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3 May, 2024
Market News

NZ residential rental market news, May 3

Sam Nicholls
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Rents hit records, rate cuts unlikely, and RBNZ to set DTI and LVR rules.

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

REINZ Fights for Regulation in Unsupervised Property Management Sector
    REINZ expressed disappointment after the Government declined to advance the Residential Property Managers Bill.
    The Bill aimed to establish minimum standards and protections in a sector that manages substantial assets and remains unregulated.
    Baird highlighted the anomaly of the property management industry operating without oversight despite handling significant assets.
    A third of households are renters, a figure expected to rise, yet property managers are not mandated to adhere to landlord and tenant laws.
    There is no compulsory insurance for property managers, nor a requirement to secure tenant bonds and rental payments in trust accounts.
    The absence of regulatory safeguards exposes landlords and tenants to potential fraud and mismanagement.
    REINZ has advocated for the regulation of residential property managers for over five years to ensure professionalism and protect stakeholders.
    Currently, REINZ members, who represent 40% of the privately managed residential market, comply with high standards, unlike the unregulated majority.

New Zealand House Prices Stagnate; Buyers Gain Upper Hand Amidst Market Fluctuations
    Home value growth in Aotearoa stalled in April, with a 0.1% decline in the national House Price Index.
    The average property value is currently $933,633, showing a 3% increase from September's low but still 11% below the peak.
    Dunedin, Wellington, and Hamilton saw modest growth in April, while Christchurch, Tauranga, and Auckland experienced declines.
    CoreLogic NZ identifies the market as a 'buyer's market', with finance-approved buyers gaining leverage due to high stock levels and stable unemployment rates.
    The potential introduction of a DTI cap and changes to deposit requirements could impact the market outlook into 2025.
    In Auckland, only Rodney saw a rise in property values, while other areas like Manukau and North Shore faced declines.
    Wellington's market showed signs of recovery, particularly in Porirua and Upper Hutt, despite potential risks from public sector job cuts.
    Provincial markets like Rotorua and Nelson recorded growth, but overall, the market remains flat.
    Sales volumes are expected to increase by 10% this year, but activity will still be below normal levels.
    Inflation and the RBNZ's OCR decisions are crucial for future market performance, with significant mortgage rate reductions more likely in 2025.
    First home buyers may continue to find opportunities in the current market environment.

RBNZ Report: Tax Changes and Economic Factors Risk Housing Stability
    The RBNZ's Financial Stability Report indicates potential financial instability due to recent tax policy changes impacting property prices.
    Restoring interest deductibility for residential property investors could increase their demand and push prices up.
    Reducing the brightline period to two years may boost speculative housing activity as it increases after-tax profits for investors.
    Chlöe Swarbrick of the Green Party criticises the Government for favouring speculators through these tax decisions.
    Economic factors like strong population growth and possibly lower mortgage rates are also driving house prices up.
    The RBNZ notes a slowdown in new housing supply, with developers facing challenges in meeting bank pre-sale requirements.
    The commercial property sector is struggling, exacerbated by high interest rates and a reduction in demand post-pandemic.
    The removal of depreciation tax reduction for commercial properties is seen as adding financial strain, generating around $525 million annually.
    Critics argue that eliminating depreciation undermines past recommendations and creates uncertainty for investors.

Government Halts Bill to Regulate Property Managers, Sparking Outcry
    Renters and realtors are dissatisfied with the government's decision to abandon a bill aimed at regulating property managers.
    The scrapped bill would have set up a regulatory framework with entry requirements, standards of practice, and a disciplinary system.
    Housing Minister Chris Bishop stopped the bill's progress, citing a marginal cost-benefit analysis.
    Opponents argue the lack of regulation leaves the sector akin to the "Wild West," exposing stakeholders to unethical practices.
    The industry oversees significant assets, with small operations managing up to $60 million, yet operates without mandatory oversight.
    The government believes additional regulations would not help increase housing supply and prefers focusing on other policy changes.
    Critics maintain that the lack of regulation is separate from the housing supply issue and poses significant risks to both landlords and tenants.
Otahuhu Bungalow Auction Sees Record Bids, Sells for $1.255M
    A basic three-bedroom bungalow in Otahuhu saw its price surge from $550,000 to $1.255 million after a competitive auction.
    The property, located at 79 Princes Street, attracted 14 registered bidders and received 176 bids over a 13-minute period.
    Initially listed with development potential, the property exceeded its reserve value (RV) of $1.075 million.
    This auction marked the highest number of bids for any Ray White Manukau event, surpassing a previous record of 168 bids.
    The auction atmosphere was intense, with rapid bids and the crowd actively participating.
    Key selling points included wastewater services on the property and proximity to stormwater services.
    The sellers were pleased, achieving $300,000 more than their minimum expected price.
    Other properties auctioned included a four-bedroom home in Totara Heights and a dual-dwelling property in Papatoetoe.

Rent Hits Record High as Greens Push for Control, ACT Pushes Back
    Median rents across Aotearoa have reached a new high of $650 per week.
    The Green Party advocates for rent controls, a rental warrant of fitness, and the rapid construction of new housing.
    Trade Me data indicates a national median weekly rent increase of 8.3% over the past year.
    Apartment rents have also hit a record high at $525 per week.
    The largest regional increase was in the Manawatū-Whanganui region with a 10% rise.
    ACT criticises rent controls as "economically illiterate," suggesting they would deter investment and reduce rental availability.
    The government has discarded Labour's proposal to regulate property management.

Interest Rate Cuts Unlikely Until 2025 as Inflation Persists
    Inflation remains persistent, with economists predicting that the next interest rate cut by the RBNZ might not occur until 2025.
    Petrol prices have increased significantly, with the average cost of a litre of 91 rising by 26c this year to $2.86.
    Geopolitical tensions, including conflicts involving Iran, Israel, and Yemen, contribute to ongoing high oil prices.
    Economists are concerned about high inflation amidst a recession, with factors like rising rents and insurance costs.
    Upcoming unemployment and wage data are expected to provide more insights into the economic situation.
    Some analysts argue against changing the RBNZ’s inflation target from the longstanding 2 percent, despite current challenges.

Vacant Kāinga Ora homes decrease as new measures speed up occupancy.
    Housing Minister Chris Bishop urged Kāinga Ora to fill its vacant properties urgently after a report showed many unoccupied despite a growing social housing waitlist.
    Kāinga Ora revised its vacancy counting method to exclude homes under redevelopment, which improved accuracy.
    From August last year to March, vacant ready-to-let homes decreased from 1,733 to 1,188, showing a decline in vacancy rates.
    The agency aims to maintain vacancy rates between 1.5 to 2 percent, considering factors like turnover and specific needs housing.
    New initiatives include group viewings and improved collaboration with the Ministry of Social Development to expedite housing allocations.
    Kāinga Ora is also enhancing maintenance procedures to reduce downtime between tenancies

Subdued Start for Housing Market in 2024 Amid Economic Headwinds
    The housing market started 2024 with modest gains, following stronger performance at the end of 2023.
    Sales volumes are rising from a low base, and property value increases are losing momentum.
    April saw a slight decline in property values by 0.1%.
    High mortgage rates and better listing activities are shifting market advantage back to buyers.
    Despite challenges, market support remains strong due to low unemployment and robust net migration.
    Inflation concerns and the RBNZ's reluctance to cut the OCR are keeping financial pressures on.
    Future mortgage rate reductions might be constrained by new DTI caps on lending.
    First home buyers are finding opportunities, helped by KiwiSaver and low deposit lending allowances.
    Investors face hurdles due to high mortgage rates and low rental yields, despite looser LVR rules and possible reinstatement of mortgage interest deductions.
    Expectations for 2024 include a 10% increase in sales volumes and a 5% rise in national house prices.
    A potential risk for 2025 is a housing shortage, amid growing population and slowing construction.

RBNZ to Decide on DTI and LVR Rules Amid Rising Mortgage Rates and Arrears
    The RBNZ is reviewing feedback from its latest consultation on DTI and LVR restrictions, with a decision expected mid-year.
    DTI restrictions are likely to be non-binding for most borrowers initially, potentially allowing for reduced LVRs.
    DTI aims to mitigate risks in lending, particularly if interest rates fall.
    House prices have increased modestly but remain within sustainable levels.
    There is a possibility that global interest rates could stay high, impacting households and the financial system.
    Approximately 85% of mortgage borrowers have transitioned to higher interest rates, nearing the projected peak.
    Current fixed mortgage rates under 4% account for only 10% of lending.
    Mortgage rates are expected to rise to 6.5% by year-end.
    Economic impacts of higher interest rates have been less severe than expected, despite reducing economic activity and slowing credit growth.
    House prices have decreased by about 15% from late 2021 to early 2023.
    Mortgage arrears are rising, expected to reach 0.7% by the end of the year, still lower than during the global financial crisis.
    Some borrowers are mitigating higher costs by reducing principal repayments or opting for interest-only mortgages.
    The share of interest-only mortgages remains low and stable.
    An easing labour market may lead to increased arrears, but few households face negative equity.
    Non-bank deposit takers are struggling with scale and profitability issues.

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