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Leap In Housing Stock Value

Leap In Housing Stock Value

The country’s housing stock has grown to a massive $1.39 trillion, skyrocketing almost $200 billion in the year to December, despite the pandemic.

By: Sally Lindsay

1 May 2021

Reserve Bank data shows the combined value of residential properties rose from $1.19 trillion in December last year.

Housing stock includes all private sector residential dwellings – detached houses, flats and apartments lifestyle blocks (with a dwelling), detached houses converted to flats and home and income properties.

By comparison, the country’s annual gross domestic product (GDP) is $322 billion.

The growth in the value of the country’s housing stock shows no signs of slowing down.

Data from the CoreLogic House Price Index (HPI) shows the upwards trajectory of house prices continued through March, rising 2.2%, taking annual growth to 16.1% – the highest rate since January 2006.

This prolonged period of rising prices provides a backdrop to the Government’sdecision to extend the bright-line test to 10 years and to remove the ability for property investors to deduct their mortgage interest from their tax returns.

The policies have been met first with shock and then with a mix of relief for would-be first home buyers, concern from renters, and criticism from property investors.

This has led to a discussion on whether the cost will be passed through to tenants, via rents, and also whether the change will result in investors withdrawing from the market, which could also worsen the state of the rental market.

Previous CoreLogic analysis has shown tenant income acts as an anchor to rent increases, with landlords often unable to pass on increased cost to their tenants. Low mortgage interest rates and the phased introduction of the interest deductibility removal will also lessen the immediate impact to current investors and therefore limit any major sell-off.

Investor demand for existing property will be impacted however, says CoreLogic and the ability for highly leveraged investors to both extend their portfolio and hold a high debt position has also dropped.

This might reduce the need for the Reserve Bank (RBNZ) to introduce limits on interest-only lending which were previously expected to be implemented in the near future.

Similarly, there will be less pressure on RBNZ to include debt-to-income ratio restrictions in their toolkit, once again as the interest deductibility proposal will naturally punish highly leveraged investors.