Gazing into 2015
From a rental property investor’s perspective, another interesting 12 month period is in store. So what can we expect in 2015?
Notions of subsidising private landlords and rising housing unaffordability especially in the Auckland and Canterbury markets remain big headline makers and the simmering debates can be a boil over for political reactions.
The Government will want to curb the housing boom, assist affordability and make sure investors, domestic or foreign, are not dominating the New Zealand residential property market.
They will also want to see some evidence that their responses, so far, are being seen to be helping.
In terms of direct legislative risks for property investors, the Prime Minister in his post-election speech to Parliament gave no indication of any new priority reform areas or signalled any changes to tenancy law.
That said pending is the Building (Earthquake-prone Buildings) Amendment Bill which is to be reported back to Parliament by 30 March by the Local Government and Environment Select Committee. If passed in its current form the bill requires multi-storey or multi-unit residential buildings with 2 or more stories AND 3 or more household units to be earthquake strengthened to minimum building standards.
From around mid-year we can expect to see a private member’s bill to be presented to Parliament. Sponsored by Phil Twyford The Healthy Homes Guarantee Bill proposes to make every rental property in New Zealand meet minimum standards for heating and insulation.
The Green Party has a similarly intentioned bill in the name of Metiria Turei entitled: Energy Efficiency and Conservation (Warm Healthy Rentals Warrant of Fitness) Amendment Bill.
Harder to predict is the Government’s response to the trialling of a warrant of fitness scheme across its state house portfolio. The WOF trial is being led by Building & Housing Minister Nick Smith.
The Government’s final position and any WOF recommendations are of vital interest to the Federation as follow-up requirements could potentially create downstream repercussions for the private rental industry.
In parallel moves, local councils (at least 5), social groups, academics, opposition MPs and others have also long pushed for a WOF regime for ALL rental properties. Their rhetoric could gain new traction based on any WoF requirements for Housing NZ properties. The Federation will continue to point out to policy makers that a compulsory WOF is overly simplistic and will reduce the housing supply, and the cost of registration or compliance, would be simply passed on to tenants.
From a macro perspective, the Reserve Bank is expected to move on its proposed property threshold rule as it strives to make banks hold more capital against loans to rental property investors.
It means that those with five or more investment properties could be required to have higher equity requirements and be charged higher mortgage interest rates. The central bank expects that interest rate increase could manage investor demand.
The new lending requirement had been proposed to start from last December, but has been delayed until at least the first half of 2015 while the Reserve Bank continues consulting with banks.
Any interest rate increases poses a very big risk for some property investors and of course cause collateral damage in other provinces especially for those outside of Auckland and Canterbury.
In his first major speech of 2015 (28 January) John Key noted that the Government pays out $1.2 billion in accommodation supplements and $700 million in income-related rent subsidies, both of which are set to expand. He also confirmed plans to sell 1000 to 2000 state houses in the next year to be run by community housing providers with more sales possible over the next few years. The Budget, due in May 2015, will likely include further measures around influencing housing supply.
There is also likely to be further endorsement for IRD to chase residential property speculators. Inland Revenue has been proactively tracking down people or entities attempting to avoid paying tax and this was showing big dividends.
If recent Australian Government moves to put in place a register of property ownership to help establish how much is held by overseas owners are any indication, then the NZ Government may be under pressure to commence work on their own register of foreign house owners. A register, or some such, cannot be ruled out.
During 2015 it is likely the Government could follow up on the recent Law Commission’s Review of Trusts and the recommendations it has made for reform. This means there is likely to be increased risk and liabilities in the future for the trustees of the 500,000 trusts in New Zealand.
With Parliament resuming its sitting program in mid-February the Federation will look for early opportunities to update Parliamentary housing spokespersons including Phil Twyford (Labour), Denis O’Rourke (NZ First) and Kevin Hague (Green Party) on Federation perspectives. These are in addition to the 3 senior ministers focused on housing (Nick Smith, Bill English and Paula Bennett).
In his state of the nation speech (delivered 28 January) Labour Leader Andrew Little did not spell out any policy details. The party is currently conducting a review on their election campaign and where they stand on Capital Gains Tax and ring fencing of property tax losses. Those review findings are expected to be released in February.
On a brighter side landlords will soon be able to lodge tenancy bond payments online. At present, the only way they can do it is by cheques paid to the Ministry of Business, Innovation and Employment. Building and Housing Minister Nick Smith said a new payment system, is expected to go live towards the end of the year.
In sum, property investors can look forward with some confidence in the coming year however housing in general remains a contentious theme with it being key area of focus for politicians. Accordingly, this carries with it a range of legislative and regulatory risk which the Federation will continue to monitor seriously and manage.