NZ residential rental market news, April 19

Pet bonds are on the horizon, is the market awaiting interest rate cuts, and the $2.9B tax break.

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

New Zealand Housing Market Rebounds with Increased Listings and Sales 

Listings and stock levels have significantly increased, providing more options for buyers. 
Listings nationally rose by 23.9% year-on-year; however, there was a slight monthly decrease of 2.8% from February to March 2024. 
Five North Island regions experienced substantial year-on-year listing increases, led by Wellington and Auckland, while only Nelson and West Coast saw declines. 
The total inventory of properties for sale has reached the highest level since 2015, with a 13.5% increase year-on-year. 
Sales activity increased in 13 out of 16 regions with notable year-on-year gains, particularly in Gisborne which saw a 27.8% increase. 
The national median sale price rose to $800,000, marking a 2.7% year-on-year increase. 
Median days to sell reduced significantly across most regions, indicating quicker sales. 
The Housing Price Index (HPI) for March 2024 was up 2.6% year-on-year, although it had declined by 1.2% from the previous month. 
Economic factors like high interest rates and job market uncertainties are influencing buyer caution, but there is growing activity in the housing market.  
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Auction Numbers Rise but Market Softens with Lower Sales and Prices

Auction activity increased last week with 472 residential properties offered, up from 303 post-Easter, though below pre-Easter levels. 
This increase indicates a typical reduction in auction volumes as the season transitions to autumn. 
The overall sales rate from these auctions was 28%, consistent with the 28% to 30% range observed over the past three weeks. 
This sales rate has decreased from about one third during the six weeks preceding this period. 
Price strength is also diminishing, with only 32% of properties selling at or above their rating valuations, down from an average of 40% in previous weeks. 
The recent auction results reflect a slight weakening in the market as it moves away from the peak summer activity period into the quieter autumn months. 
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Soft Market Close to Summer as Sales and Prices Fall, High Stock Levels Persist

March ended the summer selling season with one of the lowest sales volumes in 13 years and declining property prices. 
A total of 6,521 residential properties were sold in March, the second lowest figure since 2011 and a 36% drop from the March 2021 peak. 
The REINZ House Price Index (HPI) fell by 1.2% nationally, with most major cities and districts experiencing price declines. 
Auckland's HPI dropped by 1.9%, with Rodney experiencing the sharpest fall at 3.1%; Franklin was the exception, recording a 1.8% increase. 
Gains were recorded in a few areas such as Tauranga, Hastings, Napier, Porirua, Nelson, and Invercargill, but the HPI for most other centres declined. 
The HPI is seen as a reliable indicator of price trends as it adjusts for the mix of properties sold, unlike average and median figures that can be skewed. 
The early price drop in March, typically the busiest month for sales, suggests a potential tough market ahead as winter approaches. 
High inventory levels at the end of March were the highest since 2015, indicating a surplus of available properties. 
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Auckland Housing Market Flat Amid Employment Concerns, Rate Cuts Expected

Rising concerns about employment, which typically lags behind economic recovery, are impacting the housing market, with expectations of labour market worsening into 2025. 
The RBNZ may need to cut interest rates to address a flat housing market, where "flat" implies minor price changes rather than stability. 
Auckland's housing prices rose in the last two quarters of the previous year but declined by 0.8% in the first quarter of this year. 
Property listings in Auckland were 23% higher at the end of March compared to July last year, providing more choices for buyers. 
The sense of urgency among Auckland buyers has significantly decreased, with only 6% exhibiting FOMO, down from 45% in September. 
There has been a notable reduction in the number of first home buyers and investors actively looking for properties in Auckland. 
Rising costs for rates, insurance, and debt servicing, coupled with the aging demographic of investors, are influencing market dynamics. 
Employment concerns are dampening household spending, which the RBNZ is expected to increasingly consider in its economic assessments. 
Although quick interest rate cuts are anticipated, they are not expected in the immediate future despite a worsening global economic outlook due to issues in the Middle East. 
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Market Awaits Interest Rate Cuts to Revive Amidst Cautious Optimism

Initial enthusiasm from property investors following the government change has diminished as the market anticipates interest rate cuts. 
Kiwibank acknowledges the positive impact of recent housing tax policy changes but stresses that interest rates are crucial for market direction in the coming months. 
Kiwibank's chief economist, Jarrod Kerr, predicts a possible further rise in interest rates before an anticipated cut in November. 
The bank's mortgage managers and clients felt optimistic at the end of last year, but the ongoing increase in interest rates has tempered excitement. 
Westpac forecasts a recovery in housing market activity, driven by high population growth and improved investor sentiment, contingent on reduced mortgage rates. 
REINZ notes diverse buyer activity, with first home buyers and owner-occupiers either upsizing or downsizing being particularly active this summer. 
The market is slowly normalising after a subdued period, influenced by sellers adjusting price expectations and buyers motivated by changes in tax regulations. 
High interest rates and job market uncertainties continue to make some buyers hesitant, although there is a cautious optimism for increased activity in the upcoming cooler months. 
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Homeowners Bet on Rate Cuts Amid Modest Property Recovery and Low Inflation

A significant number of homeowners are anticipating interest rate decreases, as evidenced by a surge in one-year fixed home loans in February. 
CoreLogic reports that 56% of new home loans in February were fixed for one year, indicating expectations of lower rates ahead. 
This trend is a shift from recent preferences for longer-term fixes due to fears of rising rates. 
Inflation eased to its lowest level since June 2021, with a 4% increase in the consumer price index for the year ending March 2024. 
Despite slight inflation decreases, the RBNZ has kept the OCR steady at 5.5%, suggesting rate cuts may not be imminent. 
The national median house price rose 2.7% year-on-year in March to $800,000. 
Property sales increased by 7.4% from February to March, though the market recovery remains patchy with variable regional performance. 
Wellington and Dunedin saw modest property value gains, whereas Hamilton and Tauranga experienced minimal increases. 
High mortgage rates and increased property listings are contributing to subdued market conditions and price pressures.   
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RBNZ to Cut Rates as Economic Pressures Intensify, Inflation Remains High

The RBNZ is predicted to lower interest rates later this year after initially over-tightening post-pandemic. 
Recent business surveys show declining confidence, reflecting concerns about the economy slipping back into recession. 
Consumer spending is falling, with 30% of survey respondents planning cutbacks, up from 24% in March. 
The public and corporate sectors are undergoing significant redundancies and restructuring, respectively. 
Young people disproportionately feel the impact of stringent monetary policies, whereas older individuals face greater job security risks, particularly in middle management roles. 
Despite facing less financial strain from mortgage rates, older adults are more likely to experience job losses in business restructurings. 
The lack of communal support for young people in the current economic downturn contrasts with past crises like the GFC and pandemic. 
Spending intentions vary by age, with younger individuals under 31 showing a significant reduction in spending plans. 
Retirees are continuing to spend on travel, while other age groups are pulling back on major expenditures. 
Inflation in New Zealand has decreased to 4.0% annually, but high non-tradeables inflation suggests ongoing economic pressure, discouraging a near-term easing of monetary policy. 
Rent increases are contributing significantly to inflation, with sharp rises in council rates exacerbating costs for rental business operators.  
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Housing Market Struggles as Listings Outpace Sales Amidst Price Dip 

Activity in the housing market is decreasing as autumn progresses. 
The number of new listings continues to outpace sales, contributing to a growing backlog of unsold properties. 
Despite March traditionally being a peak sales month, this year's sales were the second lowest in the past 13 years. 
New listings surged by 24% compared to last March, with 11,455 new properties added to the market. 
Sales increased by 8% year-on-year in March, but this growth is insufficient compared to the influx of listings. 
The total available residential properties for sale rose to 33,245, marking a 13.5% increase from last year. 
The market imbalance has resulted in five properties for every one sold last month. 
The REINZ House Price Index fell by 1.2% last month, with Auckland experiencing a 1.9% decrease in prices. 
This downturn in prices during what is usually the busiest sales month indicates potential further challenges as the market heads into the cooler months. 
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Luxury Market Stalls as Downsizers Struggle with Sales and Tight Lending

Downsizers in the luxury apartment market are struggling to sell their homes at desired prices, impacting their ability to purchase new properties. 
Older individuals with significant assets are also facing difficulties due to stringent bank lending criteria. 
A specific luxury apartment at 65 St Heliers Bay Road was withdrawn from auction after conditional offers failed; buyers couldn’t sell their existing homes. 
The apartment in question, part of a development where the penthouse sold for $8.63 million, is now the last unit unsold in its building. 
Potential buyers of high-value homes ($6m-$7m) are hesitant to sell due to lower market prices compared to 2021 highs. 
Even wealthy clients, with extensive property portfolios and no debt, are unable to secure additional loans from banks due to not meeting risk criteria. 
The current banking environment emphasises serviceability over equity, restricting even affluent buyers. 
Similar sales challenges are faced by another high-end apartment on Paritai Drive, desired by several but contingent on the sale of their other assets.   
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Higher Mortgage Rates Loom as Non-performing Loans Increase Amid Economic Downturn

59% of existing mortgages are due to transition to higher interest rates within the next 12 months. 
Homeowners will move from historical low fixed rates of around 2.2% to 2.6% to potentially rates starting with a seven. 
The majority of loan re-fixings from lower to higher rates has occurred, but further increases are expected. 
RBNZ data shows that in current refinancing, 10% opt for floating rates, while 56% choose fixed terms of one year or less, reflecting expectations of peaking bank interest rates. 
Total residential mortgage loans stood at $356.5 billion as of February, with fixed rate loans making up $318.3 billion. 
Non-performing housing loans increased by $696 million year-on-year, reaching $1.72 billion. 
The percentage of mortgages in arrears rose to 1.51%, the highest since January 2020, with 22,600 mortgage holders affected. 
Non-performing SME loans increased significantly, from $562 million to $1.13 billion over a year, as economic conditions worsen. 
The overall housing lending stock increased by 0.2% or $824 million in February, with both owner-occupier and residential investor lending seeing growth.   
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Cooling Buyer Interest and Short-Term Rate Fixes Amid Economic Caution  

Mortgage advisers report a slight decline in buyer interest for residential properties. 
Banks are gradually easing lending criteria, although changes are modest. 
Borrowers predominantly prefer fixing interest rates for one year or less. 
There's a decrease in first home buyers entering the market, with 16% of advisers noting an increase, down from 24% last month. 
Economic uncertainties and job concerns are causing potential buyers to delay purchasing plans. 
Banks are implementing more flexible conditions for first home buyers, such as 60-day preapprovals and considering additional income types for those with lower deposits. 
Investor interest in the market remains but has decreased, with a current 10% increase in enquiries, down from 26% in March. 
Some banks have relaxed considerations like insurance and rates costs in their lending practices to investors. 
More mortgage advisers are observing a trend of banks being more willing to lend, although this is slowing as winter approaches. 
The majority of borrowers are choosing to fix interest rates for short periods (six months to one year), anticipating future cuts in rates. 
Interest in fixing rates for periods longer than two years is minimal to none. 
Enquiries about mortgage refinancing are rising, driven by higher living costs and employment concerns. 
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Government's Rental Tax Break to Cost $2.9 Billion Amidst Rising Rents and Housing Pressures  

The government's plan to reintroduce interest rate deductions on rental properties is projected to cost $2.9 billion over four years. 
Rents have increased significantly, with a 280% rise since 1994, far outpacing the Consumer Price Index which has doubled. 
There is uncertainty whether the tax relief will lead to reduced rents, although it might increase rental housing supply in the long term. 
The main drivers of rent increases are identified as wage growth and housing availability, with tax adjustments playing a minor role. 
Treasury acknowledges potential short-term rent increases due to the removal of interest deductibility, but the long-term effects are unclear. 
Renters are increasingly burdened, with many spending over 40% of their disposable income on housing and living in substandard conditions. 
The number of work hours needed to cover median rent has risen significantly, with renters now working 10% longer compared to 1994 just to afford rent. 
With minimum wage increases lagging behind inflation, the strain on low-income households is intensifying, possibly leading to higher government outlays on accommodation supplements. 
Population growth and a slowdown in housing construction exacerbate the housing shortage, with a significant increase in the state housing waitlist. 
The complexity of the rental housing crisis suggests that no single policy will suffice; multiple interventions over an extended period are necessary to address housing affordability. 
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NZ Property Values Increase, Rental Growth Hits Historic Highs 

New Zealand’s residential real estate market is worth a combined $1.63 trillion. 
There was a 1.1% increase in average property values across NZ in the three months to March. Average values increased 0.1% in the year to March, the first positive figure since September 2022 (2.8%). 
Wellington and Dunedin were the strongest performing main centres increasing 1.6% in the first quarter, while Rodney and Franklin within Auckland were also solid, increasing 2.3% and 1.9% respectively in the three months to March. 
March sales volumes increased for the 11th consecutive month and were 9% higher than the same month in 2023. 
There were more than 70,000 sales in the year to March, still well below NZ’s 10-year average of more than 90,000 per year. 
There were 8,693 new listings over the four weeks ending 31st March 
Total stock on the market is 23% higher than the five-year average. 
National rental growth of 5.1% in the year to March is running at historically high levels. 
Gross rental yields nationally remain at 3.2% (from a trough of 2.6% for much of 2022), the highest level since late 2020. 
Around 59% of NZ’s existing mortgages by value are currently fixed but are due to reprice onto a new (generally higher) mortgage rate over the next 12 months. 
Inflation seems to have passed its peak and the Reserve Bank will wait to see the effects of the final 5.5% OCR for this tightening cycle. 
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NZ Introduces Pet Bonds to Ease Tenant-Landlord Conflicts Over Pets 

The New Zealand government has introduced a policy allowing landlords to charge an additional bond of up to two weeks' rent for tenants with pets, on top of the standard four-week bond.
This 'pet bond' aims to make it more difficult for landlords to deny tenants' pets unless there are reasonable grounds, which will be clarified by the Tenancy Tribunal and relevant ministry guidance.
Housing Minister Chris Bishop, alongside Regulation Minister David Seymour, announced the policy, noting that it addresses landlords' concerns about pet damage.
The additional bond acts as a financial safeguard for landlords, covering potential damages from pets, which are often minor, such as scratches on rugs and carpets.
The policy applies to all types of pets, defined in a broad and general sense, with the specifics of what constitutes 'reasonable grounds' for denying pets to be detailed later.
The new legislation, which does not apply to assistance animals, is expected to be introduced to the House in May and to take effect by the end of the year after a select committee review.
Advocates like Auckland Property Investors Association's Sarina Gibbon praised the change, suggesting it reflects modern views of pets as family members and could lead to longer tenancies and better care of rental properties.
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