Peter Thompson - Managing Director Barfoot and Thompson 19 Mar 2024
Photo of Auckland

OPINION: The Government’s unwinding of a raft of regulations around investment properties and renting may well provide the housing market with the kickstart it needs to find its direction.

For the past six months the market has been trying to find its confidence and lock in the gains it has shown as it starts its journey out of the downward price cycle that started in November 2021.

By June last year prices had plateaued, and since then in many regions, and especially in Auckland, prices have shown modest increases.

Based on our Auckland sales data, we put the median price increase between June and January at 4.5%. It would be even higher if you excluded January’s sales figures. January prices are invariably the lowest for any month of the year given the interruption to sales caused by the holiday season.

During the same time period that prices increased sales numbers remained low.

Flat sales and rising prices are an unusual combination, with conventional wisdom being that when sales numbers remain low, prices fall.

Treasury’s fortnightly Economic Update (for February 16) has picked up on this unusual combination and headed its summary of the housing market with the headline “market sending out mixed signals”.

Rather than the market sending out mixed signals, the reality is the market is receiving such a wide diversity of contradictory messages from economists and commentators that it is struggling to reach a consensus as to where the market is heading.  

Talk of a fragile economy, predictions that interest rates are likely to fall (or conversely rise), unemployment rates rising and untamed inflation make for unsettling reading.

The trading banks, and the Reserve Bank and Treasury, are as one forecasting house prices will rise in 2024, with the range being between 2% and 7.9%, with the mean of these forecasts being around 5%.

However, even this solidarity of opinion is not enough to see many potential investors, new entrants and those changing homes, shift from sitting on the sideline.

What just may do it is the changes the Government is introducing around investment properties and landlord rights. The main ones being

  • reintroduction of the tax deductibility of interest payments on investment properties
  • returning the length of the bright line test to two years
  • modifying the rights of landlords regarding evictions and
  • strengthening the rights on landlords around tenancy terms.

Undoubtedly, these changes will make investing in housing more attractive as an investment option.  

An influx of new investors into the rental market would be welcomed and would assist in alleviating the current shortage of rental properties. Demand has remained strong for a number of years and in the past 12 months meeting the needs of the recent high influx of new immigrants has added to the challenge.

In Auckland we manage some 19,000 properties for investors, and currently our average rent across this portfolio for a three-bedroom house is now $668 a week. This is an increase of 4.9% on what it was 12 months ago.

Treasury’s latest Economic Forecast (February 19) sees no early end to rental price increases. Its forecast is for a 3% to 4% increase across the rental stock in 2024, while for new tenancies the rise is likely to be greater than 5%.

I’m not expecting to see any firm trend for property trading for 2024 until March’s sales data is tabled. The influence of the holiday season on sales in January and early February is too great to place any great faith in them.

However, based on 2023’s fourth quarter trading, and the Government’s implementation of its pre-election commitments, there’s every reason to believe 2024 will be a year when prices continue to recover.