In the 2021 Budget, Finance Minister Grant Robertson announced that Treasury predicted the 17% price rise for the year to June 2021 would slow to 0.9% by June 2022, then rise in the region of 2% for the following years.

This prediction has been met with surprise by many property experts, who feel that the lack of housing, and the potential reopening of the borders, may keep the market buoyant.

Predicting what the housing market will do is a tricky business, but there are already signs the market is slowing. CoreLogic’s House Price Index for May revealed that nationwide values had increased by 2.2% month-on-month, which was a reduction from April, when prices were up 3.1% month-on-month.

Tightened loan-to-value ratios and the phasing out of interest deductibility have both been given as possible reasons for the slowdown.

New Zealand Property Investor magazine asked a range of industry experts to give their predictions on expected price growth over the next 12 months, and what it means for investors.

Wendy Alexander, Reinz

“REINZ is surprised that the Government is forecasting such a significant slowdown of house price growth in the coming year and that it has put that figure at 0.9% particularly as interest rates aren’t predicted to start rising until around mid-2022.

“Whilst REINZ has predicted stabilising and then some easing of house prices in the next 12 months, we’re not anticipating growth at such a low level.

“The last time New Zealand had a rate at or around 0.9% was November 2015 when the annual increase was 0.2%.

“As we start to see the re-introduction of the LVRs having an effect it would be our expectation that house price growth will slow, but that this might be at a rate in the vicinity of 3%-5%. It is our view that the lack of housing supply will continue to be an issue, particularly as demand looks set to remain high for the next six to 12 months.

“As we look to open the borders, we may see an uplift in migration into the country which in turn could add to demand for available properties. Increased demand from more buyers in the market is unlikely to be offset by a significant increase in the number of homes available by mid-2022,” she concludes.

Kelvin Davidson, Corelogic

“Given that affordability pressures have been intensifying for some time now, banks have been enforcing higher deposit requirements for investors for at least three to four months, and now that the Government has altered the tax rules too, we had always been anticipating a slowdown in property sales and house price growth in the second half of 2021 and into 2022.

“In fact, we’ve already seen in our Buyer Classification series the first hints that mortgaged investors’ market share (previously very high) has begun to ease. The Reserve Bank also stands ready to tighten the LVR rules further if required, while they’ll probably be granted the power soon to use debt to income caps too.

“However, even though the Reserve Bank has now made it clearer that the official cash rate could be rising in the second half of next year, sharp increases in mortgage rates still seem unlikely (or at least some way off yet). Meanwhile, there is still a shortage of available listings on the market and a simple lack of physical houses that exist.

“For these reasons, we certainly agree that house price growth will progressively slow, but it may not be as sharp a slowdown as the Treasury or Reserve Bank have currently predicted. Indeed, the anecdotal evidence we’ve heard is that investors (especially those with lower debt) are still looking at property, just perhaps accepting that it may deliver lower returns than before.”

Tony Alexander, Independent Economist

“Looking out at the NZ housing market at the start of June it is clear that while many investors have stepped back from the market to see what other investors might be doing in response to Government and Reserve Bank policy changes, price pressure still remains upward. A net 32% of real estate agents in my monthly survey with REINZ said at the end of May that they were still seeing prices in their area going up. A gross 51% also said they are still seeing FOMO.

“But while the onset of winter might keep heels cooled for a while, the odds are stacked against Treasury’s 0.9% price rise forecast coming true. For one thing construction costs are rising strongly. Second, short-term interest rates are going to stay low for the next 12 months. Third, while fixed rates will rise before mid-2022, history tells us that expectations of rate rises actually encourage extra buying so people can lock in a good fixed rate. Fourth, the economy is strong and high job security tends to encourage people to buy property.

Finally, perceptions of a shortage of property (with listings still down near 70% from 10 years ago), means plenty of buyers are waiting in the wings for any opportunity to purchase. House price inflation has slowed and will slow further. But an average gain near 5% in the coming year seems more likely than below 1%.”

Sharon Cullwick, NZ Property Investors' Federation

“We always know that after a boom there will be a bust. This one is very different to others as Government has had a hand in trying to stop house price increases by changes to landlords’ businesses. Instead of working on the supply side of the equation it has also interfered with the demand side with tenants being the losers.

“Property investors that have purchased their properties as a pure investment shouldn’t be too phased by the slow-down in property prices. However those that are relying on capital gain will find it difficult especially with the removal of interest as a tax deductibility expense.

“I haven’t heard too much from investors regarding the changes. Some of the larger investors are selling one or two properties to relieve the pressure of tax. Many do not know how to work out what the additional costs will be of holding a property, so they may get a shock when their accountant works this out for them or they start seeing larger tax bills. I’ve also noted that there seems to be more tenanted properties coming on the market.”