What will the budget bring for New Zealand property?

The new Budget is just around the corner, and the pre-budget addresses and speeches are finally rolling out. These peeks into the big announcement give us a little bit of a look at what's to come – but speculation still abounds as to the specifics. The residential housing market, particularly around Auckland, is a hot button topic for all parties, from hardened investors to first home buyers, political parties to grassroots organisations.

So, let's take a quick look into our crystal ball and see what the 2016 Budget might have in store for New Zealanders.

Will Auckland remain on top of investment after the new Budget?Will Auckland remain on top of investment after the new Budget?

Emphasis on new planning legislation

"What makes building a house so difficult is principally the planning rules set by councils that restrict, delay and raise the cost of development"

Bill English offers us a definitive summary at what is on the cards for the housing market in his pre-Budget speech, and it looks like there is going to be a serious assault on current legislative processes in planning. Rather than focusing on hard capital investiture from the government, it appears that there will instead be a focus on reducing bureaucracy that is stymieing new supply, according to English.

"What makes building a house so difficult is principally the planning rules set by councils that restrict, delay and raise the cost of development," he said to the Wellington Chamber of Commerce on May 12.

"This is the consequence of planning rules that, for example, limit house heights, set minimum lot sizes and maximum site coverage, force high ceilings, and demand lounges that face the road."

In that vein, there is increasing pressure on the Auckland Council to find some route around current affordability issues for people wanting to take their first steps onto the property market. QV tells us that Auckland real estate has increased in value by 16.5 per cent over the last year. While wages have only increased by 1.7 per cent over a similar period of time according to Stats NZ.

This is one of the reasons why property is such an excellent way to build wealth. But many people are finding it difficult to get onto the ladder as prices continue to put properties out of reach. As a result, there are mutterings that new planning laws have to either allow greater density, or change the city border limits: whether the city will go up, or out.

If the aim is to make housing more affordable, then surely the answer would be both, but the Auckland Unitary Plan found itself deflated when there were attempts to increase densities in some suburbs of Auckland – attempts that were promptly shot down by grassroots organisations. For the moment, it appears that this particular decision has become moot, though that could quickly change with the new budget.

Another issue, brought up by Newshub, is that the new rapid housing construction is resulting in sub-par homes, with 30 per cent of all building inspections resulting in a fail from the Auckland Council. There are questions as to whether this is the future of New Zealand homes. Even if we get more space to build them, will they simply end up being shoddy, leaky buildings that are unfit for purpose?

Of course, this may be combated by the new Residential Tenancies Amendment Bill, though the fact there is such a high failure rate just two months before the implementation date does little to inspire confidence.

New planning processes could make it that much easier to build investment properties.New planning processes could make it that much easier to build investment properties.

The push out of Auckland?

Meanwhile, outside of Auckland, places like Hamilton and Tauranga have been heavily affected by first home buyers and investors both being pushed out of Auckland into cheaper pastures. QV tells us that value gains in these areas have both been over 20 per cent compared to a year ago, outstripping everywhere else in New Zealand. Papamoa East in Tauranga has received a jump of 76 per cent in new consents compared to last year, as reported by the New Zealand Herald.

Can Auckland hope to stay as the place to be for investors in New Zealand?

Could this be the sign of a sea change in the property market? With such high value gains and low buy-in levels, can Auckland hope to stay as the place to be for investors in New Zealand? With the potential for the cutting of regulations as suggested by Bill English in his speech, the number of consents in these areas could very well increase even further, as more people find it that much easier to build outside of Auckland rather than within it.

Other than these few hints, there are a number of other mutterings that are slightly more radical. Some are calling for rental controls, such as those that were implemented in New York many years ago, but generally economists have considered this to be a bad idea for housing, as investors place their money elsewhere rather than risk hitting the rental income ceiling. Considering the important role that property investors play in the New Zealand economy, this is not likely to happen. 

So what exactly is going to happen to the property investment market under the new Budget? We can speculate all we like, but ultimately the truth will out on May 26.

Daniel Carney
Authorised Financial Adviser / Investment Property Expert

Contact us now!

0508 GOODLIFE
info@goodlifeadvice.co.nz