While there was a surge in house prices between 2020-2022 (the Covid years) prices have fallen back. Prices peaked in 2022. In Wellington over the last 3 years house prices on average have fallen back 24%. Auckland is down 2%, Christchurch increased slightly.
Why Wellington is a special case? Wellington City population increased by only 48 people between the 2018 and 2023 census data. Wellington does not experience the immigration pressures that Auckland does and also the reduction in Government employees.
The key drivers reducing the investment appeal of rental properties are:
- The ability to claim for depreciation for buildings was removed in 2011.
- Debt to income rules have tightened requiring higher equity levels when applying for loans
- In 2019 a ‘ring-fencing’ rule meant property losses could not be offset against your salary. The losses had to be carried forward and offset against future rental profits or against taxable gain when the property is sold.
- Higher costs of running rentals eg council rates, insurance, maintenance healthy homes
- The boom in property between 1992-2021 was fed by interest rates dropping. Interest rates have now bottomed and should are likely to start rising 3rd
- Increased construction of town houses and change in the number of units that can be built on one section. Auckland is currently experiencing a surplus of townhouses.
- Older investors are selling in order to fund retirement.
- Reduced expectations for long-term capital gain.
- Fear of a Labour Government introducing tax on capital gains and a wealth tax.
- The Bright Line test. This determines if profit on the sale of an investment property is subject to tax. Existing properties bought after 27 March 2021 (10 year bright-line period), new builds 5-year bright-line period are subject to tax on the capital gain if sold within these periods.