Kieran Trass is a property market and property cycle analyst of local and offshore property markets (for over 20 years) and has authored several books on the specialised topic of the property cycle, both in New Zealand and Canada.
Optimism Around Housing Policy Has Faded
When National came to power, there was optimism about their potential to influence housing and rental property supply to meet the increased demand from migration.
Their policy to reinstate interest deductibility was a helpful step, but on its own, it is inadequate to solve the looming housing crisis. That early optimism has now rapidly faded.
The Growing Housing Shortage and Investor Struggles
While New Zealand benefits from strong net migration, migrants must be provided housing at a reasonable cost. However, current policies are discouraging property investment, leading to less rental stock.
The average small-time property investor is struggling to make the numbers work, largely due to the ring-fencing of property losses, which prevents them from offsetting losses against other income.
The outlook for rental supply is set to deteriorate further when Debt-to-Income (DTI) restrictions are introduced by the RBNZ.
The Impact of Suppressing Property Market Cycles
The National Party must plan to meet surging housing demand, or rents will rise rapidly due to the looming rental stock shortage.
Kieran's property cycle research has shown that the market is now artificially suppressed, preventing property prices from responding naturally to supply and demand.
Additionally:
The cost of construction has skyrocketed due to increased regulation and material costs.
The stagnation of property prices is making it uneconomical to bring new builds to the market.
Property sales volumes are at historically low levels, similar to the early 1990s, despite a 45% increase in population.
This imbalance between supply and demand is expected to cause major volatility in both rental and property prices.
The Danger of Suppressing Property Sales Volumes
The extremely low level of property sales volumes seen over the last few years is unsustainable.
Consider this: Our population has grown by 45% since the early 1990s, yet today, property sales volumes remain shockingly similar to those seen during a deep recession.
"The longer people's ability to buy a property is suppressed, the more extreme the surge of sales volumes (and property prices) will be when that suppression loses its impact—and it always does, sooner or later."
Key Policy Changes Needed to Stabilise the Market
To reduce the looming property market volatility, urgent action is needed:
Remove ring-fencing of property losses – This will help Mum and Dad investors contribute to solving the rental shortage.
Curtail RBNZ’s overreach – DTI restrictions will further disrupt supply and demand and could have serious negative consequences.
End excessive market intervention – The property market is naturally cyclical, and attempts to regulate it too heavily always lead to disaster.
A Smarter Approach to Housing Policy
A sensible Government would not try to curtail all property price growth or manipulate the market indefinitely in an attempt to make all housing affordable.
Instead, the smarter approach would be to direct resources toward first-home buyers while allowing the rest of the property market to operate freely and cyclically.
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