ANALYSIS: I’ve now got results in from all five of the surveys I run each month giving insight into consumer spending plans, how businesses are seeing the world, and aspects of the housing market as observed by mortgage brokers, real estate agents, and property investors.
From these surveys, or at least four of them, we can derive an answer to the question about whether any other groups are yet following first home buyers heavily into the housing market. Just over a year ago young buyers stepped forward to take advantage of reduced prices, low competition from other buyers, a doubling of properties on the market from mid-2021, bigger saved up deposits, and good job security.
I can see from my surveys of real estate agents with NZHL that a year ago a net 55% were saying they were seeing fewer investors. Now, a net 24% say they are seeing more investors. Okay, so does that mean hefty extra price pressures? No.
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A year back as many agents said they were seeing more investors looking to sell as to buy. Now a net 14% say they are seeing more investors wanting to sell. So yes, investors are in the market and looking, but they are also catching up on selling, with some pressured to do so by the need to shore up their business.
This is where the change in the bright-line test from 10 years back to two years may have an immediate impact. Some investors want or need to realise the value in their housing asset to make things easier for their business. But they are reluctant to sell and pay capital gains tax. When the shift back to two years occurs many may look to sell – though how many is impossible to know.
Back to my surveys. The one of investors which I run with Crockers Property Management shows that this month a net 22% of landlords are finding it easy to get good tenants. A year ago only a net 3% said this. This is one impact from the 2.9% NZ population surge this past year. More people are looking for somewhere to live and landlords can pick and choose in some locations.
Independent economist Tony Alexander: "The rule of thumb in New Zealand is that you can only price to what the market will bear and property owners don’t always seek to get as much as humanly possible." Photo / Fiona Goodall
As yet this growing pressure in the rental market is not pushing rents higher at a hastening pace. The average rent rise which landlords will seek when they make a change is still the same as it was a year ago at just over 5.6%.
The rule of thumb in New Zealand is that you can only price to what the market will bear and property owners don’t always seek to get as much as humanly possible. This perhaps helps explain why there is no new rush of investor buying to outweigh selling now. Costs are soaring for things like rates, insurance, and maintenance, but returns are not necessarily keeping up with those cost rises and landlords for now are reluctant to try and gain compensation.
That is why the return of 80% interest expense deductibility from April 1 this year and 100% a year later is important. Cash flow positions for investors will improve and the exit from their investment which many may have been planning could be delayed or abandoned altogether. Having the rental pool shrink when population is booming is not a recipe for social stability and as we have seen central government does not have the capacity to meet social housing needs as they developed these past few years let alone coming years as house construction for a while shrinks.
- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz
