It’s difficult to predict the future effects of climate change for the Pacific Islands but there’s no doubt it will increase population numbers in NZ.

Sue Harrison

President New Zealand Property Investors’ Federation

While the signs are good for a better housing market this year, it will still be difficult for investors because interest rates will remain high and possibly increase into next year. House prices will also rise.

One of the biggest house price boosters is immigration. People have to live somewhere and when there is a restricted supply of rentals, demand and rents go up ... and house prices increase. It’s the inevitable outcome of housing supply dropping.

What is really being underestimated is what effect the impact of climate change will have on housing and what, as a country, we are doing about it.

No-one has got a grip on the number of people who will have to leave Pacific Islands for other countries, such as New Zealand, when rising sea levels make their homes and country uninhabitable. It’s already happening.

What is this going to do to housing demand in NZ and how long can the country stop the immigration of people who can’t live on their island homes?

The future of the housing market is undoubtedly going to be climate influenced. People are moving around, making choices about where in the future it’s wise to own homes and investment grade properties. NZ needs to be well placed for what is coming in terms of climate change and it’s a major issue no-one is really confronting apart from insurance companies and some councils.

Insurance companies have already signalled they are not going to insure many coastal properties or those on floodplains in the future.

The price of insurance will massively influence where people have investment properties and by and large they are not going to be those where insurance premiums are high and rising, which is a good thing as rentals need to be in the safest places possible.

NZPIF would be keen to be part of a working group or “think tank” with the government to unpack how the country is going to house people in the future – what is going to make a difference to increase housing supply, what does have an effect and how is that managed? The country needs solutions to these problems and quickly.

Although the coalition government is reinstating tax deductibility for property investors, the conditions need to be right for more investors to come into the market. If the numbers work a private/public partnership could be considered to investigate options for increasing housing.

If the drivers are right more landlords will buy and the federation has the courses and information to upskill them.

With a new government in place, landlords are feeling slightly more optimistic than they have for a while. Over the past three years landlords have felt marginalised and put upon. Many are baby boomers and looking at available options to provide money for their retirement, unless they are being forced to sell because of the tax imposition.

The changes that will be made will set the market in the right direction to provide renters with more options, and the more the government involves stakeholders in coming up with solutions to the rental shortage, the better.

Sharon Zollner

Anz Chief Economist

Nationally, house prices are still a long way below their peak and ANZ is forecasting it will take years to get back to those levels.

It’s not just house prices that are on the weaker side – indicators for sales and new listings show there is further softness to come.

New listings are just above 2022 levels. This lift is on top of an already large stock of inventories, which needs to decline before meaningful rises in house prices are likely. The risk is that house prices rise less than we expect next year, given recent modest further lifts in mortgage rates and the somewhat faster than expected labour market loosening.

Faster than anticipated restoration of mortgage interest deductibility and other landlord-friendly policy changes agreed to by the new coalition government are risks in the other direction, though difficult to quantify.

New labour market data shows unemployment rising as tighter monetary policy cools demand. Dropping job security is likely to make would-be first home buyers more nervous about taking the plunge.

But there’s also a feedback loop here. Sharply rising unemployment can negatively influence credit availability, making the outlook all the more uncertain for credit providers.

And we don’t expect much relief for mortgage holders next year. While mortgage rates have probably peaked, the Reserve Bank in its recent Monetary Policy Statement kept the OCR at 5.5 per cent and indicated there wouldn’t be cuts until 2025. It blamed rising mortgage rates on record immigration.

The weaker than expected labour market is one of several reasons we changed our official cash rate (OCR) call and no longer expect the RBNZ to increase the OCR next year, but neither cut rates.

Consistent with our OCR forecast change, we have changed our forecasts for the wholesale rates that underpin mortgage rates, expecting them to peak at a lower level, but remain high for longer.

While a lower peak is good news, later cuts (all else equal) are likely to keep the housing market somewhat sluggish into 2025 by constraining prospective first home buyers’ and investors’ borrowing power.

That said, financial markets make up their own minds about what they think is going to happen, and to the extent they anticipate sharp or imminent cuts, that could put downward pressure on fixed mortgage rates for a time – whether the RBNZ actually delivers or not.

Most mortgage holders have refixing coming up in the next year. If market expectations for cuts strengthen from here, wholesale rates and therefore retail mortgage rates may be lower when that date comes.

But if the inflation news turns worse again and market expectations evolve to price later cuts or even a chance of more hikes, wholesale rates could increase. Mortgage rates depend not only on wholesale rates but also global funding costs.

Whatever happens, many of these homeowners will be rolling onto a much higher rate.

The cost of living and inflation are still impacting what house buyers can afford.

Kelvin Davidson

Corelogic Chief Property Economist

Some investors, as we start off the year, will be feeling a bit happier on the back of signalled government changes to tax deductibility. It will mean a bit more of a positive vibe.

While tax deductibility is coming back, 100 per cent doesn’t kick in for a couple of years. So even though these rule changes might add to the mood, when an investor actually sits down and looks at the sums, they are still going to have low yields and high mortgage rates.

Even with smaller tax bills, the high interest rates mean there will still be significant top-ups for many mortgaged investors. The two key things (interest rates and low yields) aren’t changing.

We might see some investors come back in terms of purchasing, but it won’t be a flood. When the rubber really hits the road in terms of doing the sums it’s still going to look a little bit tricky for most.

There’s a bigger picture too. Affordability is a big issue for the housing market, especially when higher for longer mortgage rates are factored in.

The popular one and two-year fixed terms are probably going to stay pretty high. Although Westpac pushed through some falls on longer-term three to five-year fixed rates, hardly anyone fixes for that long. In those really key shorter-term rates, it’s still a story higher for longer, so that’s going to keep some pressure on.

Debt-to-income ratios are still likely in the second half of next year in terms of capping the size of loans in relation to people’s incomes. That will be a restraint on the market, but it might not necessarily kick in straight away because interest rates are doing the job at the moment.

What it all amounts to is a pretty cautious outlook. The emerging upturn in sales volumes and house prices will continue.

However, sales volumes are starting from a low level, so even 10 per cent growth would still leave them low. And house prices might tick up 5 per cent, maybe a bit more, but it’s nothing like the sort of speed of upturns of the past. There is positivity, but still a lot of restraints.

Over the past three-and-a-half years what we’ve really seen is the key role of credit – the cost of credit and the availability.

After the pandemic mortgage rates collapsed and house prices surged. Then the correction kicked in – mortgage rates soared higher and house prices fell. It shows the key role credit plays over shorter horizons, especially for investors trying to get mortgages now. It’s expensive and, at the same time, rental yields on property are quite mean.

It’s partly to do with the Reserve Bank. Mortgage rates and the OCR play a role, but other things matter, such as loan-to-value ratios, the Credit Contracts and Consumers Finance Act (CCCFA), psychology and banks’ mortgage serviceability rates. Until mortgage rates start to fall and people expect them to fall, the housing market will stay restricted.

The best guidance at this point is that mortgage rates won’t really fall significantly for a year or so at least.

Jen Baird

Reinz Chief Executive

What we are seeing and hearing is a level of confidence from members.

Agents across the country are seeing more activity – buyers and sellers feeling more positive about what the market is looking like post-election, although it hasn’t shown up in the numbers yet.

Fundamentally the property market is driven by interest rates, and the OCR staying at 5.5 per cent just adds a level of certainty.

The RBNZ has been clear about its expectations, and this certainly helps. People know what they’re dealing with – a cash rate that will stay high for a long period – and that impacts the property market.

Inflation and the cost of living are still big questions for people. And while house prices might have come down, the actual affordability equation has changed again, and not in favour of house buyers which, of course, is the point.

It always comes down to finance and that is expensive. Buyers are having to carefully weigh up how much they have, how much they can afford to pay, can they do it now, and does it make sense?

That said, we are in the warmer months, which are busier in real estate, irrespective of market conditions. We have seen sales prices levelling out and the general sense in the market is that the low point in this cycle is behind us.

Agents are handling more listings, so more people are making the active decision to sell. More people are at open homes, there are more multi-offers on properties, and more homes are being sold at auction.

There is a sentiment element to this. People are feeling more confident and actually thinking maybe now is the time to have a look around and see what’s happening. Some of that is moving into sales, but we know there is a certain level of activity that happens in the market anyway – from downsizing, retirement, and moving for a new job.

Those people are in the market, irrespective of conditions. Life happens and a property transaction happens because of that. People are not waiting around for the market to be perfect.

An interesting point is vendors are not selling before buying. A couple of years ago things were moving so quickly buyers would need to sell and have that money available to buy unconditionally at auction, and even if it was not being auctioned the property would sell quickly.

Now buyers can make a conditional offer that includes selling their house as we are in an environment where they have a little bit more power and more ability to call the shots.

The market feels more balanced than it has been for some time.

Tony Alexander

Independent Economist

Immigration will have a significant impact on the housing market this year.

I’ve been talking about this for quite some time in the context of initially the upward pressure on rents, which the Reserve Bank mentioned several times in in its last Monetary Policy Statement.

Over time immigration acts as an incentive for young people to move out of tenancies and into owning their own property. We are not talking about migrants buying properties, but it becomes more expensive for other people to rent, and the lack of rental property is an increasing problem, so more first home buyers are looking to make a purchase.

But the key thing is going to be when people start more deeply debating the migration surge, particularly when they realise what it means for housing pressures. I don’t think we’re there yet, but in Australia they are in the middle of a big debate about housing pressures from record net migration inflows.

When that debate comes to NZ at some point in 2024, it will act as quite a motivator for investors to re-enter the market.

However, they will not come back into the market in great numbers next year – not until interest rates start falling. Looking at my latest survey of real estate agents there is no evidence of a frenzy and no evidence of investors going back wholesale into the market.

They are re-entering, but there’s definitely no fear of missing out (FOMO). Much of the reluctance is simply because interest rates are too high in combination with rising costs for insurance, council rates and maintenance.

As far as falling house building goes, changes the coalition government is proposing (repealing the Resource Management Act and providing some undefined financial incentive for councils to accelerate construction) are not really going to make a great difference to the market.

These are things that may have an impact over a 10 to 20-year period, but in the immediate future it’s not going to offset still falling house production.

And, of course, the opposite is the incentive for investors to buy with the return of interest expense deductibility far earlier than expected. And even though it’s only 80 per cent deductibility starting from April 1, for many people 80 per cent is as good as 100 per cent. Frankly, waiting an extra year for the extra 20 per cent is pretty meaningless.

I expect house prices to rise 10 per cent next year. There is definitely more confidence coming in terms of expectations, but what I also find is a lot of people have decided, OK, we’ve had an election, the world is not so good, Christmas is coming, let’s go sit on the sidelines and come back in late January or February. Rather than feeling that they immediately need to move, buyers are looking to go on holiday for a couple of months.

Rents have been rising 8-10 per cent per year.

David Faulkner

Property Brokers Property Management General Manager

With property management regulations pending, more rentals will be professionally managed by fewer companies.

Costs and the pressure of regulations on smaller companies will mean the industry is dominated by bigger companies. We are starting to see this already. Several smaller companies are starting to sell up and bigger companies will take them over.

That doesn’t mean boutique property management will disappear; it just means there will be fewer of them. The bigger companies will have more resources in terms of training, with some using external training providers.

Across the board, property management knowledge has to improve as managers are dealing not only with the Residential Tenancies Act, but also the Human Rights Act, the Privacy Act, Consumer Guarantees Act, Building Act, and Health and Safety Work Act.

People are starting to take property management seriously as a career. Every day is different, it can be stressful and challenging, but it’s also rewarding and has a creative purpose.

Automation will help property managers. There are a lot of repetitive tasks in property management that can be automated, and it will enable them to manage more comfortably.

For example, Property Brokers is looking at rent arrears being automated using software. A property manager is still responsible, but the software does the task rather than the manager.

Already, 360-degree inspections for entry have been introduced. This saves on average about 90 minutes of a manager’s time and creates greater transparency for a landlord.

With automation managers can start handling more properties. The bigger companies have an advantage when it comes to the use of artificial intelligence because they have more data, and with that data they can make better decisions and predictions.

For example, Property Brokers can predict better how much money a landlord is going to have to spend on a particular type of property. That’s where AI will come into play, but it still needs a human to do the negotiating.

Rents have been on a steep rising curve and increasing at 8-10 per cent a year. It’s not sustainable for property managers and landlords to keep increasing them at those levels because ultimately what dictates rent is what people earn and what they can afford.

Big rent rises have occurred because they have been steep in Auckland, which makes up a third of the rental market, and provincial NZ has been catching up. In my opinion rent increases could probably drop to about 4 per cent a year over the next 12 months.