At the start of 2018 Property Institute CEO Ashley Church made seven bold predictions for the year. As 2018 comes to a close, he looks back on those predictions and sees how many he got right and got wrong:
1. The LVR rules will be relaxed
Original prediction: The cyclic flattening in house prices will give the Reserve Bank confidence to further relax the LVR deposit rules on Investors and also give relief to Home Buyers in 2018. The LVR for Investors will drop to 30% during 2018 – while the LVR for Home Buyers will either be dropped to 10% or 15% (although this may be limited to First Home Buyers) or the ‘speed limit’ (the extent to which trading banks can have clients who exceed this limit) will be significantly increased”.
Outcome: Correct. The Reserve announced last month that LVR restrictions on property investors will from January 1 be dropped to 30 percent. The ‘speed limit’ on home buyer loans has also been increased from 15 percent to 20 percent, which means banks can now provide more mortgages to borrowers who have a deposit of less than 20 percent.
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2. The market won't crash
Original prediction: “Overall, house prices, particularly those in Auckland, will ‘see-saw’ between small increases and small decreases throughout 2018. There will be isolated exceptions to this trend – but the much hyped ‘property crash’ isn’t going to happen."
Outcome: Correct. The market has remained flat and there has been no crash in property prices. The median sales price for New Zealand was $515,000 in October 2018 - down 1 percent on the same period in 2017.
3. The Government will revise one or more of its housing strategies or targets
Original prediction: “Given the inherent conflict and contradiction between the Government’s various housing policies, it’s a virtual certainty that ‘something will have to give’ during 2018. It won’t be possible to maintain policies that promote increased investment in new housing construction and protection for rental tenants while cutting back on the ability to bring in skilled builders, increasing the costs or taxes associated with investment in property, or supporting other measures designed to make investment in property ‘less attractive’.
Outcome: Correct. The Government has relaxed and/or revised a number of its housing policies to reflect the realities of the market. These changes have included relaxing plans to cut back on immigration, relaxing a number of the criteria underpinning eligibility to buy KiwiBuild homes, and allowing the purchasers of KiwiBuild homes to retain the lion's share of any capital gains that they make if they sell within three years of buying a KiwiBuild property.
4. The cost of renting will continue to rise
Original prediction: “While it’s normal to see rent increases in the period following a property boom, the environment in which they will take place in 2018 will be made worse as a result of the combined effect of unusually high inward migration (which has exacerbated rental demand), loan to value restrictions (which have closed investors out of the market) and Labour’s plans for capital gains taxes, ring-fencing tax losses and significant new compliance costs (which will cause many property investors to increase rents to offset new costs - real or feared). As a result, we’re in for big rent increases in some parts of the country over the next couple of years."
Outcome: Correct. According to data from MBIE, the average cost of renting has increased by around $30 per week over the 12 months to November 2018, and by as much as $50 per week in some parts of the country. This compares to average annual increases of around $13 per week over the previous decade.
5. New home construction in Auckland will slowly increase – but most of it will be for owner-occupiers
Original prediction: “Depending on your source, Auckland either needs 40,000 new homes ‘right now’ or 10,000 per year for the foreseeable future. Either way, the market will continue to make further progress on this target in 2018 but will still fall a long way short of the number of dwellings required to ‘fix’ the shortage. These houses will be built through a combination of Government building initiatives and private sector construction of apartments and free-standing homes. Most of these dwellings will end up in the hands of owner occupiers with very few becoming rentals for the reasons outlined in the previous predictions."
Outcome: Correct. Residential housing construction increased in most parts of the country in 2018 – with the most significant growth in activity taking place in Auckland. Residential construction activity across New Zealand (as measured by value) was up 5.1 percent in September 2018 over the same period in 2017 – and in Auckland, this activity was up 16%. Stats NZ also reported that 12,845 building consents had been issued, in Auckland, in the year to August 2018 – a 28 percent increase over the previous year.
6. Some property investors will abandon the market - and this will become a problem
Original prediction: “While the cycles of property investment are largely predictable, there are always a number of less experienced property investors who panic, and sell, when a market flattens - or who decide not to invest further during downturns. This means that an increasing number of rentals will convert to owner occupied dwellings, putting pressure on the rental market at a time when demand is already acute."
Outcome: Partially correct. According to data from Valocity, small investor activity dropped by 35.5 percent in the year to October 2018. Large investor activity over the same period dropped by 39.5 percent. It's not yet clear as to the level of pressure this has put on the rental market.
7. Mortgage rates will rise
Original prediction: “The general consensus is that interest rates are on their way up, partly because of uncertainty around international events, and partly because NZ banks will need to pay more to attract a diminishing fund of investment from Kiwi depositors. Expect to see little change in six-month to two-year mortgage rates, but a jump of up to 0.5 percent in longer-term rates as banks try and woo borrowers into shorter terms in anticipation of further increases in the cost of funding over the next two or three years."
Outcome: Wrong: The general trend in longer-term mortgage ratesd has been down not up.