New Zealand PM Ardern announces plans to combat housing crisis

Source: Brian A Jackson Shutterstock

Summary

  • NZ government has released a range of housing policies to increase housing supply and reduce investor demand.
  • Government plans to keep NZ$3.8 billion aside to fund infrastructure around housing.
  • It has also extended bright line test and relaxed price as well as income caps on first home products.

New Zealand on Tuesday came up with a slew of initiatives to cool down its sweltering housing market.

Prime Minister Jacinda Ardern in a press conference stated that its package housing plan of immediate and long-term initiatives had an aim of increasing housing supply, easing market pressure, and supporting first-time home buyers. She indicated that there is instant solution to the problem but a blend of these measures can make a difference.

House prices in New Zealand have risen by 23% in a year, cushioned by low mortgage rates and quick recovery of the country from the coronavirus pandemic.

DO READ: NZ house prices scale new heights in February. Will they keep defying COVID-19 effect?

Let’s have a look at changes proposed by the NZ Government.

  • NZ$3.8 billion has been allocated to assist in the funding of infrastructure across housing developments, that includes roads and pipes to houses.
  • Extension of Bright Line test with doubling the time that investors want to hold a property to avert tax payment to 10 years.
  • Investors will not have the ability to balance their interest costs against their rental revenue while determining their tax.
  • The current First Home Grant and First Home Loan will be available to more first-time buyers.

The government also plans to get rid of more loopholes that favour investors. Further, RBNZ restrictions of bank lending are still being worked through. The central bank would take till May to report back on the possible initiation of debt-to-income (DTI) ratio restrictions and limits on interest-only mortgages.

Housing Minister Megan Woods stated that infrastructure investment is one of the key actions that the government could take to improve housing supply in short term. Allowing unsustainable house price growth to continue could have a negative impact on the entire economy.

Economists comment on the NZ government’s steps

Sharon Zollner and Miles Workman, economist at ANZ stated that there is now an increased chance of falling house prices and expect that government’s initiatives will have an effect on investor housing demand.

However, they added that investors’ response is hard to predict amid long implementation periods, adding to uncertainty and smaller tax impact due to low mortgage rates.

Westpac senior economist Satish Ranchhod stated that investors made for a big share of housing market and the government’s steps were expected to pull down the housing price growth, which was likely to be reflected in economic activity.

Comment


Disclaimer