Silver Spot – UPDATE 4-New Zealand slaps taxes on investors to cool housing market
* Interest deductibility removed for future investors
* Bright-line test for taxation doubled to 10 years
* $2.7 billion fund to accelerate housing supply
* House prices could fall 10% in long-term – Westpac (Updates NZ$ reaction, adds Westpac house price forecast)
WELLINGTON, March 23 (Reuters) – New Zealand on Tuesday introduced a raft of measures to cool its red-hot housing market, slugging investors with new taxes and promising to boost supply after housing affordability fell to its lowest ever.
Prime Minister Jacinda Ardern also pledged more support for first home buyers and foreshadowed further steps to come, with the country’s central bank currently reviewing proposed curbs on some types of lending.
“The need for further action is clear,” Ardern told a news conference. “The last thing our economy needs right now is a dangerous housing bubble. But a number of indicators point towards that risk.”
Westpac Bank said the moves could see home prices settle around 10% lower in the long term, with potentially greater swings in the short term as some investors exit the market.
A tax policy change that no longer allows rental property owners to deduct mortgage interest from their expenses was a “game-changer”, Westpac economist Michael Gordon said in a note.
Ardern also doubled the country’s so-called bright-line test – the time that investors need to hold on to a property to avoid paying tax when selling – to 10 years.
New Zealand’s success in combating the coronavirus has fuelled an already hot property market, as returning Kiwis and investors parked their funds in real estate, pushing house prices up 23% in just 12 months, far ahead of wage growth.
Billions of dollars in government stimulus and historically low interest rates further inflamed the market, making it the least affordable amongst the 36 wealthy Organisation for Economic Co-operation and Development (OECD) nations.
Investors are now the biggest property buyers in the country of 5 million, with 40% of sales in the final quarter of 2020 made to owners of multiple properties. Last year, 15,000 people who bought homes already owned 5 or more properties.
However, the strong market has also made any changes to housing policy politically sensitive.
Opposition National Party leader Judith Collins slammed the measures saying more taxes on landlords would only push rents higher, and make homes more unaffordable for first home buyers.
The policy was another KiwiBuild, Collins said, referring to an earlier project by Ardern to build 100,000 affordable homes that was scrapped in 2019.
ANZ Bank chief economist Sharon Zollner said the measures were a bold move given how many New Zealanders had invested in property.
“For them it’s essentially a tax increase,” she said, adding that some investors may decide to offload property.
“It will have an impact on property demand from here, if nothing else, because the outlook for house price inflation is now tilted to downside and risk of house price falls has risen.”
The New Zealand dollar fell to a three-month low as the reforms cooled policy tightening expectations. The kiwi , lost as much as 1% and traded at $0.7093 during the Asian afternoon.
Ardern also said the government will speed up the pace and scale of house building with a new NZ$3.8 billion ($2.73 billion) fund.
Income caps to get housing financial assistance will be lifted to NZ$95,000 from NZ$85,000 for single buyers, and to NZ$150,000 from NZ$130,000 for two or more buyers from April 1.
Restrictions on interest-only loans to speculators and a proposal on debt-to-income ratios are still being considered, and the Reserve Bank will report back on these in May.
“Its a good start. It’s not going to fix housing overnight, no policy would have. But it shows the government is listening,” said Brad Olsen, senior economist at Wellington-based economic consultancy firm Infometrics.
“But the proof is always in the pudding. Will these measures be executed well? The government has always had trouble with that.”
$1 = 1.3943 New Zealand dollars Reporting by Praveen Menon; Editing by Steve Orlofsky and Richard Pullin