The Treasury has predicted annual house price growth will peak at 17.3% in the June quarter this year and take a deep dive to 0.9% by the June quarter next year – about half of the expected inflation rate of 1.7%. After that house price growth is expected to stay at about 2.5% over the next four years.

However, it has also warned if house price growth does drop it will dampen economic recovery. Finance Minister Grant Robertson says it is a sharp adjustment in house prices, but a necessary one.

New Zealand Property Investors Federation president Andrew King says it is difficult to predict what will happen with house prices as there are so many variables in the market.

He says if investors can’t find ways to deal with the increase in tax; if there is a brain-drain of middle New Zealand to Australia for better pay and no wage freezes; if interest rates rise; if more people emigrate to NZ when the borders open; all of these variables could have an impact.

“So, making any predictions about house price growth is futile,” says King. Also playing into the mix is the Government’s inability to increase housing supply and the Resource Management Act is a big part of this, he says.

“National first brought this up seven years ago and under the Labour Government it is going to take another four years to get any meaningful reform. If it had been dealt with at the time, instead of becoming a political football, there would be more houses built and the country wouldn’t be in the situation of supply not meeting demand.”

Westpac has adjusted its forecasts for house price growth and now predicts prices to flatten over the rest of this year and interest rate rises to push them down further by 3-4% a year over next year and the year after.

Policing Rentals

Also included in the Budget was $80 million over four years to police the Healthy Homes standards, fix the Tenancy Services bond centre and fund RTA disputes.

A $16 million allocation has been made towards monitoring the Healthy Homes standards. This will be used to increase the number of proactive investigations ensuring the benefits of raising the standards of New Zealand’s rental housing stock are realised.

The budget confirmed the Tenancy Services bond IT infrastructure is not up to scratch. For this purpose it allocated $18 million which will be spent on operating expenses and a further $20 million to improve the ICT system.

An amount of $41.4 million has been allocated over four years to replace “a non-controllable shortfall in bond interest revenue”. Previously the centre was funded by interest from bonds lodged by property investors, but the low interest environment has impacted funding for the bond service.