The New Zealand government is targeting real estate investors to slow price growth and it could work. Reserve Bank of New Zealand The data (RBNZ) shows the share of homebuyers who have at least one other home. Immediately after the government announced it would target investors, many left the market. It’s only been a few months since the changes were made, but there’s a sign it’s working. After 15 consecutive months of price growth, it is finally starting to decelerate.
New Zealand has tried to destroy incentives for speculation
Over the past year, New Zealand has made efforts to eliminate incentives for investors. One of the most important changes is the elimination of mortgage interest deductions for rental income. This instantly makes owning a property less profitable. The implementation of capital gains exemptions and the tightening of the leverage effect were also imposed on them. The goal is to remove any advantage of the property as an investment and divert it to more productive areas.
The measures were first announced in March this year, warning that more are to come. This also happens when the market share of investors has peaked. Since then, the share of investors has continued to decline. It took a while, but house prices are now starting to slow. We’ll get to that in a minute.
Auckland Real Estate sees investors abandon the market
Auckland real estate investors have reduced their share of home purchases. Investors represented 32.5% of the three-month moving average of buyers in August. This is a significant drop from the most recent peak of 37.4% reached last March. This is in fact almost 3 points lower than the average of the last 7 years.
Share of New Zealand real estate bought by investors
The share of home purchases in New Zealand where the buyer owned at least one other property. Monthly data is an average of three months.
Source: Reserve Bank of New Zealand; Better accommodation.
Investor share in New Zealand market is shrinking rapidly
Data for Wellington, Canterbury and the rest of New Zealand show similar trends. Wellington real estate investors made up just 27.8% of buyers in August, up from 34.2% in March. Canterbury investors fell to 28.7% of buyers, down from the peak of 32.4% in April. Investors in the rest of New Zealand fell to 29.4% of buyers, down from the insane peak of 38.4% reached in March.
New Zealand home price growth slowed for a second month
It’s too early to see the full impact of the changes, but it could already slow the market. The New Zealand Real Estate Institute (REINZ HPI) Home Price Index shows that growth is slowing. Annual growth fell to 29.9% in October, declining for a second consecutive month. The growth rate peaked at 31.1% in August, after 15 consecutive months of acceleration. It’s far from a crash and it’s a very rapid growth in house prices. However, it breaks with a strong trend.
Change in the REINZ house price index
The 12-month change in the indexed price of a house in New Zealand, according to the Real Estate Institute of New Zealand.
Source: REINZ; Better accommodation.
Monetary policy actions tend to take 12 to 18 months for an asset market to fully reflect any change. It doesn’t take long for a buyer to stop buying. If they hear an ad targeting them, they might take a step back and see what’s going on. This is not the case for all buyers, however.
The average person tends to take a little longer to realize that the change has been made. When you have a rambunctious home buyer with limited inventory, it’s hard to notice if the others are pulling back.