Home Prices: First-Time Home Buyers Big Winners in Housing Sector Shakeup

First-time home buyers are the big winners in a major housing industry shake-up that is tilted to reduce competition with deep-pocketed investors for coveted properties.

But rental groups fear that new measures targeting landlords will force rents up for thousands of the nation’s poorest families, putting home ownership even further out of reach.

A series of changes announced yesterday by the government are designed to address the country’s runaway real estate market.

They include:

• Extend the bright line test from five to 10 years, which means that those who sell a home other than their family’s within a decade will have to pay capital gain taxes.

• Removal of a tax exemption that allowed investors to claim mortgage loan interest repayments as a business expense.

• Invest $ 3.8 billion in a plan to accelerate the provision of infrastructure, such as vacant lots, for new homes.

• Allowing the Kāinga Ora housing agency to borrow another $ 2 billion to buy land for housing.

• Raise the first-home grant limits from $ 85,000 to $ 95,000 for individual buyers and from $ 130,000 to $ 150,000 for two or more buyers.

• Raise the price threshold for eligible homes by up to $ 100,000 in some parts of the country.

Prime Minister Jacinda Ardern argued that the changes would help more first-time home buyers enter the market by curbing the “rampant speculation” that was helping fuel the house price boom.

While some first-time home buyers could gain from reduced competition from investors, the new measures still did little to help other prospective homeowners save for a deposit, a group of buyers said.

Economists warned that the economy could be hit if investors sold or avoided buying rental properties entirely as a result of the tax changes, and both rental groups and the Real Estate Institute said the restructuring could create a rental shortage. , which would further increase rents.

Westpac economists are tilting home prices down as the changes have a “chilling effect on investor demand.”

“We estimate that house prices could fall about 10 percent in the long run,” said Acting Chief Economist Michael Gordon.

High house prices have defied previous predictions of a Covid-19-led slide to enter one of the biggest booms in the past two decades.

Auckland’s median sales price soared to $ 1.1 million in February, increasing nearly 25 percent year-on-year.

Domestic prices rose 23 percent to $ 780,000.

Much of the price boom had been driven by historically low interest rates.

The government changes were aimed at slowing price growth and slowing down investment activity.

National leader Judith Collins pounced on the brilliant line test extension.

He accused the government of breaking its promises after Finance Minister Grant Robertson scrapped tougher restrictions in September.

Nick Goodall, head of research with CoreLogic analysts, said the most influential change was the elimination of interest deductions on rental properties.

It meant that real estate investors could no longer claim home loan interest repayments as a business expense, a benefit that helped reduce their taxable income.

Andrew King, president of the New Zealand Federation of Real Estate Investors, said the government’s “crazy” shift had taken investors by surprise.

He said that the rentals often did not cover the cost of managing a rental property. If investors couldn’t offset that as a business cost, many wouldn’t be able to pay their refunds and would be forced to sell.

“When you have just purchased a rental property, the cost of the mortgage is the single largest cost to an investor. This will add a large amount to the cost of providing a rental property.”

However, Chancellor of the Exchequer David Parker said that investors’ ability to cancel interest repayments had led to debt-driven investment in residential properties being favored over more productive and more comprehensively taxed investments.

“To reduce investor demand for these investments, the government will eliminate the advantage investors have over first-time home buyers,” he said.

Matthew Gilligan, chief accounting officer for Gilligan Rowe & Associates, said the government was setting one rule for residential investment and another for all other businesses.

He said he was not aware of any other business where interest refunds could not be claimed as a business expense.

The government’s decision also went against its own Treasury council which opposed removing the tax exemption and recommended extending the bright line test to 20 years.

Ashok Jacob, a spokesman for Renters United, said the government package did little to help about a third of New Zealanders who rented.

“It is possible that rents will increase as a result of this. I am disappointed that the government has not addressed the concerns of that large segment of the population because it is more than a million people and growing daily.”

Lesley Harris of the First Home Buyers Club welcomed the moves to open up the First Home Grant to more people, but said small changes would benefit few buyers.

Those wishing to get the grant in Auckland, for example, needed to buy an existing home for $ 625,000 or less or a newly built home for $ 700,000 or less.

“Good luck finding that,” Harris said.

He said the biggest problem first-time home buyers faced was getting a deposit and borrowing from the bank.

Couple makes use of the First Home scholarship

Shontelle Hira and her husband Henare purchased their newly built home in Tauranga last year using the First Home Grant.

The couple found it difficult to find a home below the $ 550,000 Tauranga new-build home grant price cap of $ 550,000 and the looming $ 600,000 cap increase would have allowed “a bit of wiggle room.” Shontelle said. “There was really nothing left in that $ 550K pool that was new,” he said.

Shontelle worked for a developer, and when a buyer pulled out of a $ 550,000 new-build deal with her company, the couple stepped in to take over the purchase.

“For us in October, if that had been what we could have used, yes, it would have helped us tremendously because the house we got was the last package at that price in this whole area. Yes [the cap] if we had gone a little higher, we would have had a little more to choose from. “

He said it will continue to be tough for first-time home buyers despite the increase. “It’s better because at least [the caps] They have risen because that is the way the market moves, but it is far below. I couldn’t say anything to that price cap that a first-time home buyer could buy if they wanted to use [the First Home Grant]. “

“Reducing the appetite of investors will not fix that,” he said.

“You could say that it will make the rental market more difficult and therefore more difficult for people to collect a deposit together, as rents will potentially be higher.”