Despite the dampening effect the pandemic has had on the global and local economy, the housing sector has managed to thrive. Even with the country likely to dip into another recession in 2021, NZ is experiencing the highest housing boom in 20 years with a record share of properties being snatched up at record-setting prices.
House prices are currently 19% higher than the same period last year while the availability of houses for sale has dropped by about 17%. Though last month saw a slight fall in sales figures compared to previous months, they remain higher than other January sales figures for the last 17 years.
The Reserve Bank has acknowledged that the housing market may require correction and that it would re-introduce loan-to-value ratio (LVR) rules. LVR restrictions were eliminated in April 2020 to avoid hindering Covid relief measures. They are now expected to return into effect in March 2021.
These rules will have property buyers make larger contributions for deposits. Investors will be expected to put down a deposit of at least 30% from March, with another hike to 40% from May. From May, banks will only be able to disburse 5% of their lending to borrowers with less than 40% deposit.
Most owner-occupied buyers will have to raise a 20% deposit. Lenders are being restricted to offering no more than 20% of their new lending to owner-occupier borrowers with less than this 20% deposit. So even with the benefit of low-interest rates, borrowers are likely anticipating more difficulty in securing mortgages from next month.
According to the Real Estate Institute of New Zealand (REINZ), NZ housing prices rose by $130,000 since Covid started. Median house prices rose to $749,000 in December 2020, compared to $628,000 a year before. Record median prices were reported in January 2021 for areas like Wellington that reached $792,000, Carterton at $700,000, and Kapiti Coast at $860,000.
The housing shortage, coupled with high demand, has made it even harder for first-time buyers to climb the property ladder. Industry experts are advising first-time buyers to be more flexible in their expectations. They recommend not considering this first purchase as a dream home, but rather a stepping stone to their ambition.
While PM Jacinda Ardern has admitted the housing price growth is unsustainable, former Reserve Bank governor Don Brash claims she wants the prices to keep rising, albeit at a slower pace. The government’s decision to restore LVR restrictions may however help by making it harder for investors to buy into the property market, increasing the stock of available homes for first-time buyers to bid on.