 
    The pace of construction cost increases has slowed, with the Cordell Construction Cost Index showing a rise of only 0.5% in the latest quarter, well below historical averages. 
    Read the article

Buyers Gain Upper Hand in NZ Market Amid Recession and Job Worries
    A recent survey of real estate agents indicates a shift to a buyer's market amid recession fears and increased property listings. 
    Attendance at auctions and open homes has declined significantly, with a net 26% of agents noting fewer auction attendees and a net 22% observing fewer people at open homes. 
    The fear of over-paying (FOOP) is rising, replacing the previously common fear of missing out (FOMO). 
    Prices are reportedly falling in many areas, with a net 26% of agents observing price decreases. 
    A significant majority, 57% of agents, now identify the market conditions as favouring buyers; a reversal from earlier perceptions of a seller's market. 
    Concerns about rising interest rates and job security are prominently influencing buyer behaviour, with worries about employment jumping from 14% to 37% among potential buyers in recent months. 
    Consumer sentiment is also declining, with more individuals planning to reduce their spending due to economic uncertainties. 
    The overall weakening housing market and economic conditions may prompt the RBNZ to consider earlier interest rate cuts, though high inflation and wage growth might delay easing measures.  
    Read the article

Prestigious Onehunga Villa Up for Auction Amid High Local Demand
    An award-winning villa at 188 Arthur Street in Auckland's Onehunga, renovated in 2018, is back on the market. 
    The property, which sold for $2.048 million in 2020, is set for auction again on April 24. 
    The current owners, a local family, are selling due to a difficult commute to the North Shore for work. 
    The 2020 auction featured intense bidding, particularly from expatriates and downsizers. 
    The owners described the home as private with a beautiful, green backyard. 
    The real estate agent, Lindy Lawton, noted that homes in Onehunga are attracting significant investment for renovations. 
    Onehunga has become a desirable location, with the highest sale this year at $2.5751 million for another renovated villa. 
    The top-selling villa was revamped by designer Marie-Fleur Colson, reflecting the suburb's appeal to buyers seeking quality renovations.  
    Read the article

RBNZ Holds OCR at 5.5%; High Interest Rates to Persist into 2024 
    The RBNZ has kept the OCR unchanged at 5.5%. 
    Inflation trends are decreasing but remain high, with a slow reduction in price pressures. 
    The next key data, Q1 consumer price inflation, is expected on April 17. 
    The housing market is likely to see continued growth in transactions and property values, albeit slowly. 
    Current high interest rates are predicted to persist through 2024, impacting both new and existing borrowers. 
    Increased listings activity is providing buyers more options, which may reduce price increases. 
    The next OCR review on May 22 may offer insights into potential rate cuts. 
    Read the article

Economists Divided on Timing of NZ OCR Cuts Amid Steady Rates
    ANZ's Chief Economist Sharon Zollner does not anticipate any OCR cuts this year, aligning with RBNZ's current steady rate of 5.5%. 
    BNZ's Doug Steel and Kiwibank's Jarrod Kerr, alongside ASB's Mark Smith, predict a rate cut towards the end of the year. 
    The RBNZ described the economic conditions as evolving as expected, suggesting no immediate changes to the OCR. 
    Zollner predicts that inflation will decrease more slowly than the RBNZ's forecast, which initially ruled out rate cuts until mid-2025. 
    Steel interprets RBNZ's mention of "near-term pressures" as a sign that upcoming consumer price index figures might exceed expectations, predicting a 0.8% quarterly rise. 
    Smith from ASB notes a high threshold for future OCR changes, with inflation remaining above the target, indicating cautious monetary policy. 
    ASB expects the first OCR cut in November but sees the monetary policy remaining restrictive for some time.  
    Read the article

NZ Delegates Foreign Land Sale Approvals to Linz, Sparking Controversy
    The New Zealand Government has delegated the approval of land sales to foreigners from ministers to Land Information New Zealand (Linz). 
    Previously, the ministers for land information and finance would approve such sales via the Overseas Investment Office. 
    Minister for Land Information Chris Penk argues this will streamline the application process and attract more overseas investment to aid economic recovery. 
    Linz will handle most decisions, with criteria unchanged and ministers retaining oversight, particularly for national security and significant public interest cases. 
    Labour Party spokesman Damien O’Connor criticises the change, fearing it will lead to increased foreign ownership of farms and compromise national sovereignty. 
    O’Connor highlights the importance of ministerial oversight given the complexity of these decisions, which he believes are best aligned with national interests when handled at the ministerial level.   
    Read the article

NZ Government to Reinstate 'No Cause' Tenant Evictions by 2025  
    The National-ACT coalition government in New Zealand will reintroduce several changes to tenancy laws, effective early 2025. 
    Key changes include the reinstatement of 90-day 'no cause' terminations for periodic tenancies, allowing landlords to end tenancies without stating a reason. 
    Landlords will also have reduced notice periods for evicting tenants if they wish to occupy the property themselves, accommodate family members, or house employees. 
    The notice period for tenants to end a periodic tenancy will be shortened to 21 days. 
    Additionally, landlords will regain the ability to terminate fixed-term tenancies at their conclusion without specific reasons. 
    These measures aim to attract more private landlords to the rental market, thereby increasing housing supply and potentially lowering rents. 
    Housing Minister Chris Bishop highlighted the flexibility these changes offer to landlords, especially those hesitant to rent to individuals with less conventional backgrounds. 
    Renters United criticised the policy, arguing it grants excessive power to landlords and jeopardises tenant security. 
    Changes include: 
    Reintroducing 90-day 'no cause' terminations for periodic tenancies, meaning landlords can end a periodic tenancy without requiring a specific reason. 
    Returning landlords' notice periods for ending a periodic tenancy to 42 days where: 
    they want to move themselves or a family member into the property, or 
    the tenancy agreement notes the property is usually used to house employees, and they want to move an employee into the property, or 
    where the property is subject to an unconditional agreement for sale requiring vacant possession. 
    Returning tenants' notice period for ending a periodic tenancy to 21 days. 
    Reintroducing landlords' ability to give notice to end a fixed-term tenancy at the end of the term without requiring a specific reason. 
    Read the article

Gisborne Leads Rental Increases as NZ Median Rent Hits $600 
    Residential rents in New Zealand rose by approximately $40 per week (+7.1%) over the 12 months to February. 
    The national median rent reached $600 a week in February, up from $560 the previous year, with notable regional variations. 
    Most rent increases occurred in the second half of the previous year, with rents stabilising in early 2024. 
    The West Coast was the only region to see a decrease in median rent, falling by $2 per week to $368 (-0.5%). 
    Gisborne experienced the largest increase, where median rent soared by $105 per week (+20.4%), making it one of the most expensive regions for renting. 
    In Auckland, which represents 38% of the rental market, median rent increased by $50 per week (+8.3%). 
    The data, reflecting market rents for new tenancies, is sourced from bonds received by Tenancy Services, used as an indicator for rental trends and rent adjustments. 
    Read the article

Tauranga Boarding House Fined $37,000 for Multiple Tenancy Breaches  
    Edgecumbe House Limited, a Tauranga boarding house, was fined $37,000 for violating healthy home standards and tenancy laws. 
    The Tenancy Tribunal issued the fine on behalf of 17 tenants, following an MBIE investigation initiated by a complaint in June 2022. 
    Inspections revealed multiple issues including lack of heating, missing hot water taps, absence of extractor fans, and inadequate cooking facilities. 
    The landlord also overcharged tenants by demanding bond exceeding four weeks' rent and interfered with water supply. 
    The Tribunal's March 5 decision highlighted non-compliance with healthy homes standards for heating and ventilation, as well as building health and safety regulations. 
    Edgecumbe House Ltd received a three-year restraining order to prevent further legal breaches. 
    MBIE pursued the case due to the severe potential harm and the tenants' vulnerability, achieving a favourable result for them. 
    Despite the boarding house's obligation to meet the healthy homes standards since July 2021, tenants feared repercussions for reporting issues. 
    The Tribunal noted intentional non-compliance by the landlord, who initially limited heating use and was slow to address facility issues. 
    Read the article

Tenants Report Substandard Housing as Compliance Deadline Nears 
    Many tenants in New Zealand are still living in properties that fail to meet the required healthy homes standards. 
    All private rentals must comply with these standards by July next year, covering heating, insulation, ventilation, draft stopping, moisture ingress, and drainage. 
    Specific tenant complaints include a prolonged septic tank overflow in Auckland, with the landlord delaying emergency repairs, affecting the tenant and her children. 
    In Wellington, one landlord’s minimal repairs and unexpected visits have caused issues for an all-female flat; another offered a rent discount scholarship for high grades in a substandard, mouldy property. 
    Renters United highlighted a pervasive issue where tenants must choose between subpar housing or homelessness, exacerbated by landlords exploiting their position of power. 
    The New Zealand Property Investors Federation suggests that compulsory membership could improve landlord compliance with housing standards. 
    Housing Minister Chris Bishop emphasised that landlords are legally obligated to meet these standards, indicating government expectations for compliance. 
    Read the article

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