Multi-pronged attack on Auckland market means OCR cut likely

New tax measures, along with the Reserve Bank’s latest LVR policy, could have a stark impact on Auckland’s housing market – and are likely to mean a cut to the OCR in the near future, according to one economist.

Monday, May 18th 2015, 11:22AM

by Miriam Bell

ANZ chief economist Cameron Bagrie

ANZ chief economist Cameron Bagrie said the government’s newly announced tax measures, along with the RBNZ’s move last week to restrict Auckland investors, constitute a multi-pronged attack on the Auckland housing market.

He also noted that, although nothing has been confirmed, the government is said to be planning immigration changes which would mean more points for immigrant investors, entrepreneurs and skilled migrants willing to settle outside of Auckland.

“The precise economic impact of all these changes is difficult to disentangle. There is a lot of uncertainty surrounding the precise application, and there are a number of moving parts,” he said.

However, the fact that neither set of initiatives apply until 1 October could act to distort the behaviour of market participants in the meantime.

Bagrie said listings could rise sharply as sellers rush to get properties on the market while the going is good and some investors might try to get round the borrowing restrictions by getting in now.

Further, he expected to see behavioural shifts, in the spirit of the RBNZ’s policy, on the part of the banks’ straight away.

“On net, it seems likely the changes could tilt the balance in favour of supply over coming months, further reinforcing the impact on sentiment and house price expectations.”

Demand has also been fuelled by unrealistic expectations of ongoing price increases, he continued.

“With major sources of buyer ‘demand’ now being targeted, at the very least sentiment will be negatively affected and sentiment is a crucial element of any asset market… Ultimately, we suspect this marks a turning point for the Auckland housing market.”

In Bagrie’s view, the Auckland housing market has been a major factor in keeping the OCR higher than would otherwise be the case.

Now, the shift in housing market performance will be occurring when other challenges such as dairying are intensifying and inflation is low, he said.

“The risk profile facing the economic outlook continues to shift. As such, the new measures reinforce our view that the OCR is heading lower, and sooner as opposed to later. We retain our expectation that the RBNZ will cut in both June and July.”

Meanwhile, Prime Minister John Key told media this morning that Auckland did not have a housing crisis, although house prices are rising too quickly.

He also denied that the new tax measures are a capital gains tax in disguise, rather he said they are intended to tighten up the tax loop.

However, Opposition leader Andrew Little said the government’s “weak and tentative” measures are an admission that there is a housing crisis in Auckland.

He said there was a major loop hole in the measures in that speculators who hold onto their properties for longer than two years will be exempt.

“A tax which only applies to sales within this arbitrary period will not deter the land-bankers and will only capture the small number of short-term buy-and-flick speculators.”

There needs to be a comprehensive and wholehearted crack down on speculators, alongside a ban on residential property sales to foreign speculators, Little said.

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