1 Comment 1 Commentby Sally Lindsay
The share of new mortgage lending attributed to FHBs has been running at a historically elevated 24% of the total for almost a year.
Investors, by contrast, are less interested. New investor lending diverged noticeably from that of FHBs in 2022 and has tracked down to about 16% of the total. In absolute terms, it has yet to substantively recover from the lows struck around the start of 2023.
BNZ chief economist Mike Jones says any positive impact on investor demand from the new government’s change in investor tax policies, so far, seems to be being offset by the cash flow hit from high interest rates and soaring insurance, rates, and maintenance bills.
“The anecdote points to investors remaining on the sidelines in the short-term. It’s possible we see a lift in investor selling intentions once the brightline test shifts back to two years in July, but we’d expect this impact to be small.”
Excess supply
Jones says ordinarily, the shift upwards in sales activity would be a reliable indicator that house price appreciation is to follow.
“This may come through at some stage, but in the short-term we’re not convinced. That’s because new listings continue to rise even faster than sales. There’s excess supply, in other words. Unsold inventory increased again in April to a fresh seven year high.
On the supportive side, Jones says there is:
On the negative side Jones says there is a cash flow crunch. Mortgage rates are going to stay high all year, and the process of adjustment to past increases continues; economic sentiment is in the doldrums and probably won’t improve substantively until next year; and labour market conditions are deteriorating. The unemployment rate has risen to 4.3% on its way to a 5.5% forecast next year, reducing job security.
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While I am confident I am doing a good job as a landlord, the negativity against investors is wearying.
I have peace of mind in believing that there is a rightful place for investors. I used to believe that a capital gains tax only on residential property and not on other business assets would be fair given that houses are people’s homes and as such should not be an investment vehicle. Now I have changed my mind. While I believe it is preferable for society for houses to be lived in by owners not renters, owning and running a property is simply not affordable for many people at different times in their lives. For investors the returns are low. The only way it works is to look at the long term, to buy well, and wait for rents to eventually rise enough to cover outgoings while hoping the house holds its value.
As for the much-touted capital gains, I am not convinced they are any greater than inflation after accounting for maintenance, insurance, and perhaps interest.