Housing shake-up one year on - did it level the playing field?

The Government says its aim of the country building its way out of the housing crisis is starting to show results.

Just over a year ago, amidst the height of the housing frenzy, the Government announced a housing package designed to increase the supply of houses, remove incentives for speculators and "level the playing field" for first home buyers.

The package included a $3.8 billion fund to accelerate housing supply, increases to first home grants and loans caps, and the doubling of the Bright-line test from five to 10 years with new builds exempted.

The package also introduced the phasing out of interest deductibility for investors, again with exemptions around new builds.

On the anniversary of the shake-up, Housing Minister Megan Woods told OneRoof that building consents were through the roof and house prices were shifting, with Labour's policies geared towards encouraging and enabling new housing.

"The only way we will get out of this housing crisis is to build our way out," she said.

"That's what we're doing through the urban development changes we've made, including changing the rules around medium density housing in our cities and the $3.8 billion Housing Acceleration Fund (HAF) to pay for infrastructure like pipes and roads that enables new homes to be built."

Housing Minister Megan Woods: “We are starting to see positive signs of change.” Photo / Getty Images

Woods said some of that funding was already paying for infrastructure in large scale projects in Auckland and Wellington, with decisions due in coming months on contestable funding for new housing across the country through an Infrastructure Acceleration Fund.

The difficulty with housing, she said, was it's not something that can be turned around quickly but much of the groundwork had been laid to transform urban planning and invest in housing.

"We are starting to see positive signs of change and these will only increase as our measures are fully implemented.”

Chris Bishop, National's housing spokesman, disagreed, saying KiwiBuild had been a "colossal failure" and that the housing crisis had worsened since Labour had come to power.

He said a National Government would reverse the Bright-line test and the removal of interest deductibility on rentals.

"Officials warned the Government that the combination of extending the Bright-line test and removing interest deductibility would likely put pressure on rental costs and add to the number of Kiwis in need of state and emergency housing,” he said.

"The Government ploughed ahead anyway and now Kiwis are paying the price with increased housing costs across the board."

Commentators spoken to by OneRoof said the housing market had moved so fast in the last year that Labour's housing package had virtually been lost in the mix.

CoreLogic chief economist Kelvin Davidson: “We don't have enough houses people can afford.” Photo / Peter Meecham

Kelvin Davidson, CoreLogic's chief economist, said some of the things the package was meant to help, haven't, such as the removal of interest as a deductible expense. "What we've seen is that it has put some upward pressure on rents, which has perhaps harmed the people it was supposed to help," he said.

Investors had also pulled back from the market, he said, but some of that may be down to the tightening of the Loan to Value Ratio rules, made just the Government’s housing shake-up.

That had resulted in a shift by investors to new builds, but there has not been much evidence of landlords selling up older properties, he said.

The Government's policy had worked, though, in the sense of encouraging money towards the new build sector by keeping demand for new builds higher than it otherwise would have been.

"That gives developers confidence to keep building."

Davidson said the Bright-line test extension has had minimal impact because it's easy to get around by simply waiting it out before selling.

"It tends to shift behaviour rather than changing it; people just hang on a bit longer to avoid Bright-line,” he said.

"In the mean-time it probably reduces sales activity. It reduces the number of properties that otherwise would have come to the market because people are waiting."

But the building boom underway, supply issues aside, should help limit house price inflation and allow more people to buy houses, Davidson said, as long as enough of the right homes were built.

Economist Tony Alexander says the Bright-line test extension has had little impact. Photo / Fiona Goodall

"It's not that we don't have enough houses per se, it's that we don't have enough houses people can afford. There's a haves and have not story and probably Covid has made that inequality worse.

"Our home ownership rates have fallen over time so we face some challenges but they're not easily fixed. Look at how many governments have tried to fix them and haven't necessarily been successful."

Independent economist Tony Alexander agrees the biggest impact of the housing package was the removal of tax deductibility.

While that caused investors to step back and allowed first home buyers to jump in, a lot of the benefits for first home buyers were unwound by the credit crunch which denied them in particular access to credit. "I think the Government has gone and offset the positive impact with its CCCFA changes in particular," he said.

Alexander agrees the Bright-line test extension has had little impact with most investors holding the property for the long term.

But he says the extension may have made life more difficult for young people looking to get their foot on the ladder, explaining a good way to get on the ladder has been to buy a first property as a rental, earn some capital gain then sell it and use the profit for the deposit on a first home.

"The Government has stripped that opportunity away by saying you've got to hold it for 10 years or you are going to pay tax on it, so that's a negative for first home buyers out of the Bright-line change."

Alexander says Government measures have only been part of the picture in terms of the current situation with house prices falling, which is mainly down to rising interest rates and the credit crunch.

More downward pressure on prices is to come with the brain drain beginning to be talked about, he says, and with the opening up of the borders young people will revert back to former travel plans which could contribute to a subtle price softening later this year.

Pedestrians in front of a real estate window in Auckland. House prices across the country have eased. Photo / Ted Baghurst

With all the building underway, there's also the possibility of the house price shortage improving, especially in Auckland. "Once people say there isn't a shortage you get further backing away of buyers and prices are going to fall further," he said.

ASB's chief economist, Nick Tuffley, said that rising interest rates, the tightening of LVRs and the CCCFA legislation from December all had a big bearing on the current direction of house prices.

"I put a lot of the weight on a pretty marked lift in interest rates. Now you're staring at something over 4 per cent - that's quite a significant change in a short space of time.”

Government measures around supply would help, Tuffley said.

Out on the streets, Ray White Remuera agent Steve Koerber said most people have forgotten about the housing package.

"Just because the market seems to have bigger fish to fry, you know. That's my sense of it… It's just all about interest rates and the cycles of the market."

Koerber said unaffordability was a big issue, with even Remuera parents concerned about their children getting onto the housing market.

"A big part of my business, actually, is parents helping their kids into houses."