The government plans to help first-home buyers into the market, by increasing the caps for financial support, and extending the bright-line test to 10 years.
It has unveiled its long-awaited plan to tilt the balance towards first-time buyers and to turn down the heat in the market.
Prime Minister Jacinda Ardern said the plan is a package of both urgent and long-term measures to relieve pressure.
“The housing crisis is a problem decades in the making that will take time to turn around, but these measures will make a difference.
“There is no silver bullet, but combined all of these measures will start to make a difference,” she said.
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From 1 April, the income cap to access First Home Grants and Loans will be lifted from $85,000 to $95,000 for single buyers, and from $130,000 to $150,000 for two or more buyers.
“We want our first-home buyers to be able to get into the market and so much of what we’re doing today is about them,” Ardern said.
Rampant growth has been driven by speculators in the market, she said.
Regional price caps for accessing support have also lifted.
Ardern said the new caps are based off March 2021 data.
Housing Minister Megan Woods said the government is also expanding the rules so that more people will only need a 5 percent deposit before first home buyers can apply for support.
“This package of measures will help first-home buyers into the market and boost activity and create jobs in the construction sector, as we recover from the impacts of Covid-19,” she said.
“As we’ve investigated where the greatest housing needs are and what has been done to meet those needs, we’ve found out just how broken the system is.”
She said modelling shows between 80,000 and 130,000 homes could be built over a 20-year period, but that is dependent on buy in with councils, iwi and private developers.
Finance Minister Grant Robertson said with property investors making up the biggest share of buyers it was “essential the government takes steps to curb rampant speculation”.
As well as increasing the bright-line test, which sees investment properties sold within a set time taxed on the capital gains – to 10 years, the government will remove the ability for property investors to offset their interest expenses against their rental income when calculating tax.
Robertson said this will “dampen speculative demand and tilt the balance towards first home buyers”.
“The New Zealand housing market has become the least affordable in the OECD. Taking action is in everyone’s interests as continuing to allow unsustainable house price growth could lead to a negative hit to the whole economy,” he said.
Robertson said to encourage investment in new builds, the bright-line test for these properties will remain at five years.
“This will give Kiwis a better chance at purchasing their first family home. I want to stress that the bright-line test does not and will not apply to the family home,” he said.
However, in a pre-election interview Robertson said that there would be no change in the bright-line test under a Labour government, Ardern said at that time New Zealand was not experiencing rampant house price growth as it is now.
She said it not a capital gains tax and the government is simply extending a policy that was already there.
Associate Minister of Finance and Revenue Minister David Parker said with interest rates as low as they are, it is a good time to transition, and will make things smoother for investors.
Ministers are also considering closing a loophole on interest-only loans to speculators.
The Reserve Bank will report back to ministers in May on this and any proposals around debt to income ratios, particularly for investors.
The plan also includes a $3.8 billion fund to accelerate housing supply in the short to medium term.
Housing Minister Megan Woods said the fund would speed up the pace and scale of house building.
“We estimate the Housing Acceleration Fund will help green light tens of thousands of house builds in the short to medium term.
“Investment in infrastructure has been identified as one of the key actions the government can take to increase the supply of housing in the short term.
“This fund will jump-start housing developments by funding the necessary services, like roads and pipes to homes, which are currently holding up development,” she said.
The government will also assist Kāinga Ora to borrow an extra $2 billion to scale up at pace land acquisition to boost housing supply.
It is also extending the Apprenticeship Boost initiative by four months, to further support trades and trades training.
Warning new measures could affect economy
Retail banks have warned the government’s measures to cool the housing market and deter property investors may not just chill the housing market, but also the broader economy.
Westpac senior economist Satish Ranchhod said cutting the incentives to invest in the sector, such as removing the tax deductability of mortgage interest, might flow through to broader spending.
He said a slowdown in house prices would slow economic recovery and make the Reserve Bank even more reluctant to raise its official cash rate.
ANZ economists say the measures would increase the risk that house prices actually fall.