The ANZ Bank expects tightening housing data to mean a 3 per cent-plus pick-up in house prices and higher rents through the rest of this year, eventually petering out.

While there are still plenty of headwinds facing the housing market, the bank says tailwinds will blow a little more strongly across the second half of the year.

Mortgage rates are higher, but household incomes are looking resilient, and net migration, while easing, is still startling, says Sharon Zollner, ANZ’s chief economist.

“A quick look over the neighbour’s (Australia’s) fence suggests upward pressure on rents could result from the migration surge.”

While higher rents will boost property yields, investors are likely to remain on the sidelines until the future of the tax deductibility policy and bright-line tests is clearer.

Macroprudential LVR restrictions also remain tight for investors, and ANZ’s modelling suggests these are powerful, she says.

Income Growth

Zollner says there are many parallels to draw to the New Zealand rental market. “With a rapid surge in migration occurring at a time new housing supply is easing, we expect to see rent inflation remain elevated next year.” Strong household income growth is also likely to underpin the pick-up in rents, enabling landlords to pass on higher costs.

In Auckland, notably, rents for new tenancies are rising at 6.8 per cent year-on-year, although some of that pick-up may reflect the impacts of Cyclone Gabrielle. “That will take some time to flow through to the stock measure, however, which tracks the CPI measure more closely. We expect to see pressure on rents build into next year.”

Overall, Zollner says the bank expects a brief flurry, driving its expectation of a 3 per cent lift in house prices in the second half of the year, before things peter out again.