New Zealand’s government is targeting home investors to slow price growth and it may be working. Reserve Bank of New Zealand (RBNZ) data shows the share of home buyers that have at least one other home. Immediately after the Government announced they’ll target investors, many quit the market. It’s only been a few months since the changes were made, but there is a sign it’s working. After 15-months of consecutive price growth, it’s finally beginning to decelerate.
New Zealand Has Been Trying To Destroy Speculation Incentives
Over the past year, New Zealand has worked to eliminate investor incentives. Removing mortgage interest deductions for rental income is one of the biggest changes. This instantly makes it less profitable to own property. Implementing capital gains exemptions and tightening leverage were also thrown at them. The goal is to drop any advantage property has as an investment and divert it to more productive areas.
The measures were first announced in March of this year, warning more are coming. That also happens to be when the investor share of the market peaked. Since then, the share of investors has continued to fall. It’s taken a while, but home prices are now beginning to see growth slow. We’ll circle back to that in a minute.
Auckland Real Estate Is Seeing Investors Drop Out of The Market
Auckland real estate investors have pulled back on their share of home purchases. Investors represented 32.5% of the three-month moving average of buyers in August. This is a significant decline from the most recent peak of 37.4% hit this past March. It’s actually nearly 3 points lower than the average over the past 7 years.
Share of New Zealand Real Estate Purchased By Investors
The share of New Zealand home purchases where the buyer owned at least one other property. Monthly data is a three-month average.
Source: Reserve Bank of New Zealand; Better Dwelling.
The Share of Investors In New Zealand’s Market Is Falling Fast
Data for Wellington, Canterbury, and the Rest of New Zealand show similar trends. Wellington real estate investors only represented 27.8% of buyers in August, down from 34.2% in March. Canterbury investors fell to 28.7% of buyers, down from the 32.4% peak in April. Investors in the Rest of New Zealand fell to 29.4% of buyers, down from the insane 38.4% peak hit in March.
New Zealand Home Price Growth Tapered For A Second Month
It’s too early to see the full impact of the changes, but it might already be slowing the market. The Real Estate Institute of New Zealand’s House Price Index (REINZ HPI) shows growth is slowing. Annual growth fell to 29.9% in October, slipping for a second consecutive month. The growth rate had peaked at 31.1% in August, following 15 consecutive months of acceleration. It’s far from a crash and is very fast home price growth. However, it is breaking a strong trend.
REINZ House Price Index Change
The 12-month change for the indexed price of a home in New Zealand, according to the Real Estate Institute of New Zealand.
Source: REINZ; Better Dwelling.
Monetary policy measures tend to take 12 to 18 months for an asset market to fully reflect any changes. It doesn’t take long for a buyer to stop purchasing. If they hear an announcement targeting them, they might step back and see what happens. That’s not the case with all buyers though.
The average person tends to take a little longer to realize the change has been made. When you have an exuberant home buyer with limited inventory, it’s hard to notice if others pull back.