This Government had us waiting since the end of last year for the changes for first home buyers, and today they were finally announced
It’s intended that the changes will mean house prices increase less quickly, but economists are not so sure.
The Government believe that the changes will help open up more opportunities for first-home buyers with less competition from investors.
What Are The Changes?
There are really three key areas that the Government have tinkered with;
- They have imposed more restrictions on property investors
- They have tweaked the income cap and price caps fir first home n=buyers to access the First Home Loans and First Home Grants
- They have created a Housing Acceleration Fund to help develop infrastructure so land can be developed
1: Let’s Hit Property Investors!
This Government does not like property investors and so have extended the bright line test (capital gains tax) and removed the ability to treat interest as an expense.
The capital gains tax only affects investors that are selling, so while the Government may thing this is going to to hurt investors it is probably going to do the opposite as most investors will just not sell their properties; hence less properties on the market.
The inability to offset the interest expense against the rental income is more serious. This is a real cost to property investors and they will be forced to increase rents to offset this. It will also stop a lot of new investors buying houses which may sound helpful to first home buyers (and it may be) but it is going to really huirt tenants with increased rents and therefore making it harder to save the deposit for their first home.
So while the Government think these measure are good for first homer buyers, it could easily have the reverse effect and lock tenants out of the market.
2: Small Changes to First Home Loans & Grants
With the First Home Loan scheme buyers only need a 5% deposit, rather than the 10% – 20% deposit required by most lenders. In addition First Home Grants provide up to $5,000 or $10,000 to help people with their deposit.
The First Home Grants has now been tweaked to allow people with slightly higher incomes to apply, and the house price caps have been lifted too.
The government has decided to shift the caps on the First Home Loan and Grant scheme, allowing first home buyers to receive the grants for more expensive houses. The income caps have also increased, from $85k to $95k for a single buyer and from $130k to $150k for multiple buyers.
Income = to qualify, buyers will now be able to earn up to $95,000 as single people and $150,000 as a couple.
Price caps increase – from $650,000 to $700,000 in Auckland, $650,000 in Queenstown and Wellington, $600,000 in Nelson, Tauranga, Western Bay of Plenty, Hamilton, Waipa, Hastings and Napier, $550,000 in Christchurch, $550,000 in Dunedin and $500,000 through most of the rest of New Zealand.
| Location | New Builds | Existing Properties | ||
|---|---|---|---|---|
| Old cap | New cap | Old cap | New cap | |
| Auckland | $650,000 | $700,000 | $600,000 | $625,000 |
| Queenstown-Lakes | $650,000 | $650,000 | $600,000 | $600,000 |
| Napier City, Hastings and Waipā districts | $500,000 | $600,000 | $400,000 | $525,000 |
| Rest of New Zealand | $500,000 | $500,000 | $400,000 | $400,000 |
| Christchurch City, Selwyn and Waimakariri districts | $550,000 | $550,000 | $500,000 | $500,000 |
| Waikato district | $500,000 | $550,000 | $400,000 | $425,000 |
| Tauranga City and Western Bay of Plenty district | $550,000 | $600,000 | $500,000 | $525,000 |
| Wellington (Wellington City, Hutt City, Upper Hutt City, Porirua, Kāpiti Coast district) | $550,000 | $650,000 | $500,000 | $550,000 |
| Hamilton City | $550,000 | $600,000 | $500,000 | $525,000 |
| Dunedin City | $500,000 | $550,000 | $400,000 | $425,000 |
| Nelson City and Tasman district | $550,000 | $600,000 | $500,000 | $525,000 |
The Government went ahead with their plan to lift the first-home grant price caps, despite the fact that housing officials advised that this was likely to “inflate house prices. he risk is that the builders and developers will just increase their prices to match what first home buyers can now borrow. So while on one hand this looks positive, it could be a short period of time before the prices are lifted by the same margin as the increases meaning you will end up paying more for your first home.
3: The Housing Acceleration Fund Is Good
This is the best part of the announcement as it will help developers and Councils to develop land into housing.
After all the best way to “fix’ the housing market is to get supply to be close to demand and we are a long way off that now.
The problem is this is a long-term and is not going to change anything within the next few years. While this Labour Government has announced this and will take credit for it, in the past they have apposed this – it has been a political football.
One of the things we’re know is that a lack of the roads and pipe needed to service new housing is one of the main infrastructure blockages that are holding up the building of new homes. The reason for this not being done is due to the lack of funds as the Councils need the income from rates to fund the infrastructure, but that does not come in until after the houses are built. It’s a real chicken / egg situation.
When Hobsonville Point was built the infrastructure came first and that has worked really well. Another example is the Christchurch rebuild which has been hugely successful and it’s an area where house prices have not been out of control like many areas proving supply is a major factor in managing house prices.
To deal with this the Government are launching a $3.8 billion Housing Acceleration Fund, which should help speed up the pace and scale of house building.
This is really the highlight of the announcements, but is overshadowed as people do not realise the significance. The only criticism is that there will not be nearly enough money to make a real difference, but as it shows to work it may get more funding – let’s hope!
Will These Changes Really Help First Home Buyers?
We keep hearing that there is no “silver bullet” to fixing the property market and unfortunately it has become a political issue.
But we did expect to see some really positive changes for first home buyers.
It wasn’t long ago when the Labour Party was promising that KiwiBuild would fix the housing market, and while many people believed that it would help it has been a massive failure. They have used a huge amount of tax payers money to build fewer houses than were getting built previously, and now we never really hear much about it – KiwiBuild has been an embarrassment to this Government.
So when the Government (any Government) says they are going to intervene with market forces to “fix” a problem it is understandable to not believe them.
Most of us were expecting something transformational … but we really only got some minor tweaks.
They could have done so much more to help first home buyers.