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9 February, 2024
Market News

NZ residential rental market news, February 9

Sam Nicholls
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Housing activity plummets, only 75% of apartment resales make profit, and the effects of the global market on NZ.

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

93% of resales make a profit in Q4 2024, only 75% of apartment resales make profit
    93.3% of property resales in Q4 2023 achieved a gross profit, an increase from 92.4% in Q3. 
    The median gain on profitable resales increased by $8,000 to $305,000. 
    The average hold period for a gross profit has risen to 8.5 years, up from about seven years in 2020 and 2021. 
    CoreLogic's Q4 2023 Pain & Gain Report indicates a turnaround in the New Zealand housing market, marking the first rise in profitable resales in two years. 
    The first increase in the proportion of properties sold for more than their purchase price since Q4 2021. 
    The median resale loss was reduced to $45,000 in Q4 from $50,000 in the preceding quarter. 
    The low point for housing performance metrics has likely passed. 
    A longer ownership period is almost guaranteed to result in a gross profit, Davidson notes. 
    Mixed results were observed across major centres, with Auckland, Wellington, and Christchurch experiencing improvements, while Hamilton, Tauranga, and Dunedin saw slight declines. 
    The hold period for loss-making resales was consistent at 2.3 years. 
    Houses outperformed apartments/flats in resale performance, with 93.9% of houses reselling for a profit. 
    Investors experienced an increase in profitable resales to 92.9%, while 92.8% of owner-occupiers made a profit, the highest loss-making proportion since Q4 2015 for this group. 
    The median resale gain for investors was higher than that for owner-occupiers at the national level, with investors seeing a median gain of $324,500 compared to owner-occupiers' $295,000. 
    Read the article

High housing stock levels mean buyers have more choice
    House hunters will have a wide selection of properties during the peak selling months of February and March, thanks to a significant increase in new listings in January. 
    In January, received 7347 new residential listings, which is a 10.5% increase compared to January last year. 
    This increase in listings follows a significant drop in December last year, where new listings fell to 4828, a 27% decrease from December 2022. 
    The surge in January listings has raised the total stock levels of properties for sale to 27,261 at the end of the month, up from 24,867 at the end of December 2023. 
    Stock levels are nearly back to the level of January last year (27,732) and are at the second highest level for the end of January since January 2016. 
    Despite the high stock levels, vendors' price expectations remain high, with an average asking price of $891,960 in January, up from $854,794 in December. 
    The average asking price has shown volatility in recent months, indicating that monthly movements may be due to changes in the mix of properties coming onto the market. 
    With the current high stock levels, vendors may need to adjust their price expectations to secure a sale, and the coming weeks will reveal whether buyer enthusiasm matches that of vendors. 
    The start of the new year marked a dramatic shift in market activity, with a 52.2% surge in new listings nationally, far exceeding the average 23.7% increase typically seen from December to January over the past five years. 
    Read the article

Could US bank crunch hit New Zealand?
    NZ banks are aware of the international pressures affecting banks, although they are not currently impacted. 
    Internationally, banks face losses due to a significant fall in commercial real estate values, potentially the biggest crash since the global financial crisis. 
    The United States National Bureau of Economic Research reported potential US$160 billion losses for US banks from high interest rates affecting commercial real estate and other assets. 
    Several international banks have reported significant losses on commercial property loans. 
    New Zealand banks have less exposure to commercial real estate compared to some US banks, partly due to a strong residential market and lending portfolio. 
    New Zealand banks' profitability provides some protection against sector-specific downturns. 
    The values of some commercial properties have dropped, and businesses are reassessing their space needs, which could impact banks' commercial property portfolios. 
    Strong employment in New Zealand has helped mitigate the impact of these pressures compared to more severe downturns experienced in countries like the US, where the economy fluctuates more dramatically. 
    Read the article

TA: What’s holding buyers back?
    The residential real estate market experienced a 20% rise in sales during the June quarter, with prices increasing on average 0.9% a month from July to October; Auckland saw a 1.2% increase. 
    However, sales have flattened and prices fell by 0.3% over the November–December period, with Auckland experiencing a 1.3% decrease. 
    The market's easing is attributed to the general election in mid-October, rises in fixed mortgage rates up until late-November, and the summer holiday period. 
    There have been minor cuts in interest rates (0.05% to 0.2%), raising questions about the impact of a 2.5% migration-driven population increase on rents and house prices. 
    A survey of real estate agents indicates a positive market, but buyers do not feel pressured to make quick decisions, and there are significant impediments to purchasing. 
    A measure of housing FOMO shows 23% of agents (21% in Auckland) report buyer FOMO, down from a peak of 40% in September. 
    A net 55% of agents report an increase in first-home buyers, and a net 24% note more investor interest. 
    A record net 76% of agents are receiving more requests for property appraisals. 
    The main buyer hesitation is obtaining bank finance, with 56% of agents identifying it as an issue, though this is down from 70% a year ago. 
    Only 25% of agents feel that a lack of listings is a concern for buyers, a significant drop from 55% in September. 
    High interest rates are considered a problem by 43% of agents, down from 72% three months ago, indicating expectations of future rate cuts. 
    Only 12% of agents report buyer fear of over-paying (FOOP). 
    The market is expected to gain momentum later in the year due to falling mortgage rates, booming migration, falling construction, and tax changes, though the exact timing is uncertain. 
    Read the article

Auckland housing developments encounter pushback
    Residents of Point Chevalier, a central Auckland suburb, express concerns over major housing developments without adequate community facilities and support. 
    Over the next 15 years, 4000 homes are planned in the Carrington Residential Development, led by Māori and facilitated by the Housing Ministry. Additionally, a new 61 one-bedroom modular apartment block by Kāinga Ora is due for completion later this year. 
    Locals report increased anti-social behaviour, attributing some issues to the closure of a leaky library a year ago, despite a pop-up library being established last March. 
    A restaurant owner named Emran describes daily harassment of his staff by intoxicated individuals and an increase in shoplifting, including racial abuse and threats. 
    Increased police presence in the area is noted following a community meeting, though sustainability of this level of patrol is questioned. 
    Albert-Eden local board chairperson Margi Watson acknowledges funding challenges and advocates for a new library hub in Auckland Council's 10-year plan, urging public consultation participation. 
    Kāinga Ora commits to supporting residents of the new apartment block, including a community space but no onsite social support, aiming to connect residents with support agencies as needed and discussing community wellbeing and safety with council officers and the local board. 
    Read the article

CHCH Mayor to travel to Wellington to discuss housing density plans
    Christchurch Mayor Phil Mauger plans to discuss halting housing density plans in Christchurch with government officials in Wellington. 
    The new density guidelines introduced last year require Christchurch to allow three-storey residences to be built in many parts of the city without resource consent. 
    These rules have already been adopted in Auckland and Wellington. 
    Christchurch city councillors voted against the plan in September 2022, citing concerns over a "one size fits all" approach and potential impacts on heritage areas and tree cover. 
    Former Mayor Lianne Dalziel had requested a pause on the process to allow the council to develop its own housing plan. 
    An investigator was appointed by the central government to work with the council on this issue. 
    The new government's coalition agreement stated that housing density changes would be made optional. 
    Following this, the council postponed the final six days of hearings on the proposed changes until at least next month. 
    Environment Minister Penny Simmonds has invited Mauger to Wellington to discuss the council's concerns, with the meeting scheduled for next Tuesday. 
    Read the article

Unemployment rate could mean concerns for RBNZ
    The unemployment rate in New Zealand increased slightly to 4% in the December quarter from 3.9% in the previous quarter, which was lower than some forecasts of around 4.3%. 
    Average ordinary-time hourly earnings saw a 6.9% increase in the year to December. 
    The unemployment rate is anticipated to rise to over 5% this year due to the impact of interest rate hikes on the economy. 
    The underutilisation rate, indicating people wanting to work more hours, rose to 10.7%. 
    Kiwibank's chief economist observed a significant impact from strong migration on the numbers and mentioned the largest ever recorded rise in the working-age population. 
    The recent labour market figures suggest that the Reserve Bank's significant interest rate increases are affecting household demand and business activity, with predictions of further economic cooling and downsizing by businesses. 
    The data suggests that immediate interest rate cuts by the Reserve Bank are less likely, with expectations for cuts potentially delayed until November. 
    ASB notes that labour cost growth is stronger than expected, potentially challenging the Reserve Bank's inflation target. 
    Westpac analysts highlight that the latest data supports the view that interest rate cuts are further off than the market currently expects, with recent comments from the Reserve Bank indicating ongoing concerns about high inflation. 
    Read the article

Unemployment up, OCR cuts a way off, house building tanking
    Unemployment in New Zealand increased slightly to 4% from 3.9%, with labour market conditions remaining tighter than the Reserve Bank expected. 
    This tight labour market suggests the first OCR cut may occur later than financial markets anticipate, according to Westpac. 
    Employment growth has slowed and is now below the pace of population growth, impacted by the RBNZ’s significant OCR increases. 
    Kiwibank's chief economist, Jarrod Kerr, anticipates a softening in employment growth and an increase in unemployment above 5% this year, leading to reduced wage pressure and inflation. 
    The likelihood of a near-term rate cut by the RBNZ has diminished, with predictions for cuts shifting from May and August to November. 
    High employment levels have supported the housing market, but the construction of new homes is not keeping pace with population growth, leading to fewer building approvals. 
    The number of building consents issued has decreased from over 51,000 annually to about 35,000, with projections pointing towards a further decline to 30,000. 
    The shortfall in new house supply, amidst strong population growth, is expected to drive house prices higher. 
    New Zealand is not building enough homes to accommodate the surge in new migrants, exacerbating the housing shortage. 
    The population grew by 2.7% in the year to September, necessitating approximately 50,000 additional dwellings, a target significantly unmet. 
    The return of tourists and foreign students is shifting many properties from long-term to short-term rentals, further straining the housing supply. 
    Maintaining employment is crucial for Kiwis to afford their home loans, highlighting the interconnectedness of employment and the housing market. 
    Read the article

New home consents down 36% in two years
    Building costs for new homes appeared to flatten in Q4 of last year. 
    The number of new dwellings being consented continues to decline. 
    The average consented build cost was $3230 per square metre in Q4, almost unchanged from $3225 in Q3 of 2023. 
    This stabilisation follows three years of steadily rising costs, from $2436 per square metre in Q1 2021 to $3230 at the end of last year. 
    Not all dwelling types saw stabilised building costs; apartment build costs increased to a record high of $6263 per square metre in Q4, up 17% from Q3. 
    The total number of new dwellings consented in Q4 2023 was 8505, the lowest since Q4 2018. 
    New dwelling consents have decreased by 36% from their peak in Q3 2021, when 13,251 new homes were consented. 
    Despite some stabilisation in construction costs, the trend indicates a potential reduction in the availability of new homes.
    Read the article

Housing shortage forecasted as housing activity plummets
    Falling consent numbers for new homes could exacerbate issues in the housing market, with a 25% decrease to 37,239 new homes consented in the year to December compared to the previous year. 
    2022 had the highest record of new homes consented in a calendar year, according to Stats NZ. 
    There was a 23% decrease in multi-unit homes consented, and the number of apartments consented was the lowest since 2016. Standalone houses saw a 27% decrease. 
    BNZ's chief economist Mike Jones noted a firm downward trend in consents, exacerbated by migration increasing the population by over 120,000 in the year to November, indicating under-building due to high build costs and economic unviability. 
    Kiwibank's chief economist Jarrod Kerr highlighted that falling house prices and high interest and construction costs discourage new developments, impacting supply and affordability negatively. 
    Measures to discourage investors have not addressed the core issues of the housing market, further affecting supply and prices. 
    ANZ's senior economist Miles Workman pointed out that the combination of surging net migration and declining consenting activity is leading to a growing housing deficit in New Zealand. 
    Read the article

Alteration work on existing homes also in decline
    Building consents for new dwellings dropped by 25% last year to 37,239, compared to 2022, according to Statistics NZ. 
    Structural alterations to existing homes also require building consents, unlike mere redecorating tasks. 
    The number of building consents for residential alterations declined by 9.4% last year to 26,540, marking the lowest since 2016 and a 15% decrease from 2021. 
    Despite the decline in the number of residential alterations, the average expenditure on such projects reached a record high of $94,759 last year, an 11% increase from 2022 and 22% from 2021. 
    Total spending on residential alteration work hit a record $2.515 billion last year, even though the annual increase in spending is starting to flatten, with a 0.8% rise last year compared to a 3.1% increase from 2021 to 2022. 
    The flattening growth in alteration spending coupled with fewer jobs could impact the financial stability of building firms and their suppliers. 
    Read the article

DTI restrictions will be hard on start-ups 
    Start-ups and small to medium enterprises (SMEs) may face difficulties if the RBNZ introduces DTI restrictions, as many SME owners finance their businesses by borrowing against their homes. 
    Squirrel Mortgages founder John Bolton highlights the challenge DTI restrictions pose to start-up businesses that are not immediately profitable, exacerbating the difficulties banks already face in lending to such enterprises. 
    RBNZ deputy governor Christian Hawkesby advocates for DTI restrictions as a means to manage financial stability risks associated with boom and bust credit cycles, suggesting DTIs will complement existing LVR restrictions. 
    Property and business accountant Matthew Gilligan criticises the necessity of DTI restrictions, arguing that banks have been responsible in their lending practices and that DTIs could unnecessarily restrict younger people's ability to start businesses. 
    Gilligan posits that DTIs, by linking house price growth to long-term income growth, could moderate capital growth but questions the need for both DTI and LVR restrictions, suggesting LVRs already indirectly serve as DTIs. 
    He criticises the RBNZ's historical management suggesting that past policies contributed to housing market volatility and that further restrictions like DTIs may not address the root issues. 
    DTI restrictions could impact the entrepreneurial and housing sectors by making it harder for new businesses to secure funding and for individuals to access the property market. 
    Read the article

Tribunal throws out tenant’s $107,000 compensation claim
    A tenant's bid for over $100,000 in compensation from her landlord was turned down by the Tenancy Tribunal. The tenant had initially reported a leak in the rumpus room of the rental property in 2020, leading to flooding and subsequent damage. Despite the landlord addressing the leaks in the same year, further incidents of leaking were reported in 2023, ruining various personal items. Compensation was sought for these items and for the loss of use of the rumpus room, which had been rendered uninhabitable since the flood in June 2020. 
    In response, the landlord demonstrated compliance with Healthy Homes standards and provided evidence of roof inspections and necessary repairs. It was also highlighted that the space in question was marketed as a rumpus room and not intended for living purposes, which the tenant had utilised for storage post-incident. The adjudicator at the tribunal concluded that the evidence presented by the tenant was insufficient to establish a case of ongoing leakage problems or that the room was approved for sleeping purposes. Additional claims by the tenant for costs associated with mould removal and medical compensation related to her son's health condition, allegedly linked to the property's state, were also dismissed due to a lack of direct evidence connecting these issues to the landlord's actions. As a result, all claims against the landlord were dismissed. 
    Read the article

Westpac becomes first major bank to cut fixed mortgage rates
    Westpac has cut its fixed mortgage rates, making it the first major bank to do so despite rising wholesale rates. 
    This move follows a similar action by challenger bank Heartland. 
    Westpac's rate cuts are modest compared to Heartland's, with an average reduction of -10 basis points for home loans and -20 basis points for term deposit rates. 
    The cuts come as wholesale markets have seen an increase in swap rates since the beginning of February. 
    Westpac's adjustments include tightening the one year fixed home loan rate by -13 basis points and the three year rate by -16 basis points. 
    On term deposits, Westpac reduced the one year offer to swap by -53 basis points and the three year by -66 basis points. 
    This pricing strategy diverges from the uniform approach taken by the five major banks in 2024, especially concerning home loan pricing. 
    The changes occur amidst expectations of a potential rise in the Reserve Bank's Official Cash Rate due to global pressures and market sentiment. 
    Read the article

OO’s opting for shorter term fixed rates
    New Zealand's home owner-occupiers are increasingly choosing shorter term fixed mortgage rates, indicating a belief that interest rates will drop in the near future. 
    The Reserve Bank of New Zealand (RBNZ) introduced the C71 data series in 2023 to detail mortgage terms, showing changing preferences for mortgage lengths since April 2021. 
    In December 2023, new owner-occupier lending rose to $4.948 billion, with one-year fixed terms being the most popular, accounting for 27.7% of all new lending. 
    The share of two-year fixed terms decreased, while 18-month terms grew in popularity, reaching a new series high with 18.7% of December's mortgage money. 
    There has been an increase in lending on six-month terms to 6.5% in December, a new high for the series, suggesting homeowners anticipate rate decreases soon. 
    Longer-term fixed rates (two to five years) saw a decline in share among owner-occupiers, while all terms below two years either increased or held steady. 
    For residential investors, new mortgage lending remained stable at $1.4 billion in December, with one-year fixed terms being the most popular at 33.4%. 
    The share of new residential investor lending on six-month fixed terms rose to a series high of 8.5%, while two and three-year terms declined. 
    Both owner-occupiers and investors are favouring shorter mortgage terms in anticipation of future rate cuts, although it's uncertain if the RBNZ will reduce the Official Cash Rate as hoped.
    Read the article

A bright start to 2024
    The property market began 2024 according to 
    January data revealed significant price growth, especially in the South Island, marking a recovery from the market correction in 2023. 
    More than half of New Zealand's regions saw year-on-year average asking price increases, with no regions experiencing declines greater than 10%. 
    Central Otago Lakes District's average asking price exceeded $1.6 million, a national record, with a 19.3% increase from January 2023. 
    Southland achieved a 17-year record high in average asking price at $555,173, demonstrating the dynamic nature of New Zealand's property market. 
    Despite Auckland's economic prominence, Central Otago Lakes District has consistently fetched the highest property prices over the past five years. 
    Property searches in Central Otago Lakes District surged in January, with Cromwell and Wanaka being the most sought-after locations, indicating a strong preference for lifestyle properties. 
    New listings nationally increased by 10.5% year-on-year, with significant boosts in regions like Wairarapa and Auckland, signalling renewed market activity and seller confidence. 
    Auctions regained popularity as the preferred pricing strategy, indicating sellers' optimism and the market's strength. 
    A resurgence in demand for properties was observed at the start of the year, with searches per listing and engagements significantly increasing, suggesting a positive outlook for the property market. 
    Read the article

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