NZ residential rental market news, May 17

FHBs benefit while investors hesitate, Govt. pauses 1300 KO builds pending review, and unhealthy debt adds to Kiwis' financial strain.

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

Property Market Sees Increased Activity Despite Economic Headwinds in April 2024

Sales activity increased in nearly all regions compared to April 2023. 
National sales counts rose, properties sold faster, and stock levels increased. 
Total property sales fell by 17.3% from March 2024 but rose by 25.3% year-on-year. 
Only the West Coast saw a year-on-year sales decrease of 5.3%. 
Median Days to Sell decreased nationally by 3 days and by 7 days outside Auckland. 
Median sale price rose by 1.3% year-on-year but fell by 1.3% from March 2024. 
Listings increased by 34.9% year-on-year, with significant rises in most regions. 
National HPI increased by 2.8% year-on-year but fell by 0.8% from the previous month. 
Economic factors like interest rates and job losses continue to create buyer caution.  
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Property Resale Gains Decline Slightly in Q1 2024 Amid High Mortgage Rates

Resale performance declined slightly in Q1 2024 due to high mortgage rates and affordability issues. 
92.9% of properties resold for a profit, down from 93.5% in Q4 2023. 
Median gain decreased to $302,500 from $315,000, while median loss rose to $50,000 from $46,000. 
Flattening property values and rising listings favour buyers. 
Profitable resales typically occur after 7-8 years of ownership. 
Largest gains were in Tauranga, Wellington, and Auckland. 
Highest resale losses were in Auckland, Hamilton, Wellington, and Christchurch. 
Tauranga and Dunedin showed improved resale performance. 
Median hold period for profitable resales hit a record 8.8 years. 
Wellington had the longest hold period at 10.9 years. 
Properties sold at a loss were held for a median of 2.4 years. 
Outlook for sellers is less positive due to affordability pressures and high mortgage rates. 
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Growing Overhang of Unsold Properties Weakens Market Ahead of Winter

A large overhang of unsold properties is causing major market weakness. 
Interest.co.nz measures the overhang by comparing available properties to REINZ reported sales. 
At the end of March, 33,245 properties were listed on realestate.co.nz. 
REINZ reported 5,559 sales in April, leaving an overhang of 27,686 unsold properties. 
The overhang has increased by over 12,000 properties since the start of the year. 
This is a 21% increase compared to April last year. 
The current overhang is the largest in nine years and may grow further. 
Total stock rose to 33,815 at the end of April, with sales expected to decline as winter approaches. 
Buyers have more choices and can negotiate harder on prices. 
Price weakness is evident in the latest REINZ and QV House Price Index figures. 
Further price pressure is expected as buyers dominate the market over winter.   
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Housing Market Subdued Despite Increased Listings and Stock Availability

The housing market remains subdued with fewer sales despite increased stock and new listings. 
REINZ house price index fell 0.8% in the last month but rose 2.8% year-on-year. 
Total property sales fell over 17% last month but increased by a quarter compared to the previous year. 
Sales activity increased in 15 of 16 regions compared to April 2023, with Marlborough recording a 46% increase. 
Sales figures are still below long-term averages in many regions. 
The median number of days to sell decreased by three days to 43 compared to 2023. 
The national median sale price increased by 1.3% year-on-year to $790,000 but fell 1.3% from March to April. 
The median national sale price has increased year-on-year for three consecutive months. 
Listings increased by 35% year-on-year to 9636, continuing the trend from early 2024. 
Buyer interest remains, with current price levels seen as attractive, but many buyers are cautious due to high interest rates and job loss concerns. 
Some vendors are ready to sell and meet market prices, while others prefer to wait. 
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Challenging Winter Ahead for Housing Market Amid High Interest Rates and Inflation

QV reports a challenging winter for the housing market due to high interest rates, inflation, and rising unemployment. 
National average home value increased by just 0.1% over the three months to the end of April. 
In Auckland, the average value declined by 0.7%, marking the third consecutive monthly decline. 
Other urban centres with declining average values: Napier (-0.2%), Hastings (-0.7%), Palmerston North (-0.1%). 
Values were flat in Waikato and increased slightly in Tauranga and Christchurch (0.2%). 
National average home value is 2.7% higher than last year but still 12.9% below the late 2021 peak. 
QV Operations Manager notes that home value growth has largely stalled due to difficult economic conditions. 
High interest rates, persistent inflation, rising unemployment, and low business confidence are significant challenges. 
A surplus of real estate listings continues to exert downward pressure on prices.  
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Economic Sentiment Declines Amid High Costs and Market Uncertainty

Surveys show significant declines in economic sentiment and intentions for hiring, buying houses, and spending. 
Consumer spending plans have dropped from a net 13% in December to a net 36% now. 
Confidence in the labour market has decreased due to widespread news of redundancies. 
More people are selling their homes or long-held rental properties, impacting house prices. 
The outlook for house building has worsened, with falling consents and developers struggling with presales. 
IRD's strict enforcement of GST, PAYE, and KiwiSaver contributions is straining business finances. 
Pandemic savings have likely been exhausted, causing cash flow issues. 
We are 18 months from the RBNZ's November 2022 OCR increase, and its full impact is now being felt. 
Rising insurance and council rates are affecting household budgets, especially for older people without mortgages. 
Older investors are selling properties due to high costs, despite current price weaknesses. 
Conditions are improving for investors and first-home buyers confident in job security and higher ownership costs.     
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Rising Interest Rates and Job Losses Lead to Financial Strain for Auckland Homeowners

One in eight Auckland homes for sale risks selling for a loss or minimal profit. 
13% of nearly 11,000 homes listed recently were purchased during the market boom (Sept 2020-Jan 2022). 
Home prices peaked at $1.58 million but have since fallen 19% to about $1.3 million. 
Rising interest rates are causing financial strain for homeowners. 
Mortgage adviser Bruce Patten sees more people losing jobs and seeking interest-only loan terms. 
Unemployment is rising, increasing the risk of forced home sales. 
National unemployment is historically low but increasing, with recent job cuts reported. 
Credit company Centrix reported 21,800 people behind on mortgage payments in January, a 16% increase year-on-year. 
Selling homes soon after purchase isn't always due to mortgage stress; changing circumstances also play a role. 
Some homeowners have absorbed interest rate hikes by making higher payments when rates were low. 
Not all homes bought during the boom are selling at a loss; some still make profits. 
A couple facing financial difficulties due to job losses and health issues managed to switch to interest-only payments. 
Their mortgage payments increased from $2500 to $4000 monthly due to rising interest rates. 
The couple's savings are exhausted, and accessing Kiwisaver funds was limited.   
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Stricter Lending Rules and “Unhealthy Debt” Hinder Property Dreams for Middle-Class Kiwis

“Unhealthy debt”, private school fees, and car loans hinder property dreams of middle-class Kiwis. 
Homeowners aiming for $2m-$4m properties face stricter financial scrutiny due to CCCFA rules. 
Many on good salaries find they can't borrow as much as expected due to overall debt. 
Credit card debt, car loans, and private school fees significantly reduce borrowing capacity. 
Banks are more lenient on quickly resolved debts but strict on long-term commitments. 
High household expenses, even for well-off borrowers, are scrutinised by banks. 
Stricter lending rules surprise homeowners who haven't applied for a mortgage in years. 
Some borrowers struggle with open bridging loans due to stricter bank requirements. 
Banks test borrowers' ability to service loans at 9% interest rates, adding financial strain. 
Borrowers with complex financial situations face higher fees and interest rates from non-bank lenders. 
High interest rates and tighter lending are intended outcomes of RBNZ’s policies. 
The CCCFA aims to protect borrowers, making loan approval difficult but ensuring support if things go wrong. 
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First-Home Buyers Benefit from Lower Prices and Larger Homes  

First-home buyers are getting more for less: The median price paid by first-home buyers in Q1 2024 was $695,000, down from $715,000-$720,000 12-18 months ago. Stand-alone houses now represent 75% of first-home buyer purchases, up from 70% in 2023. 
Borrowers are paying more now to (potentially) save later: In March, 57% of new loans were fixed for up to one year despite higher short-term interest rates. Borrowers hope to benefit from potential rate declines in the future. 
Rental growth and migration both past their peak?: Upcoming data releases may indicate whether the recent trends of high rental growth and net migration are slowing down. Despite this, rents are already at record highs relative to household income. 
High debt-to-income lending likely to be restrained: The Reserve Bank's upcoming figures on high debt-to-income (DTI) lending will highlight the impact of current high mortgage rates and anticipated formal DTI restrictions. 
Some quick notes from my travels: Despite the "real" economy suffering, the interest in buying and investing in property remains strong. However, turning this sentiment into purchases will be challenging until mortgage rates drop significantly.    
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First-Home Buyers Benefit Amidst Rental Shortage and Regulatory Challenges  

First-home buyers are getting more for less: The median price paid by first-home buyers in Q1 2024 was $695,000, down from $715,500 in 2022. Stand-alone houses now represent 75% of first-home buyer purchases. 
Borrowers are paying more now to potentially save later: 57% of new loans were fixed for up to one year, despite higher short-term interest rates, in hopes of benefiting from future rate declines. 
Rental growth and migration possibly peaking: Upcoming data may show whether high rental growth and net migration are slowing down, though rents are already at record highs relative to household income. 
High debt-to-income lending likely to be restrained: The RBNZ will release figures on high DTI lending, highlighting the impact of high mortgage rates and anticipated formal DTI restrictions. 
Market sentiment: Despite economic challenges, interest in buying and investing in property remains strong. However, significant purchases may be delayed until mortgage rates drop further. 
Rental shortage: Low rental stock is keeping rents high. The government is being urged to attract more investors back into the market. 
Regulating property managers: There are calls for regulation of property managers to improve standards and attract cautious investors, though the government has abandoned such plans. 
Zoning changes in Wellington: The government approved Wellington City Council's housing intensification recommendations, allowing more high-density developments. 
Flood safety in Auckland: Auckland Council is urging homeowners to make their properties flood-safe but is not offering financial assistance. 
Banking competition: ANZ and Westpac have adjusted their home loan interest rates in response to increased competition and customer demand for longer-term rate certainty. 
Social housing project in Dunedin: A unique project combining social and luxury housing will open in a heritage-listed building next month.  
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First-Home Buyers Gain Advantage Amidst Investor Hesitancy and Economic Challenges

Property investors are not returning to the market despite the reintroduction of 80% interest deductibility and the reduced Brightline test. 
Debt-to-income restrictions will likely further limit investors' ability to buy property. 
Residential property values have plateaued, with high inflation, rising unemployment, low business confidence, and high living costs affecting households. 
There is a surplus of real estate listings, contributing to price drops. 
The flat market over winter is expected but may stabilize when interest rates ease, possibly late this year. 
First-home buyers have an advantage if they have stable employment and financing. 
Buyers now have more options and time, with control over the market narrative. 
Westpac revised its inflation forecast, expecting it to settle slightly above the long-term average. 
The OCR is expected to remain at 5.5% until February next year, with possible adjustments based on inflation and demand. 
Westpac's earliest date for OCR cuts is February, but it could be earlier if inflation and the labour market cool. 
Economic growth is weak, and the labour market will need to adjust, with government fiscal consolidation ahead. 
Global economic conditions remain weak, with risks from China and geopolitics. 
Past interest rate increases are expected to lead to better inflation outcomes this year and next. 
Local inflation remains high, and the RBNZ will maintain pressure to reduce it despite weak growth.   
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Dunedin's Property Market Thrives with Strong Growth and Active First-Home Buyers

Dunedin's property market saw a 3% increase in average property value to $691,000 in the three months to April. 
Hamilton's property value rose by less than 1%, while Auckland's average property value declined by 0.6%. 
Dunedin's market is thriving despite past slower growth compared to Auckland, Christchurch, and Wellington. 
High interest rates, job losses, and the cost of living crisis are affecting other cities more than Dunedin. 
First-home buyers are particularly active in Dunedin, especially for homes priced between $350,000 and $650,000. 
Older first-home buyers in their 40s are entering the market due to rising rents. 
Mid-market properties in Dunedin are also performing well, with strong interest in homes priced around $759,000. 
Dunedin remains affordable compared to other centres, with first-home buyers finding properties in the late $400,000s. 
Dunedin's median sale price for April was $629,000, below Christchurch's $665,000 and Auckland's $1.05 million. 
Market conditions in Dunedin are balanced and positive for both buyers and sellers. 
The new hospital development, Project Whakatuputupu, is expected to boost the residential property market. 
Vendors are showing some hesitancy in reducing prices unless motivated by urgency. 
There is more choice for buyers, with an increase in available properties. 
Sales in the middle price bracket ($650,000 to $850,000) are slower compared to high and low-end properties. 
Investment properties are starting to appear on the market, benefiting first-home buyers.   
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Rotorua Rate Hike Proposal May Lead to Fewer Short-Term Rentals and More Long-Term Options 

Rotorua property owners may sell or convert short-term accommodations to long-term rentals due to a proposed rate change. 
Rotorua Lakes Council's 2024 Long Term Plan proposes rating properties used for short-term accommodation as commercial. 
The change targets properties rented for a minimum of 60 days annually, aiming to generate $900,000 extra income. 
Short-term accommodation owners face up to a 180% rate increase, doubling some annual rates from $5,000 to over $10,000. 
Bayleys Rotorua reports an increase in appraisal requests from holiday homeowners. 
Professionals Rotorua notes more requests for rental appraisals as owners consider converting to long-term rentals. 
The rate hike could reduce the number of short-term rentals but increase rental properties for locals. 
The proposal may significantly impact the housing market if property owners convert or sell their holiday homes. 
Monitoring and compliance with the new rates could be challenging for the council. 
The proposal is currently under deliberation, with the decision part of the 2024-34 Long-term Plan. 
Feedback on the plan was accepted until May 10, with 70 enquiries received by early May.   
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Kāinga Ora Pauses 1300 Home Builds Pending Government Review and Budget Outcome  

Kāinga Ora has paused plans to build nearly 1300 homes, awaiting the outcome of a government review and the Budget. 
The review, announced in December and led by former prime minister Sir Bill English, is examining the housing provider's operations. 
Select committee documents showed the decision to delay some programmes, such as KiwiBuild, was made following the probe's announcement. 
Official Information Act documents revealed the paused developments could result in 1,283 homes, including 690 KiwiBuild homes and 593 market homes. 
KiwiBuild underwrites homes in new developments, allowing developers to sell them to eligible buyers at capped prices. 
Market homes are built without government underwriting but benefit from the financial support provided to other properties in the development. 
Housing Minister Chris Bishop stated the decision to pause work was made independently of his direction. 
The review will assess Kāinga Ora's financial situation, procurement, and asset management to ensure efficiency and value for taxpayers. 
KiwiBuild was established in 2018 by the previous Labour government with a goal of building 100,000 homes over 10 years.   
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Housing Advocate Sparks Controversy with Call for Squatting in Empty Homes

Australian housing advocate Jordan van den Berg, known as Purple Pingers, suggested squatting in empty homes, sparking backlash from landlords and real estate agents. 
Van den Berg runs Shit Rentals, a website where tenants rate undesirable properties and rental agents. 
He criticises the Australian government, claiming it consists of landlords who have a conflict of interest in property laws. 
He argues that renting can be detrimental to health, citing a study that suggests renters age faster. 
Van den Berg highlights poor rental conditions, describing properties with severe issues like faulty plumbing and asbestos exposure. 
He advocates squatting as a response to the housing crisis, noting Australia's history and legal framework for adverse possession. 
Van den Berg believes collective action can address housing issues where government fails. 
He aims to change the perception of housing from an investment to a human right. 
Van den Berg seeks to embarrass Australia internationally to push for better enforcement of housing legislation. 
He has engaged with the Australian Labor Party on housing issues but remains critical of their actions in government.   
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Advocates Call for Housing Retrofits to Prevent Winter Power Cuts and Improve Efficiency 

Green building advocates claim winter power cuts wouldn't occur if New Zealand's housing standards were up to date. 
National grid operator Transpower warned of potential demand exceeding supply during the morning peak due to freezing temperatures. 
Green Building Council chief executive Andrew Eagles attributes the threat of power cuts to decades of neglect in housing standards. 
Millions of New Zealanders live in poorly insulated and draughty homes, leading to high heating demands in cold weather. 
Eagles emphasises the need to address inefficient housing rather than just increasing electricity generation. 
He suggests a major retrofit programme similar to those in Ireland, Australia, and the US. 
Otago University research indicates that building to best-practice standards could reduce the winter peak by 75%. 
Improving housing standards would relieve pressure on the grid and benefit New Zealanders' health and cost of living. 
The Green Building Council and other organisations have called for politicians to commit to a major retrofit programme. 
Eagles cites similar research from the Institute for Energy Economics and Financial Analysis in Australia, advocating for demand reduction over gas mining.   
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Debate Over Disclosure of Non-Accredited Lenders by Mortgage Advisers 

The Commerce Commission is considering whether advisers should disclose which lenders they are not accredited with, similar to Australian regulations. 
In Australia, ASIC requires mortgage advisers to disclose lenders they do not deal with. 
At a Commerce Commission conference, mortgage adviser Sarah Curtis supported "negative disclosure." 
Leigh Hodgetts, from the Finance and Mortgage Advisers Association of New Zealand, opposed adopting Australia's rules, calling them overly prescriptive. 
There are about 40 lenders in New Zealand, but most lending is done by the five largest banks. 
Commerce Commission chairman John Small noted that interest rates and pricing are not the main focus of competition for mortgage advisers, which is unusual. 
Mortgage adviser Patricia Marsden and others mentioned that while conversations with clients start with interest rates, pricing between banks is usually similar. 
Hamish Patel, chairman of the Financial Advice NZ mortgage member advisory committee, highlighted that the Credit Contracts and Consumer Finance Act can complicate matters. 
Patel also noted that mortgage advisers operate in a competitive free market and aim to get the best interest rates for clients to secure deals. 
Advisers emphasised that non-interest policies of lenders can be more important for certain clients, determining the best loan placement.   
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