NZ residential rental market news, February 23

What April 1 means for investors, more rate rises possible, and property management regulations

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

The current state of things – A breakdown by Tony Alexander

Post-GFC, inflation rates remained low, leading to reduced interest rates in New Zealand, with cuts following in response to deflation fears in 2019. 
Low mortgage rates and high net migration from 2014-2019 reinvigorated the housing market, which gained momentum even as COVID-19 emerged. 
Initial pandemic fears of falling house prices and rising unemployment did not materialise as expected; house prices only fell by 3% during April-May 2020 before soaring by 46% to a peak in November 2022. 
The Reserve Bank's "least regrets" policy, including cutting the cash rate to 0.25% and removing LVRs, alongside the wage subsidy scheme, fuelled the housing market surge. 
Late 2020 saw government interventions to address housing affordability, including changes to interest expense deductibility for property investors and reinstating LVRs. 
Despite these measures, the housing market briefly paused then surged again in late 2021, driven by low property listings and anticipation of legislative changes affecting credit. 
An 18% decrease in average house prices occurred through to mid-last year, alongside a fall in annual dwelling sales, due to credit tightening from LVR adjustments and CCCFA changes. 
Early 2023 saw young buyers re-enter the market, attracted by lower prices and improved job security, leading to a 4.1% average price increase. 
The recovery in buying did not sustain due to a lack of investor participation, affected by high ownership costs and uncertain market conditions. 
Factors like declining house construction, strong population growth, changing investor tax rules, and anticipated interest rate cuts are expected to influence the housing market significantly in the coming years. 
Construction is predicted to hit its low next year, with buyers currently feeling no rush due to high interest rates, but upcoming changes may stimulate the market. 
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Core Logic February Housing Chart Pack highlights

Residential real estate is worth $1.62 trillion. 
National property value gains eased in January, with a rise of ‘only’ 0.4%. Main centres Dunedin and Tauranga slightly outperformed with other markets recording flatter results for the past month. 
Sales volumes in January, across both private deals and real estate agents, were about 2% higher than the same month last year, the ninth rise in a row. And on a 12-month total basis, sales have now risen to 67,400, up from the April trough of less than 62,000, but still well below the average of 90-95,000 per year. 
New listings activity has started to rise back again after the holiday period, with 8,916 new listings over the four weeks ending 11 February, well below the 8,577 from the same time last year and the five year average (11,428). 
Total stock on the market is 36,802, 8% below this time last year. 
Rental growth is still running at historically high levels, and was 6.8% in the year to January (Stats NZ new tenancy/flow measure) – that remains well above the long term average growth rate of 3.2%, and reflects further growth in wages, as well as a tightening supply and demand balance. 
Gross rental yields nationally have edged back up to 3.2% (from a trough of 2.6% for much of 2022), the highest level since late 2020. However, that’s still relatively low by past standards, and is less than the income returns on some other asset classes (e.g. term deposits). 
Around 56% 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. Mortgage rates are close to, or already at, their peak.
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Rent prices expected to rise through 2024

Rental prices are expected to continue rising throughout the year. 
The national median weekly rent increased to $630 last month, showing a 0.8 percent rise from December. 
Auckland now has the highest weekly rental prices in New Zealand, with a median rent of $680, overtaking the Bay of Plenty. 
Trade Me's Gavin Lloyd suggested that if the Reserve Bank raises the Official Cash Rate, landlords might increase rents due to higher borrowing costs. 
The rising cost of living and the scarcity of rental properties could make it harder for renters. 
Rental prices for apartments and townhouses have risen, with Christchurch townhouses up 12.5 percent from last year to a median weekly rent of $450. 
Auckland townhouses reached a record high of $730, marking a 5 percent increase from the previous year. 
High net migration is contributing to increased demand for entry-level rentals like apartments and townhouses. 
The rental market supply rose by 15 percent in January compared to December, with Wellington experiencing a 38 percent increase in rental availability. 
Despite the increase in supply, Wellington saw a 94 percent surge in rental demand. 
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Rising rents contributing to hardship, while mortgage holders take biggest hit

The Household Economic Survey conducted between July 2022 and June 2023 reported an increase in housing costs. 
Average weekly housing costs for households were $423.20, up 14.5 percent from the previous year's $369.50. 
Weekly rent payments increased by 4.0 percent to $427.20, and mortgage payments rose by 27.5 percent to $605.60. 
Mortgage interest payments saw a significant increase of 49.9 percent to $311.60 per week. 
Mortgage principal repayments remained unchanged at $307.90. 
Property rates and building-related insurance costs also saw increases, with rates up 5.9 percent to $68.00 and insurance up 14.1 percent to $46.40. 
Housing affordability issues have intensified, with 18.2 percent of all households spending more than 40 percent of their income on housing costs. 
The proportion of households not owning their dwelling and spending over 40 percent of income on housing costs rose to 27.5 percent. 
Households owning or partly owning their dwelling and spending more than 40 percent of income on housing costs increased to 13.3 percent. 
Housing quality issues related to dampness or mould affected 25.7 percent of households, a slight increase from the previous year. 
Issues with heating and/or keeping warm enough in winter remained unchanged at 20.5 percent of households. 
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ANZ: Housing market is stagnant and more interest rate rises are possible

ANZ New Zealand's economists report the housing market as stagnant, with expectations for the Reserve Bank to raise interest rates twice more this year. 
Despite stronger than expected house prices, sales were abnormally soft, listings are rising, and days to sell are near their 2022 peaks, especially in Auckland. 
January's residential property sales were the second lowest in at least 32 years, described as "abysmal" by ANZ. 
The outlook for the market is negative, with a mild downwards trajectory in house sales since mid-2023 and prices going broadly sideways. 
Inventories are growing, suggesting sellers are waiting for better prices, while buyers remain selective. 
Days to sell, particularly in Auckland, are near 2022 peaks, with homes taking around 48 days to sell on average. 
High inventories and long selling times in a market of soft sales indicate that some homeowners will need to sell quickly. 
The Reserve Bank is expected to increase the Official Cash Rate to 6%, further raising mortgage costs. 
Homeowners are warned not to expect mortgage rate cuts in the near future.  
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Home loan affordability report

Last month saw an improvement in affordability for first home buyers, with decreases in house prices and mortgage interest rates, and an increase in wages. 
The national lower quartile selling price dropped to $566,000 in January, a $20,000 decrease from December. 
Lower quartile prices fell in several regions, including Auckland, Waikato, Taranaki, Wellington Region, Nelson/Marlborough, and Canterbury. 
In contrast, lower quartile prices rose in Northland, Bay of Plenty, Hawke's Bay, and Southland, while remaining unchanged in Manawatu/Whanganui and Otago. 
Mortgage interest rates decreased slightly, with the average two-year fixed rates moving from 6.98% in December to 6.89% in January. 
This reduction in prices and interest rates led to a decrease in mortgage payments, saving $38 a week for a home bought at the national lower quartile price with a 10% deposit. 
In Auckland, mortgage payments on a lower quartile-priced home decreased by $89 a week with a 10% deposit, or $68 a week with a 20% deposit. 
Wages for couples aged 25-29 working full time increased from $2048 to $2059 a week from December to January. 
The overall result was a significant improvement in housing affordability for first home buyers in January. 
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Property management regulation takes centre stage 

The Real Estate Institute of New Zealand (REINZ) submitted a verbal testimony to the Social Services and Community Committee advocating for the regulation of residential property management. 
REINZ emphasised the need for regulations to protect both landlords and tenants, citing concerns over standards and accountability in the property management sector. 
Nearly one in three households in New Zealand rent, with half of these properties managed by professional property managers. 
According to the 2018 Census, over 1.4 million people lived in rental housing, with more than 7,800 property managers operating in New Zealand, over 5,000 of whom are residential property managers. 
Property management is a significant part of some New Zealanders' retirement savings, yet operates with no regulation. 
REINZ has been advocating for better residential property management practices and regulations for over 5 years. 
The submission highlighted issues such as the complexity of the Residential Tenancies Act, lack of minimum standards for staff training, risks with client funds management, and variance in service quality among property managers. 
REINZ argued that without regulation, these issues are unlikely to be resolved, stressing the importance of education and professional development in the industry. 
Critics of the proposed bill argue that it would increase property management fees, but REINZ believes the impact on costs would be minimal and does not anticipate significant rent increases as a result of the regulation. 
The organisation counters that professional property management already offers value that justifies its cost, and the competitive market keeps fees in check. 
Without regulation, REINZ warns of potential harm to property owners and tenants, including issues with bond and rental money protection, renting non-compliant spaces, and negative impacts on tenant wellbeing. 
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Apartment mogul blasts ‘rapacious money grubbing’ developers

Ockham's Mark Todd and Auckland Mayor Wayne Brown criticised developers for creating subdivisions on the city's rural edges for quick profit. 
The critique occurred at the opening of The Greenhouse in Ponsonby, a project by Ockham with 97 apartments priced between $780,000 and $4.5 million. 
The Greenhouse features a façade made of 150,000 handmade glazed green bricks from north of Venice, Italy. 
Mayor Brown praised the focus on urban centre development, highlighting the benefits of utilising existing infrastructure over expanding urban sprawl. 
Todd emphasised the importance of central city development and criticised the practice of rezoning rural land for housing as a profit-driven strategy, leaving the city with long-term costs. 
Recent successful rezoning efforts by developers in East Drury were mentioned, with concerns over the council covering $1 billion in infrastructure costs. 
Critics argue infrastructure investment should follow population growth, while Todd advocates for higher-density developments near central city train stations. 
The National Policy Statement on Urban Development allows for six-storey buildings near rapid transit stops, highlighting potential for extensive development along central city train lines. 
Todd has actively lobbied for a focus on urban development, including discussions with Housing Minister Chris Bishop, but feels his concerns are not adequately addressed. 
The Government's "going for housing growth" package may force councils to choose between suburban intensification and zoning for peripheral growth. 
Mayor Brown and Todd argue for prioritising inner-city development over greenfield projects on the outskirts. 
Ockham has built 481 apartments in the last 12 months but paused a project due to low sales, learning that the high-end market prefers larger floor plans. 
Todd plans to live in The Greenhouse's rooftop penthouse, indicating a personal commitment to high-quality, urban-centred development. 
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Tony Alexander: Why April 1 will be an important date for house prices

The analysis draws from five monthly surveys giving insights into consumer spending, business outlooks, and the housing market as observed by mortgage brokers, real estate agents, and property investors. 
A key finding is the increasing involvement of investors in the housing market, contrasting with a year ago when there was a significant decline in investor activity. 
Despite more investors entering the market, there is also a noted increase in investors wanting to sell, partly due to the need to support their businesses. 
Changes to the bright-line test, reducing the capital gains tax period from 10 years back to two years, may prompt some investors to sell, although the exact impact remains uncertain. 
Landlords are finding it easier to secure good tenants, attributed to a 2.9% population increase over the past year, enhancing demand for rental properties. 
Rental market pressure has not led to significantly higher rent increases, with the average planned rent rise remaining just over 5.6%, the same as a year ago. 
Rising costs for property owners, including rates, insurance, and maintenance, are not being fully offset by rental income increases, causing investor caution in buying. 
The reintroduction of 80% interest expense deductibility from April 1, with 100% deductibility a year later, may improve cash flow for investors and influence their decisions to sell or retain properties. 
The analysis suggests that avoiding a reduction in the rental property pool is crucial for social stability, especially as government capacity to meet social housing needs is limited amid a booming population and potential decrease in house construction. 
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“There’s a real threat of a cash rate hike”

The Reserve Bank of New Zealand (RBNZ) faces a close decision on whether to increase the Official Cash Rate (OCR) on February 28, with Kiwibank’s chief economist, Jarrod Kerr, suggesting a hold is likely but not guaranteed. 
Kerr argues that further rate hikes are unnecessary given current economic conditions and the financial stress on homeowners, with many transitioning from low to significantly higher mortgage rates. 
Despite expectations in some market quarters for rate cuts, the RBNZ is concerned about dampening such expectations, aiming to maintain or increase interest rates to manage inflation. 
Kerr notes that the tight monetary policy has effectively contained the economy, which is experiencing weak growth and, in parts, contraction. 
Inflation remains a global challenge, with reductions from high levels to target rates proving difficult in New Zealand and internationally. 
Immigration and the record intake of migrants have contributed to increased demand in the rental and housing markets, with rents rising and house prices expected to continue increasing by around 6% or 7% this year. 
Kerr highlights the significant impact of infrastructure deficits on housing supply and overall economic performance, criticising the lack of investment and maintenance in essential services. 
The discussion reflects broader concerns about economic management, housing affordability, and the balance between controlling inflation and fostering economic growth. 
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Can AI replace your mortgage advisor?

Homeowners are currently uncomfortable with receiving mortgage advice from AI, but experts believe AI-driven deals could become more advantageous. 
Mortgage advisers play a key role in researching and processing mortgage offers, with their human touch seen as irreplaceable for personalised advice and support. 
Clive Fernandes from National Capital highlighted that while many advisers believe their roles cannot be replaced by AI, the technology is rapidly improving and could automate many backend tasks. 
AI, like ChatGPT, could streamline tasks that take brokers hours in a fraction of a second but currently lacks the ability to replace the empathetic and personalised aspects of mortgage advice. 
AI can efficiently handle data analysis, form filling, and offer comparisons, potentially reducing human error in mortgage advising. 
Ben Goldsmith, founder of Tella, acknowledged AI's potential to improve the efficiency of background tasks but emphasised the importance of human advisers for personal support and decision-making. 
AI's limitations include understanding individual borrower's unique circumstances and complex financial situations, as well as legal and ethical compliance issues. 
Despite these challenges, AI's capability for quick data processing and objective advice is acknowledged, but its inability to provide the empathetic, personalised service that human advisers offer remains a significant barrier. 
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Housing shortage hurting businesses  

Fiordland businesses are demanding urgent action to tackle a severe housing shortage affecting the region's economy. 
A survey by the Fiordland Business Association revealed that over half of the 71 respondents are understaffed due to the lack of housing in Te Anau, with vacancies ranging from one to five positions. 
The housing shortage has resulted in difficulties in recruiting and retaining staff, limiting new investments and services, overworking existing staff, and causing people to move away from the area. 
Nathan Benfell, the chair of the association, emphasised the need for strategic and practical initiatives to address the crisis urgently. 
Concerns were raised about unregulated short-term rentals, with suggestions that proper regulation could encourage more long-term rental options. 
Employers expressed a desire to invest in worker accommodation but cited affordability as a major obstacle, calling for government support. 
Potential solutions include purchasing and renovating properties for worker accommodation, creating dedicated housing, and exploring alternatives like tiny homes or trailer parks. 
The association is exploring modular, prefab, and tiny housing options and seeks more collaboration with solution-focused individuals and organisations. 
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Property buyers losing deposits 

The Law Society warns that some property buyers are losing their deposits after unknowingly purchasing flood-damaged houses. 
Lawyers report an increase in cases where Sales and Purchase agreements are signed, but banks refuse mortgages due to the property being uninsurable. 
There are instances where previous owners received insurance payouts for flood damage but did not repair the property. 
Buyers often cannot retrieve their deposits, which can exceed $100,000, leading to significant financial losses. 
This issue is feared to be the start of a crisis in regions like Auckland, Northland, Hawkes Bay, and Gisborne. 
David Cunningham, CEO of Squirrel mortgage brokers, suggests this reflects a broader problem related to obtaining insurance in flood-prone areas. 
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