Westpac New Zealand Economic and Sustainability Strategy Update
Housing market and Government policy
The Government has announced a range of measures to slow house price
growth and tilt the market to be more in favour of owner occupiers (rather than
investors)
The major changes that have been introduced include:
Removing the ability for property investors to offset the interest
on loans on residential investment properties against their income
from those properties. This change will take effect from 1 October
2021 for properties purchased after 27 March 2021. For existing
property owners, deductibility will be phased out over the next four
years. The Government is looking at exceptions for new builds
The holding period for taxing capital gains on investment properties
(i.e. the bright-line test) will be extended from five to ten years
Leveraged investors currently account for around one-third of sales in markets
like Auckland and Wellington. The announced policy changes will reduce the
financial incentives for property investors and indicate a drag on house prices
Westpac Economics now expects house prices to flatten over the remainder of
2021 (previously Westpac Economics expected continued solid gains)
Longer term interest rates are expected to gradually move higher over the coming
years in response to the firming in global activity. As that passes through to
domestic borrowing rates, modest falls in house prices of around 3% to 4% per
annum are expected in 2022 and 2023 (as a comparison, prices have risen by
more than 20% since the economy exited lockdown)
A slowdown in the housing market signals associated downside risk for household
spending and construction. This reinforces the case for the RBNZ keeping the OCR
at low levels for an extended period
Household debt levels have been rising in recent years, with much of that
borrowing related to residential property. However, the low level of mortgage
interest rates means that the proportion of households' incomes spent on debt
servicing has fallen to its lowest level in at least two decades. The labour market
has also been more resilient than expected
29
29View entire presentation