NZ tries to rein in its runaway housing market. Will Australia follow?

author-avatar By on March 24, 2021
NZ tries to rein in its runaway housing market. Will Australia follow?

New Zealand is phasing out tax loopholes and has increased capital gains tax on investment properties, while building a slew of new residential dwellings.

The sweeping changes came on Tuesday, with the biggest features of the policy including investors not being able to claim mortgage interest as a tax deduction against rental income, and a tightening of the 'bright line test' criteria, or capital gains tax (CGT).

New Zealand's tax deductions for mortgage interest is similar to Australia's negative gearing, except here investors can claim a tax deduction against all sources of income, rather than just rental income.

The policy will apply to all investment properties in New Zealand (except for new builds) purchased on or before 27 March.

Over the next four years, deductibility will be removed for all existing investment properties, whittled down to:

  • 75% claimable by 1 October 2021
  • 50% claimable by 1 April 2023
  • 25% by 1 April 2024
  • and 0% by 1 April 2025.

For capital gains tax, the 'bright line test' has been extended from five to 10 years for existing dwellings, meaning profits on the sale of properties within a decade of buying could be hit with a tax of up to 39% - New Zealand's top marginal income tax bracket.

New builds maintain the five-year rule.

In addition to changing the tax framework, the New Zealand Government has also put NZD $3.8 billion towards building new houses, while also increasing income thresholds on first home owner grants and loans. 

New Zealand Prime Minister Jacinda Ardern said these policies will deliver a more sustainable housing market.

“This is a package of both urgent and long-term measures that will increase housing supply, relieve pressure on the market and make it easier for first-home buyers,” she said.

“The housing crisis is a problem decades in the making that will take time to turn around, but these measures will make a difference.”

These changes come after a new remit to the country's Reserve Bank (RBNZ) policies, to target housing sustainability.

In the new remit, RBNZ, which also acts as prudential regulator, recently put a throttle on residential lending in an effort to curb rapid house price rises.

From 1 May:

  • LVR restrictions for owner-occupiers will remain at a maximum of 20% of new lending at LVRs above 80%.
  • LVR restrictions for investors will be further raised to a maximum of 5% of new lending at LVRs above 60%.

This means that most new owner occupiers in New Zealand need a 20% deposit and most new investors need a 40% deposit.

See Also: Is Australia in a Housing Bubble?

Westpac NZ acting chief economist Michael Gordon pointed to some of the benefits and risks associated with these policies.

"This will significantly change the arithmetic for highly-leveraged investors, tipping the playing field in favour of owner-occupiers and cashed-up investors. We estimate that house prices could settle around 10% lower over the long term," he said.

"However, there could be much greater effects in the short term as some investors exit the market.

"We support the general direction of this move. We have been highlighting for many years that financial factors, including the tax treatment of property, are the major driver of house price movements.

"However, we think that limiting deductibility, rather than removing it altogether, would achieve the same purpose with a less disruptive impact."

Will Australia follow New Zealand?

Property prices across Australia rose 3.6% in 2020, a year when many economists predicted price falls of anywhere from 10% to 30%. 

According to the Real Estate Institute of New Zealand (REINZ) house price index (HPI), values increased 21.5% year-on-year to February.

"The importance of the HPI is well highlighted by the Wellington Region this month. The median sale price increased 24.0% since February 2020, a good-looking result but ‘only’ the eighth highest year-on-year result of all 16 regions," REINZ chief Bindi Norwell said.

In Auckland, the house price median sits at NZD $1.1 million while the nationwide median is $665,000.

According to the 2021 Demographia International Housing Affordability report, Auckland is the 6th least affordable city for housing in the world. 

New Zealand's statistics department indicates that the median full-time weekly wage is NZD $1,189, versus Australia's AUD $1,711.60.

Investors are also a much bigger subset of buyers in New Zealand, with 40% of sales in the December quarter going to owners of multiple properties.

In contrast, Australia's investment space has been subdued, with investors making up less than a quarter of the value of loans written in January according to the Australian Bureau of Statistics (ABS).

Investment expert Peter Switzer said it's unlikely in the near term that Australia will put a clamp down on property speculation.

"Price rises so far haven’t been all that huge and anyway - RBA Governor Phil Lowe wants our house prices to rise to help rescue the economy," Mr Switzer said.

"It means we have time before APRA does a 'Soup Nazi' (to quote Seinfeld) and make banks say: 'No loans for you!'" 

Mr Switzer predicted that Australia's prudential regulator APRA won't force its hand "until 2022 at the earliest". 

"The Kiwis have a bigger property price problem. And we know our RBA boss Dr Phil Lowe wants a booming economy. That’s why he’s virtually promised to keep interest rates around these levels until at least 2023," he said.

"When our houses are more expensive, we feel wealthier and we then spend more and help create more jobs. Dr Phil wants a tight labour market to create higher wages. And that’s when he’ll say ‘let rates start rising’."

An RBA discussion paper released yesterday found "excessive household debt can weigh on household consumption".

Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.

Lender
Advertised rate Comparison rate Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval
VariableMore details
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
VariableMore details
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
VariableMore details
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • Refinance only. Fast online application
  • No Nano fees. Free 100% offset sub account
  • Mobile app, Visa debit card & instant payments
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • Refinance only. Fast online application
  • No Nano fees. Free 100% offset sub account
  • Mobile app, Visa debit card & instant payments
VariableMore details
YOU COULD WIN $100k TO PAY DOWN YOUR LOAN*

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • For a chance to win $100K towards your home loan, apply with Athena before Oct 31 & be approved by Dec 15
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
YOU COULD WIN $100k TO PAY DOWN YOUR LOAN*

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • For a chance to win $100K towards your home loan, apply with Athena before Oct 31 & be approved by Dec 15
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
VariableMore details
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^

Rates correct as of October 23, 2021. View disclaimer.


Photo: Jacinda Ardern sworn in as Prime Minister of New Zealand, 2017. Source: Governor General NZ on Wikimedia

Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

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author-avatar
Harrison is Savings.com.au's Assistant Editor. Prior to joining Savings in January 2020, he worked for some of Australia's largest comparison sites and media organisations. With a keen interest in the economy, housing policy, and personal finance, Harrison is passionate about breaking down complex financial topics for the everyday consumer.

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