Housing expected to be election priority

New Zealand’s housing problems  are likely to become the "No 1" election issue this year, according to the Property Institute, with the possibility of pre-election carrots for hard-hit first-home buyers.

While Auckland’s and Queenstown’s  million-dollar house valuations are obvious deterrents to first home buyers, even Dunedin and Central Otago  valuations of between $354,000 and $398,000 make

financing difficult for many.While analysts are picking a "softening" in 2017,  nationally prices  are more than 50% up on  10 years ago, and economists are picking 2017 house price inflation anywhere from 5% to beyond 10% this year.

Property Institute of New Zealand chief executive Ashley Church is predicting house price inflation, while still in double digits, would fall away from the highs of the past couple of years.

The current lull in the Auckland market was partly the result of the Reserve bank’s 40% LVR [loan to value ratio] restriction on property investors, put in place last October, and it would not last.

"The continuing gap between demand and supply means that further price inflation is inevitable for the foreseeable future," Mr Church said.

He predicted the property sector would become "the No1 election issue".

The country should expect to see a string of Government announcements, spelling out what it is doing to fix the Auckland housing crisis and outlining new ideas to speed up the process.

"In particular it’s possible, even likely, that the Government will offer a more generous response to the plight of first home buyers in a pre-election budget surplus splurge," Mr Church said.

While the Reserve Bank’s LVRs targets investors, not first home buyers, new-build homes are exempt from regulation, but overall rising house prices mean larger and larger deposits are required.

Also of rising concern last year to first home buyers was the potential for the Reserve Bank to implement "debt-to-income" requirements on the banks, meaning households would be subject to reaching another threshold.

Mr Church believes that issue was "off the agenda, for now."

"The Reserve Bank talked a lot about debt-to-income restrictions on mortgage lending during the latter half of 2016, but is unlikely to act on them this year," he said.

That is partly because the Reserve Bank would take a "wait-and-see" approach on developments in the world economy, but more specifically because the measures are politically unpalatable to either National or Labour.

"While the Reserve Bank is independent, it’s not completely blind to the politics of such a move," he said.

As with the majority of analysts, Mr Church predicts longer term mortgage interest rates will rise.

"The general consensus is that interest rates are on their way up, partly because of international events, and partly because New Zealand banks will need to pay more to attract a diminishing fund of investment from Kiwi depositors," he said.

He expected to see "little change" in six-month to two-year mortgage rates, but there would be a jump of up to 1% in longer-term rates as the banks try to woo borrowers into shorter terms, in anticipation of further funding increases over the next two or three years.

Mr Church said the impact of the Reserve Bank’s 40% LVRs would keep investors constrained "for a while" but would also keep a dampening effect on rising house prices.

"That 40% [LVR] hurdle is a tough one and investors who were highly geared [indebted] will need to wait a while before they have enough new equity in their properties to get back into the market," he said.

Investors who had lower debt gearings were still buying, but they were being constrained by tighter lending rules  acting as a brake on runaway house prices.

"That means that it’s unlikely that we’ll see a return to the heady 20%-plus levels of annual price growth experienced in the last couple of years," he said.

simon.hartley@odt.co.nz

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