NZ Population Growth, What Tax Cuts Mean for the Market & RBNZ pushes Go on DTIs

THIS WEEK IN REVIEW TOPICS:
Topic #1: NZHerald 29th of May -Census 2023 results: New Zealand’s population growing, diversifying, and ageing

Topic #2: Stuff 28th of May -How does your Kiwisaver balance stack up?

Topic #3: Good Returns 28th of May-RBNZ pushes go button on DTI restrictions

Topic #4: NZ Herald 29th of May -ASB Housing Confidence: Good time to buy a home? Depends on who you are

Topic #5: Oneroof 30th of May- Budget 2024: What the tax cuts mean for the housing market

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Chapters

• 0:56 Topic #1: NZHerald 29th of May -Census 2023 results: New Zealand’s population growing, diversifying, and ageing
• 4:17 Topic #2: Stuff 28th of May -How does your Kiwisaver balance stack up?
• 8:31 Topic #3: Good Returns 28th of May-RBNZ pushes go button on DTI restrictions
• 13:52 Topic #4: NZ Herald 29th of May -ASB Housing Confidence: Good time to buy a home? Depends on who you are
• 17:22 Topic #5: Oneroof 30th of May- Budget 2024: What the tax cuts mean for the housing market

Transcript

 Hi, everyone, I'm Debbie Roberts, Owner and Financial Advisor at Property Apprentice. Join us today for the Week in Review, where I talk about current events for the everyday investor and home buyer. Our topics for this week, from New Zealand Herald on the 29th of May, Census 2023 results, New Zealand's population growing, diversifying and ageing.

Second topic from Stuff on the 28th of May, How does your KiwiSaver balance stack up? Topic number three, good returns on the 28th of May, RBNZ pushes the go button on DTI restrictions. Fourth topic from the New Zealand Herald on the 29th of May, ASB housing confidence, good time to buy a home? Depends on who you are.

Topic number five from One Roof on the 30th of May, Budget 2024. What the tax cuts mean for the housing market. 

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So first up from New Zealand Herald on the 29th of May, Census 2023 results: new Zealand's population growing, diversifying and ageing.  New Zealand's population has increased by 6. 3 percent since 2018, becoming older and more diverse. 

The latest census data reveals that the North Island houses the oldest demographic, while the South Island experiences the fastest growth in territorial authorities. 

Since the 2018 census, nearly 300, 000 people have been added to New Zealand's population, now totaling 4,993,923. Most residents live in the North Island, and there's significant rise in ethnic diversity and aging. The Maori descent population has grown by 12.5% to almost 1 million. The population distribution shows that 76.3% of people live in the North Island with one third, 1.66 million residing in Auckland.

In contrast, the South Island has the fastest growing regions, Selwyn and Queenstown.  Auckland's population growth is 5. 4%, while the Tasman region boasts the highest growth at 10%. The slowest growth rates are in Wellington and Southland at 2. 8 percent and 2. 7 percent respectively.  New Zealand's population is also ageing, with the median age rising from 37.

4 years in 2018 to 38. 1 years in 2023.  Thames Coromandel is the oldest area where 34 percent of residents are over 65.  In contrast, the youngest population is found in the Manurewa area of Auckland, where 24 are under the age of 15.  The number of people of Māori descent has reached 978, 246, representing 19.

6 percent of the population. Nearly one in three people under 25 are Māori, highlighting a youthful and growing demographic. 

This growth has been described as a transformative shift by Te Kahui Raronga, emphasizing the resilience and rapid expansion of the Māori population. Ethnic diversity in New Zealand continues to increase with the 2023 census showing 67. 8% percent of the population, identifying as New Zealand European.

However, Maori, Asian, Pacific and Middle Eastern, Latin American and African groups are growing significantly faster than European ethnic groups. Looking ahead, significant changes are expected for the census. Consultation for the  2028 Census is considering moving away from traditional methods due to concerns about health and safety, alternative data sets, response costs and social licence issues.

Staggered data releases from the current Census will continue until at least August next year. The Census, conducted every five years since 1851, remains crucial for understanding demographic changes in New Zealand. And we'll keep an eye on the results as they pour out and see if there's anything more specifically relevant to the property market in New Zealand. 

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Topic number two from Stuff on the 28th of May, how does your KiwiSaver balance stack up? New data from Melville Jessup Weaver for Te Ara Ahunga Ora Retirement Commission reveals that nearly 40 percent of KiwiSaver members have balances under $10, 000. The report indicates that many members have lower than ideal savings, with cost of living pressures contributing significantly.

The average KiwiSaver balance has risen to $31, 823, marking a 16. 2 percent increase from $27, 379 last year. Younger savers, those aged 17 and under, have the lowest average balance, about $2, 900. Balance has increased steadily from ages 26 to 80, peaking at $113, 807 for those aged 81 to 85, and exceeding $155, 000 for those aged 86 and older. 

At the end of 2023, 38 percent of KiwiSaver members had balances below $10, 000, with two thirds of these members being 35 or younger. Among those over 35, a quarter still had balances under $10, 000. This highlights a significant portion of the population with insufficient retirement savings in KiwiSaver.  A notable finding is the gender gap in KiwiSaver balances.

Men have an average balance of $36, 605, while women have an average balance of $29, 291, resulting in a 25 percent gap, potentially as women take time out of the workforce while they're having babies.  Women in their 40s have about $11, 032 percent less than men and women in their 50s have about $17, 036 percent less than men.

This disparity is attributed to factors such as the gender pay gap, time out of paid work, as I mentioned before, and a higher percentage of women working part time, also potentially while they're raising the children in the household.  The report covers 3 million members, about 98 KiwiSavers, with a combined total balance of 104.

21 billion. Te Ara Ahunga Ora  policy lead, Dr. Michelle Reyers, noted the significant impact of lower balances, especially on women who need to fund longer retirements. Although the gender savings gap remains substantial, it has not widened over the past year, which is a bit of good news.  Wouldn't it be great if there was some way that women could continue to contribute to their KiwiSaver while they were on maternity leave or raising the children in the household?

You know, whether that's something that their partners could contribute to, or whether they just at least make sure that they're contributing the minimum amount in order to get the government contribution each year. That's going to help reduce that deficit. And I'm not saying that it's always the women that raise the children, because clearly that's not the case in New Zealand.

But it does appear that there is still that gender gap between the KiwiSaver balances.  at the moment anyway. Hopefully this will change over time.   If   📍 you'd like to learn more about investing in property and financial advice to help you reach your financial goals, join me at one of our free events called How to Succeed with Property Investing.

I'll discuss strategies for successful investing from my perspective as an experienced property investor and a financial advisor available live, online or in person. Check out www.propertyapprentice.co.Nz for upcoming dates and register today. We don't sell property, so it's all about increasing your knowledge to reduce your risk.

 

If you've   📍 already been to one of our free events and would like to find out more about how we can help you to reach your financial goals, you can also book a no obligation phone call or meeting with my husband, Paul Roberts, via the  website. That's www.propertyapprentice.co.Nz.  

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Topic number three from Good Returns on the 28th of May, RBNZ pushes the Go button on DTI restrictions.

Starting from July the 1st, the Reserve Bank will introduce debt to income, commonly called DTI restrictions, and loosen loan to value ratios, LVRs. Banks will need to comply with these new regulations from that date. Under the new DTI restrictions, banks can allocate 20 percent of new owner occupier loans per month

to borrowers with A DTI ratio over six and 20% of new investor loans to borrowers with A DTI ratio over seven, over seven times their income.  These restrictions aim to limit high DTI lending where borrowers have significant debt relative to the gross income. Additionally, banks are permitted a 20% allowance to lend outside these limits, allowing for discretion in managing complex cases according to Christian Hawkesbury Reserve Bank Deputy.

In terms of LVR adjustments, banks can now allocate 20 percent of owner occupier loans to borrowers with an LVR over 80%. In other words, buyers, homeowners that have got less than 20 percent deposit and 5 percent of investor loans to borrowers with an LVR above 70%. So that's the good bit of news in this is that investors will only need a 30 percent deposit from the 1st of July. 

The purpose of these measures is two fold. LVRs reduce the impact of defaults by limiting potential losses during a housing downturn, while DTIs reduce the probability of default by ensuring borrowers can continue to repay the debt. Together, they act as safeguards, reducing high risk lending, and enhancing the resilience of the financial system.

Macro prudential policies like these are regulatory measures designed to mitigate systemic risks and maintain financial stability. They aim to prevent financial crisis by curbing excessive lending during economic booms and strengthening bank and household resilience during downturns. These policies complement baseline prudential policies which target individual banks.

Banks were given 12 months to prepare for the implementation of DTI restrictions, ensuring they could adjust their systems accordingly to comply with the new regulations. So that was all the spin that was released from the Reserve Bank in New Zealand. In my opinion, do I think that DTIs are a necessity?

No, I don't. My personal opinion is that banks have a very good, solid, responsible lending code that they have to comply with, and this is the reason that we're not seeing large numbers of mortgagee sales this time around. You know, with the responsible lending code, banks test your affordability at much higher interest rates, which reduces the risk in debt.

downturns,  such as this, because when interest rates increase and the economy starts to tank, this is where we see people losing their jobs and struggling to pay their mortgage at  higher interest rates. So, you know, this is why people put their properties on the market. And at the moment, we're not seeing massive numbers of mortgagee sales because banks have been testing your affordability at much higher interest rates than what were currently available at the time. 

of purchase so that minimizes the risk in my opinion anyway. Although it is nice to see that they've relaxed the LVR settings so we don't need as big a deposit. Purchase investment properties from the 1st of July and banks have also got some wriggle room to lend to people above that threshold for the debt to income.

So it is important to remember that income for property investors also includes a percentage of the rental income. And it'll be interesting to see how banks deal with that because banks make money by lending money. So when interest rates drop and the DTIs. actually start to have an effect because at the moment they're not going to have any effect at all.

Banks will limit your borrowing capacity based on provable income, testing your affordability at up to nine percent. So it's going to have very little impact at the moment, but at some point when interest rates drop to a certain level, that's when the DTIs will become more restrictive. So it's going to be interesting to see how each of the different lenders react. 

to what they can allow as part of your provable income. To see how that impact actually rolls out will be interesting. My opinion on this is that potentially the reason that the Reserve Bank has introduced the debt to income restrictions now when it's not needed, Because the, the property market is certainly not booming at the moment.

My opinion is that potentially this is a signal from the Reserve Bank that they will be reducing the interest rates sooner rather than later by reducing that, um, OCR. Okay. So we shall soon see, won't we? I'm not expecting it in the next announcement, but I would certainly expect something to move down before the end of this year if things keep tracking the way that they appear to be. 

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Topic number four from the New Zealand Herald on the 29th of May, ASB housing confidence. Good time to buy a home? Depends on who you are. New Zealanders are not yet betting on a housing market recovery with ASB economists noting a divide in buyer sentiment. ASB's latest housing confidence survey reveals that house price expectations declined in the three months to April.

A net 44 percent of respondents expect higher house prices, which is down from 51 percent in the previous quarter, although 90 percent of the respondents expected house prices to either stay the same or increase, so that's an interesting comment. Sentiment around interest rates has shifted, with more people now expecting interest rates to fall within the year rather than rise, and this is the first time we've seen that since early 2021.

A net 1 percent of respondents predict the Reserve Bank, the RBNZ, will cut the official cash rate, the OCR, marking a 16 percent point shift from the last quarter. ASB senior economist Kim Mundy stated that combined expectations for lower rates and weaker house price growth indicate that the market's nearing a tipping point, though it's not quite there yet.

Mundy  noted conflicting factors in the market such as uncertainty about when the Reserve Bank will lower the OCR, especially following their quite aggressive  terminology when they made their last announcement. They used some pretty scary language threatening to increase the OCR and not decrease the OCR until towards the end of next year, which I would be really surprised about.

But anyway, So, you know, people have And a lot of economists have revised down their house price forecasts and high inventory levels.  A split is emerging among potential buyers. First time buyers and investors who can manage current interest rates might see it as a good time to buy. I would suggest that yes, it is a good time to buy when there's less competition and plenty of listings available.

However, those needing to sell before buying or who are worried about rising unemployment and living costs may be less confident, with good reason as well. The survey shows an unchanged net 2 percent of respondents believe it's a good time to buy, while over half, 55%, feel it's neither a good time nor a bad time.

Uncertainty is a wonderful thing in the property market if you're looking to purchase.  Mundy highlighted that sentiment is tentatively turned towards expecting lower interest rates, which could indicate future house price trends, as seen in late 2020 and early 2021 before house prices peaked. The RBNZ recently left its OCR forecast for cuts in the second quarter of next year unchanged, maintaining rates at 5.

5%.  The bank indicated that monetary policy would need to remain restrictive longer than expected to meet the inflation target. The Reserve Bank of New Zealand expects inflation to return to its one to three percent target range by the end of 2024. Which begs the question, if they're expecting inflation to return to its target range by the end of this year, why would they talk about  

not reducing OCR cuts until the second quarter of next year.  Food for thought. 

 

Topic number five. One roof on the 30th of May. Budget 2024. What the tax cuts mean for the housing market. The government's budget will have minimal impact on the housing market according to property experts interviewed by Oneroof

the most significant property related changes affecting landlords had already been announced before. Budget Day finance minister Nicola Willis confirmed that $729 million would be spent on restoring interest rate de deductibility, and $45 million on reducing the Bright line test to two years.

Ray White Manukau co-owner Tom Rawson described the budget as underwhelming for real estate. He noted that the tax cuts were more likely to help people cope with the rising cost of living rather than spur them to buy more or better homes. It's just going to be status quo, Rawson said. The extra money will likely be used in areas other than property.

CoreLogic chief economist Kelvin Davidson agreed there were no surprises in the budget. He highlighted that the removal of the first home grant was expected and thus had no significant impact.  That's an interesting comment, because as far as I'm aware, nobody was expecting that removal of the first home grant, certainly none of the mortgage advisors that I've spoken to,  let alone any members of the public. 

Although, to be fair, it's going to have little impact, because it's a very small percentage of the population who would have qualified for that first home grant. Anyway, 

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 Davidson emphasized that the budget would not influence the housing market directly, but the potential inflationary effect of tax cuts could prolong higher mortgage interest rates.

He believed that any extra money from tax cuts would be used to manage existing debts and living expenses, not to purchase new homes.  Kiwibank chief economist Jarrod Kerr called it a no frills, no surprises budget, noting that while the government delivered on its promises, the economic projections were softer than expected.

He said the modest tax cuts offering an extra $10 to $20 a fortnight were unlikely to affect the property market significantly.  Kerr pointed out that high interest rates remained the main factor restricting the housing market and predicted that investor activity would resume once interest rates begin to drop, Bayley's Head of Insights, Chris Farhi concurred, stating that changes in income tax were insignificant compared to the influence of interest rates.

He noted that while slight inflationary pressure from tax changes could stall interest rate cuts, the overall impact would be minimal.  New Zealand Sotheby's International Realty Managing Director Mark Harris expressed disappointment that the budget did not address foreign buyer rules. He mentioned that high net worth individuals frequently inquired about property, but they had to be turned away due to the foreign buyer ban.

Harris remained hopeful that the government might reconsider this ban in the future to attract investment, although I believe that was part of the,  Coalition agreement, so unlikely to happen while we've still got the coalition government. In summary, the budget's modest measures are expected to have little effect on the housing market, with high interest rates continuing to be the primary influence.

And if I can just make a comment as well, in my opinion with this, there seems to be a lot of commentary in the media at the moment, especially from the left wing media, so called.  So, you know, they keep talking about these billions of dollars that the government's paying to landlords and that's the reason that they haven't been able to spread, you know, spread as much love around other people that aren't landlords. 

My response to that is that landlords aren't receiving any money from the government. Landlords costs are reducing because we're no longer having to pay tax on profit that hasn't been made, you know, and remember losses that are made through property investment get carried forward into the next tax year.

They don't come back to the, to the property investor as a refund either. So a bit of miss, you know, a bit of misinformation getting out there in the media sounds, um, you know, It's soundbites, really, isn't it?  They say what they want to say to grab the attention. You know, it doesn't have to be accurate, which is disappointing, in my opinion. 

Understanding how   📍 high interest rates and upcoming economic shifts can affect your investments is crucial. Don't miss this opportunity to learn. Join me at one of our events called, How to Succeed with Property Investing During these free two hour workshops, we cover recent property market data. And what's more, as an experienced property investor and a financial advisor, I'll share valuable insights and expert tips to help you on your journey.

Our free events cater to all levels of property investors and first time buyers. I'll tell you more about how we help our clients to achieve their financial goals without selling property. So, if you're interested in finding out more about what we do, Visit www.propertyapprentice.co.Nz today to secure your spot and register for one of our free events.

  📍 Alternatively, feel free to book a no obligation phone call or meeting with my husband, Paul Roberts, through our website, www.propertyapprentice.co.Nz.  And just remember, we're a family owned and operated business, not part of a big multinational company or anything like that.  So, you know, we are here to help New Zealanders reach their financial goals for the future.

Thanks for listening.