The NZ Property Market Podcast
Brought to you by cotality, formerly CoreLogic. Each week co-hosts Nick Goodall and Kelvin Davidson will bring you all the latest news, stats and insight to keep you up to date with everything to do with the NZ residential property market. Including sales volumes, house price indices, buyer activity, interest rates, loan-to-value ratio restrictions and all of the macro economic factors that influence our largest asset class. Contact us on twitter @NickGoodall_CL or @KDavidson_CL
The NZ Property Market Podcast
Housing policy if National won the election
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This week Nick and Kelvin quickly run through the latest CoreLogic House Price Index, which showed a modest fall at the national level, and patchy regional patterns - some areas up in August, some down. This patchiness may remain a feature in the coming months.
We then launch into a detailed discussion of how the housing market might look if National won the upcoming election - from a shorter Brightline period, to a softer foreign buyer ban, to interest deductibility, there's plenty to cover. Ultimately, house prices may receive a boost, but it might not be all that large - with mortgage rates still high.
Meanwhile, recent economic data, including filled jobs, the NZAC, and business/consumer confidence have all been encouraging.
And finally we finish with listener questions about DTIs - could National remove them from the Reserve Bank's toolkit? If imposed, would they actually do much?
Sign up for news and insights or contact on LinkedIn, Twitter @NickGoodall_CL or @KDavidson_CL and email nick.goodall@cotality.co.nz or kelvin.davidson@cotality.co.nz
Kia ora, and welcome to the New Zealand Properly Matter podcast brought to you by CoreLogic, produced by HSTV for the 4th of September 2023. I'm Head of Research in the Goodwill and I'm joined by Chief Economist Kelvin Davidson. Kelvin, happy Father's Day for yesterday, mate. How was your weekend? And welcome to spring, I guess.
Speaker 2:Yeah, thank you. Same to you. I actually had a wee bit of a bug over the weekend so hopefully my voice is coming across all right and will last the period of time for the podcast. So it wasn't the sort of it wasn't the greatest weekend. My wife was feeling a little bit under the weather as well, so hopefully, coming right now it wasn't too major. It's one of those milder things that we got. But I kind of changed the dynamic at Father's Day a little bit, got to say it was a wee bit of a sleeper and I got a new book to read. So as far as I'm concerned it was probably pretty good. But yeah, not quite the full on sort of me time and, you know, time away from the kids, even though it's Father's Day, time away from the kids probably is what people want, but so not quite as much of that as I normally would have liked. But however, you know, if this is life, so not going all right, how about?
Speaker 1:you, yeah, yeah, same sort of thing. Pretty cruisey weekend really. I enjoyed Father's Day yesterday. We had some great weather both days so, yeah, managed to even get on the new deck and have a beer yesterday afternoon, which was, which was quite nice. Had a mate in town. We went to a concert Saturday night but as we're all getting a bit older these days it's not quite the bigger night that you usually get.
Speaker 1:So I was feeling fine for Sunday morning and yet kids waking me up to give me their presence, and the wife I think it's a bit of an in-joke, a little bit but she got me a clothes steamer so I can iron my own shirts with a steamer rather than the iron. So a bit of a joke, I think, there, where I always joke about getting her a vacuum cleaner or something from other days. So she got me back on that one, plus a bit of chocolate and things from the kids. So that was all good. Mate certainly enjoyed it. And, yeah, the house renovation is getting very close. The carpeting is going in today, so that's very exciting. Looking forward to getting back this afternoon and seeing the progress there and being able to essentially move into the new area. So, yeah, it's all go mate. Certainly very good times and enjoying it nice one.
Speaker 2:Yeah, a beer on the deck in the sun in the spring, I mean, you know how good, how good, mate, it was perfect.
Speaker 1:And just before we do get into the podcast, of course the All Blacks and the World Cup starts this week, mate. It's a pretty exciting looking for that. The Wars are also, of course, got their semi-final on Saturday night too, so Plena's Sport will keep us busy, and you've got a lads weekend away, so it's probably all go for you this weekend too, mate yeah, yeah, it certainly is.
Speaker 2:Yeah, and I've got. I'm going to squeeze the radars on there somewhere too. That's Sunday afternoon, so I might be. I'll be back in Christchurch then. Hopefully by that time may not be a much more staying up late watching league, but we'll see.
Speaker 1:Here it goes indeed, and just like I asked Steve, I have to get your prediction. Mate. Are you back in the All Blacks to do it, or what?
Speaker 2:cool. Uh, gee, tough one. Um, yes, why not? Yes, I mean, uh, friends look pretty good, but I see they've got some injuries and you know some pretty pretty crucial players. Uh, I mean, yeah, 50-50, but I'll, I'll back back out there, certainly, certainly an open World Cup.
Speaker 1:So, uh, yeah, very much looking forward to it, and that's going to be some tasty match-ups in these ball games too. So, yeah, I'm sure there'll be a topic of conversation plenty over the next few weeks. But uh, let's get into it, mate. Um, we're recording a little bit later today. I've been up and back to Parmy already and presented to the Property Institute crew up in Parmy North, so that's been a decent morning. But, uh, plenty of data for us to run through today. First, of course, we did have our house price index out last week for August. Um, I mean my main summary taken from your release that you, you sent out minor fall of the national level, but, as you wrote, like it's kind of hid, what we're calling a second month of recovery in some of those key markets, particularly around Auckland and Wellington. Was there any key things you want to focus on there, any questions that you had or any kind of angles that you want to touch on today?
Speaker 2:yeah, not too much. In addition, and like you say, it was the, uh, there was a pretty small fall at the national level 0.2%. Getting closer to that, that floor probably on on our index. Some key markets here showing not sustained, there's not the right word, but but I guess the start of a more consistent increase was that North Shore and Madicac are up two months in a row, upper heart, wellington city that's two months in a row as well. Christchurch saw an increase in August.
Speaker 2:So yeah, there's, there's some of those key markets going up. You've got to acknowledge some other markets still going down and there's this patchiness that we're seeing at this sort of turning point, I guess you call it. But also I suppose my message really was that you know we're seeing patchiness now every chance that patchiness continues, because there were still got, you know, still high mortgage rates. There's a bunch of restraints on the market and certainly the high mortgage rate seems to be key one. So, yeah, small fall at the national level, but the national average hides regional differences and some markets up, some markets down and expect patchiness to remain.
Speaker 1:So that was pretty much the discussion I had with lots of people yeah, I think, like we just keep driving home that point right, that patchiness will be something that's going to be a feature of the market for a wee while even these markets, which have seen a couple of months of growth, might well fall back into a slight negative next month, like, who knows? We're just going to see this, this rockiness, I think for a little bit, and it will differ region to region. So I think, in terms of setting expectation, that's kind of where I'm continuing to talk to people about and certainly, you know, made that message clear when I present this morning as well. So I think if we we sort of leave it there for now, continue to watch these and I know there's differences, you know, not just at the, you know city level or whatever. There's differences by suburb 2 and and of course we'll have our mapping, the market release out, probably next week, so we'll talk about it when that comes out. But that goes right in that suburb level 2 where we see a bit even more micro level changes over time to some short spend time, you know, throughout the rest of this year focusing on some of those differences. But let's move away from from the House price index data. I'll put the link to the release as well. So the details are there.
Speaker 1:I hope you people saw the coverage. There was plenty of it and it wasn't a mingle with some coverage, of course, along the lines of the national parties announcements on some of the planned tax changes that they'd make if they win the election. Now I don't quite know where you want to start. The key thing on my mind since this has been has been, there's been one thing we could at least try and quantify and put some figures around, and that's really how I'm struggling to to buy into the potential tax revenue they mentioned for that foreign buyer tax, which of course was any sale to a foreign buyer above two million dollars, that they tax it at 15% on purchase, of course removing the foreign buyer band above that level of two million dollars, but using that as a tax gain to then offset some of the some of the tax returns they could make to people or tax cuts they can provide.
Speaker 1:Um, maybe I'll get into that shortly, but I wondered, maybe if you want to kick us off with some of the actual detail of the proposals. There's sort of three or four things to probably touch on. Of course, you know, as you've probably pointed out, I saw in your internal communication this morning. It doesn't matter if they don't win the election. Of course so, but given the way that things that look like they're shaping up it's, it's more likely than not. So it's worth paying attention to, and a broad section I think you know is that it's probably going to provide a bit of a bump to demand, as we expected. You know they're more favorable for more investment in the property, but um, yeah, take us through some of the detail and then maybe I can get on my numbers and stats to really pick some holes into these foreign buyer tax figures.
Speaker 2:Yeah, I mean, that's something that I've been pretty keen to stress is that you know, it matters nothing if National don't actually work. I think we've got to keep that in mind. But I've got to say, the way that people have asked me the questions, or the way that the journalists have asked, you know, what will this mean? What will this mean? They're just taking it for granted that the National is going to win. So, again, I think it probably just supports what you feel. But even if the polls aren't quite showing that sort of this people just some people, not saying it's everybody but it does seem to be this default assumption that they will win and these challenges will come in.
Speaker 2:So I've just been keen to point out maybe, but maybe not.
Speaker 1:So that's sort of the first point.
Speaker 2:But, yeah, if they do one, well then there was really three things that they talked about last week and a lot of them had been signaled. You know that we kind of speak a little about it, but shorter, bright line test for all properties whether a new bill, to existing, from July 2020 before. So shrink it down from 10 years or five years, depending on the total property, down to two years for all. So it means anybody who bought before July 2022 won't have any capital gains tax. If they have made a capital gain, there'd be no tax on that for anybody who purchased before that date. So so, yeah, pretty, pretty big change. It also allowing foreign buyers back into the market at that $2 million plus bracket with a 15% purchase tax associated.
Speaker 2:So that was something that I guess, yeah, there'd been some speculation about softening the foreign buyer ban. I guess the details hadn't quite been released, but interesting to see that. And then, yeah, the long signaled reinstatement of more interest deductibility phase. So it's going to be a phased approach. It's not just bang overnight if they won the election, it's all back in, going to take some two or three years to come back and they're saying it'll be 100% deductible again from April 2026. So that'll be for whether you've got an existing property or a new build.
Speaker 2:So yeah you know, we kind of speculated about all these things. They've been out there for a while but just getting the details was the new thing, I suppose. So yeah, interesting, interesting set of possible policies.
Speaker 1:Yeah, and I think even more to your point about having to win the election. I guess there's always a chance that if they had to form a coalition, they have to negotiate some of the policies that would or wouldn't go through, and there's always a chance that, depending on who they have to have a coalition with, they might have to forego some of these things too. So a lot of water to flow into the bridge. Yet I'm sure ACT won't stop them doing these ones, I guess. But if they had to form a coalition with a third party or something, it might be quite interesting. So I think you're right to keep ensuring that people understand that. But the detail is still worth looking into. And the one around the taxes. I really just wanted to look at the numbers, right, and that was the key question. People said how many sales went to foreign buyers or how many properties sold for above $2 million. So I thought it's worth just teasing out some of those figures to give a bit of context as to what we're talking about here, and then they might cast some doubt as to the possibility of these things. But the couple of stats I ran through was that in the last year, so the year to the end of June 2023, the most recent sort of complete year to the end of June, there were 2,600 sales of residential properties above $2 million nationwide. So if you assume 5% of those went to foreign buyers, if the ban wasn't there, and remembering that prior to the ban, about 3% of all sales went to foreign buyers, so that would be a lift in activity from foreign buyers, although, again, I guess foreign buyers are probably more active at the higher end, so maybe prior to the ban they were already picking up 5%, maybe more, in certain markets. If you assume 5% of those 2,600, at an average price of $3 million, which is the average sale price of those properties above $2 million, they'd give you $60 million, which is well short of that $740. And then I thought, well, okay, if you say well, last year is not normal. There are very few sales. Of course that occurred across the board. What if we look back to a more active year and the year prior to that? So in the year to the end of June 2022, there were 5,700 properties sold above $2 million. Again, the average price was $3 million of those properties. And if you assumed even increasing that to 10%, 10% of those properties are sold to foreign buyers. That's 570 sales. That would give you 260 million. So again, you're still only a third of the way to that $740.
Speaker 1:So it's really hard to understand where their figures are coming from. I did see some interviews and hear some interviews over the weekend where Nicola Willis was saying they've assumed 2,000 sales to foreign buyers and that's basically the level you would need 2,000 sales at 2.9 million, which is their figure. Where they got that from I'm not sure, but it's there or thereabouts. With the average Then that would get you to that $740. So that's a massive lift in sales to foreign buyers. And I guess that that means they're saying, without the foreign buyer band there, that we'd actually see an increase and people would see us as an attractive place to come and buy properties. And I suppose my only query with that one is if you're expecting it to essentially encourage people to bring their money here, that's fine. They talk about, yes, you might buy residential property that might assume that you then come and live or you have a base here so you might then invest further capital into the country. So I guess that's the thinking on it.
Speaker 1:I suppose the concern I've got is that if it was to a market like Queenstown where there's not that many properties. For the people that live there. It is very expensive. When you look at the total stock of properties in Queenstown, 10% of all properties in Queenstown are worth more than 2 million. Nationwide it's about 3% and in Queenstown it's 10%. Have for large chunk of those good goods sold to foreign buyers and they don't always go and live in it or they don't tend into it because they just want it as an investment and maybe to visit once, twice, three times a year or whatever. Does that take property off the market for other people to live in, buy or sell or rent, sorry? At which point then the rest of the stock? There's more pressure, the supply is relatively low, and so you see greater growth in the market like that as well, which could be similar for other more expensive markets around the country. So that's the other thing I wanted to point out was that while you talk about, this will affect the market above $2 million, but the rest of the market should be unaffected. We're first home buyers.
Speaker 1:I think it's probably common sense to say there's still going to be some flow on to the broader market as well. There has been a question around what does that do to that value range 1.8 or whatever? Plus pushes those up because you get to the $2 million market and suddenly your market of buyers increases too. So that starts to stretch that market up as well. So I do think we need to recognise the potential impacts of this thing outside of whether it actually raises the tax revenue also the potential impact on the broader market as well, which could be there.
Speaker 1:So yeah, I think there's a few things I just wanted to throw out. There certainly cast a little bit of doubt on the figures that are going in here and that's something we can do because we can get the figures and whether that maybe affects people's assumptions of some of the other work that's going on here too. And just before I pass on, I think, the 3% of all properties, that equates to 50,000 properties nationwide that are currently worth more than $2 million. So that's the sort of pool of properties we're talking about here relatively small lots on the grand scheme of things, 50,000 of whatever 1.6, 1.7 million properties nationwide. But there could be some flow through to the other parts of the market. So you're not sure if there's anything else on that that you wanted to talk about or any other detail you want to do before we get into the sort of economic ground up.
Speaker 2:Yeah, just a few points around some of these things in general and the foreign buy-out side of things. You'd have to say all our sequel, and it's going to be more money in the New Zealand property market than otherwise You'd think at the moment if you're not Australian or Singaporean you can't buy at all. So softening it, even if it isn't that upper tier of the market, is going to add a bit more demand. So you'd think that's probably at the margin, going to have a bit of upward influence on prices, regardless of how many come, you know, over 100, 200, 2000,. Who knows? That's a big uncertainty, but at the margin it's going to add a bit of demand. So potentially some upward price influence from that foreign buyer thing.
Speaker 2:Brightline, yeah, there's been a lot of emphasis, I guess, naturally on the buying side of things. You know, sweet, I can only have a two-year brightline test. I'll bring forward my investment purchase and that makes sense. But also for me, I guess, just not forgetting about the selling side of things, there's going to be people out there now and investors maybe, with some strain on their cash flow for sure, and thinking, gee, well, actually, if I sold, though, that would be far worse because I'd have to pay a $70,000 or $80,000, whatever it is capital gains tax bill. So certainly if that gets wiped out, well, actually there could be some selling bought in because you're struggling with cash flow but you were holding on because you didn't want to make the thing even worse through paying capital gains tax. Well, perhaps you do start to sell. So, a bit of buying, a bit of selling, you know that the influence on prices there might not be all kind of one way.
Speaker 2:And then, yeah, around deductibility, we've been saying we've probably talked about it last week, probably talked about it for a few weeks in a row, just that, you know it might change the mindset to some people, might change the actual sums for some people, bring back deductibility, but certainly for existing investors that's going to result in a smaller tax bill, so that's going to be good for them. For those people looking at purchases though you know might change the game for some people, but there's still going to be lower rental yields, there's still going to be higher mortgage rates, whether you get deductibility or not. And keep in mind it's phased as well. It's kind of two or three years so it comes in fully again if they won't. So the problem is in terms of those top ups, the big top ups that are required from other income. The problem there is lower rental yields, higher mortgage rates is not necessarily the fact that you can't deduct your mortgage interest anymore. So we've been talking about that for a while and I guess it just came back into the line, like again with National's announcement last week.
Speaker 2:So, yeah, I think on balance, you know you have to say all of those things will tend to result in maybe higher house prices, and otherwise would have been the case. But you know, will it be that massive? I don't know. There's still uncertainty about how many foreign buyers we might get. You know, maybe bright line causes a bit of buying, but a selling, maybe deductibility, see some investors come in, but not a flood, and so yeah, for me it all adds up to some extra demand, but maybe not a flooded demand. Key thing is still high mortgage rates. That's still going to be there, and potentially caps on debt to income ratios, which I think we're going to come back to with it or question at the end. So, yeah, all I see, all you have to think. Some are put in for some prices relative to what might have been the case. But now, will it be massive? Yeah, not so sure.
Speaker 1:Yeah, I know you've been looking at writing an article around deductibility mostly, and now, of course, national brought this out, sort of brought it to the high level again, and so I know that you sort of switched that article around, which will be released this week around, essentially assessing the changes from, or the proposed changes from from National, and I just love that line that you put in there, essentially saying the key point the biggest challenge to make the sums work for purchasing an investment property isn't the lack of mortgage adjustability, it's not a game changer. It does, of course, like, say, reduce the loss they're probably going to make, but it doesn't actually make it profitable from what is currently a loss and it's actually I think the way your term is nice you said it's actually the large negative gap between rental yields and mortgage rates which makes property investment purchase decisions today really difficult because of that significant top up required. So I think that's the key point for me. Of course it improves things. Doesn't improve it enough. No, because interest rates are still high, especially when you're taking into account high purchase price after such strong growth, you know, since COVID, since COVID came in a few years ago. So that has to be the key point of deductibility better, but still not amazing. And so investors are still going to find the market challenging. No doubt sentimentality change. We'll also give it a boost, but ultimately not taking it to crazy levels.
Speaker 1:And the other point as well and your Brightline test actually is a really good point and I wonder if it's sort of that the Brightline test shortening in combination with the foreign buyers tax, as opposed to the ban, will actually attract some foreign buyers to come here.
Speaker 1:They know if they do buy a property in New Zealand you hold it for one within two years and it's seen some gain. You will not have to pay any tax on that gain. So it's assumed some gain, of course, over a period of time. But you know when there's always been this talk in the past about you know really wealthy investors around the world wanting to park their wealth somewhere. That's really solid. And New Zealand has probably seen as that attractive destination for foreign money. If you can get it here and the foreign buyers ban stopped that to some degree. But this might attract it, especially when you know that you hold it for two years and you don't have to pay any tax on your gain, that's going to be more attractive than other parts in the world where you do have to pay a capital gains tax on realising that gain when you sell the property.
Speaker 1:So I suppose in combination you might see that there are lift in foreign buyer sales that's well above the 3% we saw before the foreign buyer ban and maybe at that higher end it does get to 10 or higher than that, and I suppose that certainly you know you can't predict full behaviour change based on different settings of a tax policy, so there's always a bit of speculation in there. But we do try and guide it with some level of historic understanding and sales figures. And that's where I still struggle to see how they get that figure. But I suppose we may never know if it's going to be true and otherwise, if it does come in and it all plays out as I expect, we'll be able to review this in two, three, four, five years and see actually what happens. So until then I suppose we just have to wait and see. Let's move on. But we could probably talk about these proposed changes, even though there's all speculation for a long time.
Speaker 1:But let's look back at all those economic releases in the last week as well. There are a few to cover off. So maybe you want to run us through this. Of course, we did have the job starter again, increasing further the NZAC. So my favourite in terms of economic activity, because dwelling consents as well, and the business and consumer confidence. I'm not sure if you can wrap all those things into a general field for what's likely going to affect the market more or less. But yeah, back to you, mate, you can do your best on those ones.
Speaker 2:Yeah, probably. I was just thinking as you were talking about how to summarise it nicely, and I guess actually, when you look at it, the data probably last week was actually sort of encouraging in the sense that the economy is kind of taking along with maybe some pressure coming off inflation. So we saw a field jobs increase to go in 0.3% in July. That's the 15th rise in the past 16 months. So employment is still going up. That's good. We want more jobs. We'll certainly be putting some kind of floor under property prices, I suppose. On the flip side, more jobs may also mean a higher for longer official cash rate, which would mean higher for longer mortgage rates. So it's the whole good news, as bad scenarios sometimes, but certainly field jobs still expanding.
Speaker 2:The New Zealand Activity Index was out for July last week as well. It was up 0.4% year on year. So not stellar growth, but it was still an increase and very, very, very early days. But it might just signal we had a bit of economic growth in Q3. We've still got to get a few more results a year and I think the expectation is certainly still that we'll go back into the first stage of a potential recession again. But NZAC, for what it's worth was encouraging. And then business and consumer confidence from ANZ. Both of these were pretty good. The consumer confidence number was unchanged and so the inflation expectations number from that consumer side of things. So probably the consumer survey was not a handle there in some ways. But the business survey showed our confidence back up again to a two-year high. So we're in there, I think, and inflation expectations coming down. So the business survey pretty encouraging from that point of view of having an economy that's taking along but also inflation pressures coming back down. So yeah, on the whole I summarise those as pretty encouraging. Really.
Speaker 2:Dwellin Consents still falling. So we had in July that the total was around 3,000. That was down 25% from a year ago. Now Seems like a big fall, but if you take a step back, 3,000, still quite a high number. You annualise that 35,000, 36,000 consents Interesting. I was thinking before that's about where people are estimating capacities in the industry. So if all those consents turn into houses, then that's what seems to be the feeling of what the industry can handle. So actually it's a slowdown. But you'd almost argue people were too busy before and now we're back to some kind of normality. So you want the down-and-treat to stop somewhere. We don't want it to go to nothing and we end up with shortages again. But just for now, maybe if we can flatten off at about those levels, it wouldn't be the worst thing either. So yeah, kind of I think you have to put a slightly positive spin on all that and say it's encouraging data. Still early days for Q3, but it seems to be taking a long alright for now.
Speaker 1:Yeah, and I think that's the question now does it plateau or do they continue to fall away? We've talked about length in terms of the government being well aware of this and wanting to protect against the boom bus cycle and open the things don't fall away dramatically or too far. Things like putting the Build Ready Development Pathway in there to give the confidence and certainty to the industry to keep building these properties. You can't sell it on pre-sales, the government will buy it off you at the end of it and again, that's a nice scheme I suppose to have in there. It doesn't do enough who knows, and you talk to the industry and certainly more welcoming of that, but it doesn't really do the job it needs to. So I know there's still going to be some skepticism out there about that. And the other thing I want to touch on was we've had a lot of focus on this huge question. There's always discussion around the liquidations of construction firms and anyone involved in building new properties. So it still seems to me to be a vulnerability and the more encouraging thing is that I guess talked about more. We get as many reads as early as possible to see what's going on and hopefully, if the government can intervene and support, then that's good to keep us building these properties because, as you said, we want to get to that. What if that level needs to be 35, 40,000, to consistently build that over a long period of time and not in the too volatile manner, to continue to keep up, well, make up for the deficit of properties we haven't built over the last decade or longer, especially when we see such strong population growth with our net migration so strong at the moment and, while it might not say as strong as it is recently, still tip to see a growing population over a long period of time, all of which they need to be housed somewhere. So I think there's still going to remain a large focus in this area.
Speaker 1:The other thing I've been looking at actually is our greenfields data and I've probably talked about this in the past, but we work really closely with the telcos and utilities and development industry for what greenfields are being created. Now it's not a perfect measure, but for me it's always been that greenfields are still being created. Then it's a good sign that the confidence is there for people who want to build and build long term, and I was actually looking at the data recently in August. The number of greenfields created in August just last month was actually more than in August the year before, and so we might have been start seeing a plateau of that. And again, it's not a perfect measure. It's always been a bit of a sentimental one for me to go. We're still seeing them be created. There should be confidence there, and that might lead to that pipeline just at least continuing to be refilled as we go through time. It's never going to be as full as it was a year or two ago, but we're going to work through the building that's been consented for. That looks like that early onset of the pipeline is still remaining or preparing to be filled again. So I think there's some positive signs there too, and I just wanted to give a plug for a workshop that I attended last week here in Wellington.
Speaker 1:It's headed by an organization called CanConstruct NZ. It's essentially a massive university project which is bringing together organizations from across the construction sector private and public as well to really, I suppose, in the first instance, assess any capability and capacity, constraints or concerns for the industry and then hopefully, to be able to address those as well, if you've got the right people there and you can start to influence and direct whatever it is information, support, money, hopefully into the area to ensure that we can understand this process better and then provide support we're required, and a big part of that, and probably why we're involved too, is really also understanding the data vacuum that seems to be occurring in this process. So I'm sure we've talked about in the past it's really hard to get good information on. We'll get consenting data, which is nice to have, but you don't get too much information about what's happening in that process until you might see or hear about the code of compliance being issued and the Councils are now reporting on those better, but all the interim steps. It's kind of a bit of a vacuum of information. We don't really know what's going on there and certainly through the last couple of years we knew the market was going to go through a downturn and the construction industry could be vulnerable. We don't really know what's going on throughout these different projects in a nice succinct, summarised way, and so different people across different industries trying to look at how we can improve the information there again to inform and hopefully then improve the industry. And again it's all about reducing the ability or the likelihood of a boom bust cycle. So good to again have that side of things being looked into. I'm not sure the solutions or everything's in place to solve this or fix it if it needs to be fixed, but certainly understanding of it is a good start and then we can start to. If it's making recommendations or the private industry has to change the way they do things, or if it's public's influence and the ministry's influence, then hopefully they can make some changes as well. So just another nod there, I suppose, to the focus that's going on here to hopefully set us up better for the future.
Speaker 1:So yeah, there's a bit going on there, and the other one as well. When you talk about the consents and the fact that it's getting back down to what a more normal hopefully level and more realistic in terms of capacity to build those properties. It just brings to mind a conversation I had last week at this workshop was I had conversations previous to that with developers and this thing about not all consents are even intended to be completed and that some developers would often use. They'll get funding for a development site, they'll get the consenting for it, but it's always intended to just be there for the funding side of things and then they know they'll just sell that off as is later on. They never actually intend to build on that.
Speaker 1:So we never expected to get to that 50, 52,000 level of consents coming through to full completion. But the key problem is what is that gap? Are we consenting 50 to build 35 and what's that delay in that lag look like as well. So again, that's where we want to build that picture up and get a better understanding to help inform better decisions later on. So, yeah, just another one to add to the next, I suppose, and certainly one that is good for us to be involved in, and any insights that come out of that, any changes which might be coming we can hopefully bring those to light sooner than otherwise might happen as well.
Speaker 1:So yeah good to touch on and lots to pay attention to in that economic releases too. So, yeah, anything else you want to touch on from the last week or anything that stimulated your brain there before we just have a quick look at what's coming up this week.
Speaker 1:Nothing is so good, can't read you all on that, I think Cool. Okay, this week mentioned before you've got this blog or slash article coming this week without any other releases coming around assessing interest ductibility, among the other things from National as well. We have covered a lot of that today, but that'll be coming later this week, I suspect. The Reserve Bank July lending data actually the data by terms of origination came out this morning. Did you get a chance to look at that? Want to touch on that now, or should we save that for next week? It'll be out in about it's that.
Speaker 2:Well, we're 2.30 now. It'll be out at three o'clock so they released 3pm in the afternoon. So yeah, that's looking at the terms that people are borrowing on. There's been that shift in the past couple of months towards slightly longer. People looking at those three month fixes may well continue in July's numbers that we'll get shortly. They actually want to be August next month because we know that mortgage rates at those longer terms have actually gone up a little bit in August. So yeah, it'll be a test for that sort of idea of people go or do they go for the lowest rate or is it actually that certainty? If those rates have gone back up again, what value do you actually place on certainty, or is it about the cheapest rates? So yeah, we'll watch those later today and next month as well.
Speaker 1:Yeah, we'll talk about that next week I suppose. And it is just watching for any sort of shifts and decision making, essentially from those borrowers. And now the thing out this week is our biophysification data for August as well. So another one saw a very strong first home buyer data for July. So we'll now get August data to enter that start to build that Q3 picture up. So we'll chat about that next week as well.
Speaker 1:The only other thing I want to talk about was we did have a list in the question come in about the DTIs. I have spoken about this in the past but it's probably worth uncovering again. So yeah, and the question, I'll sort of read it out anyway and you can give us your take and we'll round that out to get out of here today. But really it was about whether a change in government will affect whether the DTIs will be enforced, and the reader writer mentioned that. You know realizing the Reserve Bank is essentially independent but the demand does sort of stem from the government at the time. So they can be influenced or they can have the tools added to or taken away by the government at the time.
Speaker 1:So where the national might look at that, and then I suppose you know further to that question as well. You know to the current conditions and where things are at actually, why on the DTI? So you know what might the Reserve Bank think? Even if the new government didn't want to change it, will the Reserve Bank still be looking to implement that, implement this, given that the market, you know, is relatively in check and we know the high DTI lending has has reduced a little bit as well? So I suppose that the other part to the question about whether they will still be able to enact the DTIs and then, even if they can, would they, given the current settings where there's relatively high DTI lending, is under control, or do they keep their power dry and hold on to that for a talk later date? So I know that we've talked about this in the past in different occasions, but you do want to give us a decent summary on your take on the DTIs right now and what we expect to happen next year.
Speaker 2:Yeah, I mean in terms of whether National would look to take that power away from Reserve Bank. I mean it's hard to see. I haven't heard any commentary, any whispers, nothing about that. It just hasn't even featured. And you know it would start to look a bit questionable from that independence perspective as we've gone into government and suddenly we want to take that off you and you think that would add a bit more fuel to the housing fire. So, and quite apart from the ledges sort of process to sort of push that through, so I just can't, can't see it. I mean, and keep in mind, I think from memory the Reserve Bank actually sort of requested it to. You know they want this in their toolkit, so they'd probably fight pretty hard. You would think that if National came in and said, hey, we're going to take it off you now, because I think they really want to see LVRs and DTIs in place, and you know they have their different uses and they can sort of soften one and look at the other one, and so it probably just gives them more capability, I guess. So yeah, I just can't see it. National said nothing about it. Reserve Bank, I think, would fight pretty hard to keep them if it did come to that. So yeah, I think we can bank on the Reserve Bank keeping that power.
Speaker 2:Then there's the question of, well, when they do it and what they look like and all those sorts of things which we have obviously talked about quite a lot. I mean, it looks like at the moment they'll be enforced next year. There's still a bit of uncertainty about the date. Could it be March, april, maybe later in the year, but it certainly seems to be on the cards. Still questions about does it seven? What does it exclude, what does it include, these sorts of things. But those technicalities aside, it looks like these are coming potentially as early as sort of March April next year. Will it bind? Well, again, we've kind of gone on the record there saying probably not, because the lending at a high DTI has already come down pretty sharply in the past couple of years.
Speaker 2:Certainly as mortgage rates have gone up. That's kind of doing the job you simply can't have as much debt in relation to your income. You can't service it when mortgage rates are higher.
Speaker 2:So, yeah, that's doing the job. I think they'll still bring them in because it's again as we've said it's about. I think it's about that next cycle, it's about getting ahead of the game. When interest rates do fall again and people could theoretically borrow again, the Reserve Bank wants to be sort of ahead of that and control those risks through a DTI system having already been enacted, I think we talked about it last week from the bank's perspective, just the people we've been talking to and saying, well, you know, be weird to make us do all this work and then not actually impose these things.
Speaker 2:So you know, which maybe isn't the strongest justification, but it does have some merit. So, yeah, I think the Reserve Bank will keep the powers, they will enact them next year, whether they buy under or not probably not, but it's about that next cycle anyway. It's about sort of getting ahead of the curve when interest rates do fall. So yeah, that's the tongue.
Speaker 1:Yeah, I think there's some of the documentation I've read. When they initially talked about it was that they do want the ability to have control over this and of course we've got to remember it's all about them protecting our financial stability. And they talk about having the DTIs and the loan to value ratio restrictions. As you know, dual measures, you know one can the dual levers, I suppose one can. One helps to protect the banks, one helps to protect the borrower and I think they want both of those tools. And the speculative piece I've been saying is I think they'll bring them in but they'll loosen the RVR at the same time, because there probably is a little bit of an allowance there where we can allow a few more people to get slightly higher loans compared to their deposit size and still be relatively financially stable. But maybe we want to just restrict those people doing that plus having too high a DTI, which really puts the strain on your mortgage paying. So I think they want the combination of both having the lever to pull. If they did see things getting out of control one way or the other, they could do that and show that we were financially stable and that protects our economy from any further crash down the down the line. So I think they've been pretty clear at wanting that. As you say, it might not actually be binding in the first case because you know it's hard to get too much lending compared to your income with paying just right. So might be an easy way to get this in, but it'll be about what happens in the next cycle, as you say. So I do think they'll come in in terms of the national and whether they would want to repeal it from them, that ability, I agree I'm not sure what the process would be to do that. It might have been quite lengthy to actually go through that process. Now they haven't really talked about it national. But the one thing I think you know, I've certainly been pretty critical of the of Adrian or at the Reserve Bank, and Nicola Willis seems to want to have a bit of a battle with him. So you know I'm sure there'll be some teach in there and that could lead to some discussions, but I still don't think that we're flowing through to the change in. So it's not legislation but the change in the power of the Reserve Bank. So yeah, definitely a few things to wait for.
Speaker 1:I think the only other thing from a market implication perspective is, you know, does this lead to investors trying to get in before the rules? And you could also maybe throw the election in there as well. But if you know, if investors today are looking at the market and going national, are going to win they're confident of that or just have to speculate on that. They know that there's going to be more favourable tax policies for property investment and they know that. You know that the DTIs are coming in. Maybe they act ahead of time and it brings some activity forward which could actually give a boost to demand and maybe a boost to prices in the short term as well. People want to preempt a national win, preempt DTIs coming in. You better buy today than you are to wait for six months when you might not be able to. We could actually see that boost demand in the short term too.
Speaker 1:So you know again, it's a bit, you know, sort of a mindset thing and whether investors are that you know, confident or, you know, want to speculate that much.
Speaker 1:But certainly some will be out there saying you know, if I want to buy in the next year, what period of the next 12 months would be the best to do so, if you assume those settings are going to play out, then maybe you buy sooner rather than later and that could actually see a bit more growth in the short term.
Speaker 1:So that's the other potential market application. Here Again, would I expect it to, you know, lead to prices jumping, you know, 5% in the next three months or something? Probably not, but certainly give a boost to demand which otherwise wouldn't be there if we didn't see all this discussion happening in the market. Anyway. But yeah, good coverage, I think, and thanks once again for the question. They do want to remain anonymous, so, but thank you for taking the time out. I'm always happy to you know, provide credit or otherwise for anyone that does write on the question. So thank you once again for that one Call about anything else on your mind, or should I let us get out of here and I'm going to go pick the kids up from school?
Speaker 2:Yeah, no, that's important. Nothing else from me. Good chat.
Speaker 1:Just a shout out to our friend at the Pot, richard Vaughan, of course, pace Duffenaukman. I'm going to see him this Thursday for a beer but he's enjoyed the subtle maybe not so subtle slips in of the up the lars last few weeks and he's delivered a box of beers to my office here in Wellington, which is a good George Brewery, literally up the lars special brew. So you know there's been a bit of a reward for us and to the support of the Warriors.
Speaker 1:He's a big fan of the little, so a bit of a bang, bang, good jump, and I think just like me, but I want to give him a shout out. So thank you very much for Richard. Those turned up today and we'll certainly enjoy those. Calvin's up tomorrow, so I'm going to get the crack one tomorrow and as we're watching the Warriors this weekend, so I appreciate that, mate, and I'll see you this week. So, just as I say, thanks once again, calvin, thanks for your thoughts. Mate, plenty to get through today, especially when you get random things done at us, like tax policy from the government or the opposition. But thank you very much and thanks very much for listening. Please do make sure you subscribe to the show and feel free to get in touch. Love getting those questions through. So let's say thanks again. My name is Nick. He's Calvin. You've been listening to the New Zealand Property 投set podcast. Come on, mark. Mix it with our own on eYou can follow us. Create people on YouTube.
