How to tank the NZ housing market

Labour hammers in the final stake

If you wanted to deliberately tank the New Zealand housing market to make homes worth less, then you would do what the current Labour-led government is currently doing.

Step one would be to put financial pressure on landlords to dissuade them from buying more investment properties and to encourage them to sell the rental properties that they already have.

That is already happening and Phil Twyford’s latest announcement put the final stake through the landlord’s heart. The new demands to make a tenant’s home of a higher standard (than in many cases the landlord’s own home) coupled with the coming Capital Gains Tax will stop all but the most dedicated landlords in their tracks.

After all, why should the average landlord take all that risk and put up with all the recently added costs of providing accommodation when the tax advantages have been taken away and any potential capital gain at the end will be ruthlessly and greedily grabbed by the government as well?

Step two of any plan to tank the New Zealand housing market happens when landlords en masse start offloading their properties and no new landlords enter the rental market. The houses are instead sold to home owners and the available market of rentals available to tenants rapidly shrinks.

With so many properties flooding the market prices will go down. New home owners will be able to negotiate bargains and this in turn will reduce valuations and that is when the pain really starts to be felt.

Landlords who have owned a property for ten or more years (those that are now worth around a million dollars) will sell them for $750,000- $850,000 to get rid of them quickly before the Capital Gains tax comes in. They will breathe a sigh of relief to have exited the market with some cash in hand but their home-owning neighbours, with recently purchased identical properties, are going to be in trouble when the bank informs them that their property is now worth considerably less than what they paid for it a year or so ago.

If a homeowner purchased a home for around a million that is now worth $750-850,000 they will find themselves being told by the bank to put thousands of dollars more into the mortgage. The banks simply won’t care if the homeowner cannot afford to do that. The banks already have a 20% deposit and a quick mortgagee sale will easily get them back what they are owed.

This flash of quick sales or mortgagee sales will tank the housing market even further. These bargains, however, will not be bought by landlords they will be bought by homeowners. However, as the housing market tanks, people tend to hold on to their money in the hope of buying at the bottom of the market so sales will stagnate and prices will lower even further. Who wants to pay $750,000 for a house that may be worth only $650,000 in a years time? In a tanking market that is a real risk.

The cost of building a new house won’t go down, but the cost of buying a new house will. The Kiwibuild “affordable homes” will become some of the most expensive homes out there when compared to the secondhand home bargains that will be available for first home buyers to purchase.

If the Labour party were deliberately trying to tank the New Zealand housing market they couldn’t do a better job of it than they are already doing.