We are now some three weeks down the track from the Government’s March 23 housing policy announcements and investors have certainly made their views known. Disappointment has come through loud and clear in general commentary, and from three of the monthly surveys I run we can see evidence of investors pulling back from the housing market.
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In my monthly mortgages.co.nz & Tony Alexander Mortgage Advisors Survey, we saw a net 46% of advisors say that they are now seeing fewer investors coming in looking for advice. This is a substantial turnaround from January when a net 24% were seeing more investors. The peak was a net 34% in October seeing more investor clients.
In my monthly REINZ & Tony Alexander Real Estate Survey a net 41% of agents said that they are seeing fewer investors in the market. The peak reading for this measure came in November with a net 59% of agents saying they were seeing more investors.
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A net 11% of agents also said that they are seeing fewer people attending auctions and a net 23% said fewer people are at open homes.
Finally, in my monthly Tony’s View Spending Plans Survey a net 10% of the near 1,500 respondents said that they intend cutting back their spending on investment property. Last month’s reading was a net 5% planning more buying and the peak was a net 13% in December.
These survey results tell us three things. First, the peak period for new investors jumping into the residential property market was during the early to mid-part of the December quarter. Second, there has been an easing off in new interest since then. Third, the March 23 announcements, especially on deductibility of interest costs, have caused some investors to step back.
Another one-off survey I ran which attracted almost 4,000 results from investors, showed that 74% plan raising rents more than they had planned, 32% plan buying fewer properties, and 25% plan selling some of what they have.
The second and third results will please the Government and first home buyers. But plans for rent rises are concerning for tenants. In my Spending Plans Survey, I invited people who were tenants to let me know whether they had heard from their landlords regarding planned changes. Some 28% said that their landlord had informed them they planned to raise rents to compensate for the Government’s policy changes, and 18% said their landlord had informed them they might sell their property.
These outcomes are concerning and many tenants when invited to give their thoughts asked landlords not to raise rents, and to think about their capital gains and their social responsibilities. Far more, however, took the opportunity to deliver advice to the Government not to interfere in the market because they were making life worse for them.
Basic economics tells us that when the cost of supplying something goes up the outcome will be less of it gets traded and average prices are higher than would otherwise be the case. How much then might rents rise? That is impossible to know.
Landlords have a history of not following through on promises to raise rents and reduce rental supply when policy changes affect returns. But the fact that average rents have risen 24% in the past three and a half years when government policy changes have been boosting costs, while incomes have only risen about 11%, tells us that tenants should expect higher rents than otherwise in the next four years.
But will the rises be immense? That is hard to say. One-third of investors purchasing property do so without a mortgage, according to data from CoreLogic. These people face no cost change as a result of interest deductibility being removed. Plenty of landlords have also been tenants themselves and place their main focus on potential long-term capital gain to assist their finances in retirement, rather than maximising taxable income to spend along the way.
Then again, my Spending Plans Survey reveals that for those tenants who have been told by their landlords that rents will go up, 50% indicate the rises will exceed 10%.
These are still early days in market responses to the March 23 policies, and feedback from real estate agents, mortgage brokers, and bankers I have spoken with just this past week suggests that although some investors have stepped back, the residential real estate market overall still remains extremely busy – with prices going higher.
- Tony Alexander is an economics commentator and former chief economist for BNZ. Additional commentary from him can be found at www.tonyalexander.nz
