The government intends to assist first-time homebuyers by raising financial support caps and extending the bright-line test to 10 years.
They have unveiled their long-awaited plan to sway the market towards first-time buyers and cool down the heat in the market.
The plans include both urgent and future steps that will relieve pressure, says Prime Minister Jacinda Ardern.
“This problem has existed for decades, and it will take time to reverse, but these measures will make a difference. Despite the fact that there is no silver bullet, all of these measures combined will begin to make a difference” she said.
Friendly Reforms for First Time Buyers
From 1 April, the income limit for First Home Grants and Loans increased from $85,000 to $95,000 for single buyers, and from $130,000 to $150,000 for two or more buyers.
“Our first-home purchasers deserve a fair shot at entering the market, and much of the work we’re doing today is about them,” says Ardern.
Market speculators have contributed to rapid market growth, she said.
In addition, regional price caps for accessing support have been lifted.
“The new caps are derived from March 2020 data,” she added.
Megan Woods, the Housing Minister says the government will expand the rules so that first-time homebuyers can only apply for a 5 per cent deposit before they are eligible for first home buyer assistance.
“In addition to boosting activity in the construction sector and creating jobs, these measures will contribute to first-home buyers so we can recover from the impact of Covid-19.
“While researching where the greatest housing challenges are, and what steps have been taken to address those concerns, we have discovered how broken the system is,” she said
According to her, between 80,000 and 130,000 homes could be built in the next 20 years, but it depends on councils, Kiwi and private developers joining forces.
As property investors make up the largest share of buyers, it is “essential the government takes steps to curb rampant speculation”, said Finance Minister Grant Robertson.
Initiative to Also Tackle the Problem of Market Speculations
Also, the government has proposed to raise the bright-line test – which causes investment properties sold within a specific period of time to become subject to capital gains taxation – to 10 years and to do away with the deduction of interest expenses from rental income when calculating taxes.
Robertson said this will “slow down speculation and shift the market toward first-time buyers”.
“The New Zealand housing market is now the least affordable in the OECD. We need to act now and prevent unsustainable house price growth that may harm the whole economy,” he said.
Robertson specified five years as the recommended time frame for bright-line tests to encourage investment in new builds.
“Kiwis should have a greater chance of purchasing their first family home as a result of this measure. We still emphasize that the bright-line test does not and will not apply to the family home,” he said.
The bright-line test would not be changed under a Labour government, Robertson said in a pre-election interview.
Ardern added at that time New Zealand did not experience rampant house price growth like it is now.
$3.8 billion Fund Injected in Plan to Boost Housing Supply
The measure does not apply to capital gains, she said, just an extension of an existing tax policy.
David Parker, Associate Minister of Finance and Revenue, says with interest rates at a record low level, it’s a good time for transition, and will make things easier for investors.
In addition, ministers are considering closing a loophole with regard to interest-only loans to speculators.
Ministers will be provided with a report from the Reserve Bank on the proposed ratio of debt to income, particularly in relation to investors, in May.
Additionally, a $3.8 billion fund is included in the plan to boost housing supply over the next few years.
In response to the fund’s announcement, Megan Woods, the Housing Minister said house building would proceed faster and higher.
“Our estimates indicate that the Housing Acceleration Fund will facilitate the construction of tens of thousands of new homes in the near future.
“The government has identified infrastructure investment as one of the most important actions it can take to increase housing supply in the short term,” she said.
In turn, she added that the fund would speed up housing development by providing the necessary infrastructure, such as roads and pipes to homes which are currently holding back development.
In addition, the government will help Kinga Ora obtain additional borrowing of $2 billion to boost housing supply by scaling up land acquisition at an automatic pace.
The Government is also extending its Apprenticeship Boost programme for four months, so as to support trades and trades training.
Fears New Measures Could Affect the Economy
Financial institutions warn the government’s efforts to cool the housing market and deter property investors may not only chill the housing market, but also the overall economy.
In response, senior economist Satish Ranchhod said the removal of the tax deduction of mortgage interest could spark broader spending.
In his view, a slowdown in housing prices would hamper economic recovery and compel the Reserve Bank to raise its official cash rate more reluctantly.
Economic analysts at ANZ say the measures would increase the risk of house prices falling.