How would a National win affect the property market?

National have promised to increase the country's housing supply and improve affordability if it wins the October 14 election.

"New Zealand is desperately short of houses. We are not short of land, but a broken planning and infrastructure funding system has artificially constrained housing growth, contributing to New Zealand’s status as one of the least affordable housing markets in the world," according to National.

National’s housing plan involves:

• Building more housing – by unlocking land for housing inside and around cities, simplifying housing planning rules, making resource consents for houses cheaper and faster, and increasing competition in the building materials market.
• Improving the rental market – by restoring interest deductibility, taking the bright-line test back to two years, unlocking build-to-rent as an asset class and changing tenancy laws to incentivise landlords into the market.
• Increasing social housing – by helping the community housing sector grow.

National would also partially repeal the ban on foreigners buying local real estate, by allowing them to purchase properties valued above $2 million if they paid a 15% buyer tax.

Interest deductibility, bright-line test and foreign buyers

CoreLogic Chief Economist Kelvin Davidson said National’s planned rule changes around interest deductibility, the bright-line test and foreign buyers would impact the market, but not fundamentally.

Mr Davidson said the reinstatement of full mortgage interest deductibility over a phased period – 50% in 2023-24 and 2024-25, 75% in 2025-26, 100% in 2026-27 – would encourage more people to buy investment properties but not “open the floodgates”.

If the bright-line test were reduced to two years, from its current five or ten, this would attract more investors into the market due to “the reduced risk of having to pay capital gains tax if they needed to then sell within a short horizon”, according to Mr Davidson. Reducing the bright-line period would also generate sales activity among some current investors who were struggling with cashflow but didn’t want to sell because a large capital gains tax bill would be even worse. “If they suddenly found themselves off the hook for that bill, some extra listings and sales could follow soon after,” he said.

Mr Davidson said partially reopening the local real estate market to foreign buyers would affect few properties, given that just 3% of the market was valued above $2 million. “Then again, the shorter bright-line test would add some appeal, and there may also be greater effects in areas that we already know are popular with foreign buyers, such as Queenstown where about 10% of properties are valued at $2 million-plus. The extra demand could just exacerbate the shortages of stock at ‘affordable’ prices that already exist.”

What a National government would mean for prices

“Overall, if National won the election and made these policy changes, the reduced incentives to buy new-builds (although the LVR system would still tend to favour them because of lower deposit requirements) would tend to see demand rise for existing properties relative to new stock – with associated price effects. Indeed, there is some evidence to suggest that a new-build premium has opened up a bit in recent years, which could then go into reverse,” Mr Davidson said.

“More generally, the combined effect of the changes could result in higher house prices than otherwise would have been the case, but perhaps not to a significant degree in aggregate. After all, affordability is still stretched, rental yields low, and mortgage rates high. Caps on debt-to-income ratios remain on the cards for 2024 too.

“All that said, however, there’s always the risk of adverse consequences, and a stronger price effect couldn’t be totally ruled out, especially if foreign buyers targeted a market such as Queenstown.”