The development of more homes at scale and pace was a primary campaign focus for the incoming National-led government, with changes expected to shift the dial for residential developers. Bayleys’ National Director of Projects, Suzie Wigglesworth, investigates what this means for the market.
A new government with pro-housing policies is broadly expected to add some flavour to a flat development market impacted by high construction costs, low off-the-plan sales and challenging lending conditions.
Despite a housing shortage and regulations designed to promote new-build property development, challenges have persisted for developers, and over the last 18 months, we’ve seen many abandon projects and exit the market altogether.
“However, selling conditions immediately improved following the announcement of a change in New Zealand’s government,” says Bayleys National Director of Projects, Suzie Wigglesworth.
“Selling conditions immediately improved following the announcement of a change in New Zealand’s government.” - Bayleys National Director of Projects Suzie Wigglesworth
“While we won’t exactly know how particular policies will progress until after special votes are counted and coalition negotiations are concluded, a change in guard is expected to yield progress in the space,” she says.
In its housing manifesto, the National Party said that despite being a country of just five million, with a land mass the size of the United Kingdom, New Zealand has some of the least affordable housing in the developed world, and it aims to encourage greater investment as the remedy.
“Given our population grew some 110,000 over the last year, at the same time building consents dropped by double digits across main centres, Kiwis urgently need action in the delivery of new homes,” Ms Wigglesworth says.
The new government has proposed policies designed to address this on multiple fronts:
• Encouraging foreign investment;
• Simplifying the building consent process;
• Addressing infrastructural funding issues and;
• Incentivising councils to accelerate development.
“Many are talking about National’s policy to let foreign buyers purchase homes for more than $2 million with a 15 percent tax.
“While it will be crucial for the party’s credibility that the policy doesn’t drive up property prices, it is expected to be a buoy for off-the-plan development sales, particularly for high-end boutique apartment developments of which foreign investment is a critical market.
“Through our partnership with global property consultancy Knight Frank, we know high-net-worth individuals from the Asian economy are seeking investment opportunities in the Asia Pacific region, and we expect international interest in a limited supply of luxury developments will receive a boost from this policy should it be progressed.”
“Through our partnership with global property consultancy Knight Frank, we know high-net-worth individuals from the Asian economy are seeking investment opportunities in the Asia Pacific region.” - Bayleys National Director of Projects Suzie Wigglesworth
New Zealand is not short of land, but restrictive planning rules and a broken funding system have driven up the price of land and housing, creating a social and economic disaster, National’s Housing for Growth manifesto says.
“National has indicated it will renege on Medium Density Residential Standards (MDRS), preferring to see councils in larger centres zone enough developable land for the next 30 years’ worth of housing.
“This will be through greenfield development or greater density, particularly along transport corridors, with a government mandate creating opportunity for developers.
“However, the elephant in the room remains – who will pay for the supportive infrastructure?”
While National has proposed reforming the Infrastructure Funding and Finance Act (IFF), Resource Management Act (RMA) and Building Act to provide more efficient pathways for councils to work with the private sector, it will also incentivise development, dishing out $25,000 for every house delivered above the five year average in that council area.
“Given ageing infrastructure and pressure on council balance sheets, the $1 billion fund for councils to stimulate development activity is expected to progress public sector partnerships, which will be critical in delivering new housing,” Ms Wigglesworth says.
“At the same time, changes to the RMA and Building Act are tasked with supporting development firms to build houses faster, cheaper and easier, improving the value proposition for stakeholders.”
For developers, the mood of the market has shifted and improving residential market dynamics are a bright spot after a challenging post-pandemic recalibration.
While there has been a sharp slowdown in construction costs and high demand for housing courtesy of migration and the return of residential investors, interest rates are expected to stay higher for longer, and funding is a key constraint for residential developers.
Ms Wigglesworth says lending institutions remain risk-adverse, evidenced by the rise of second-tier funders and fewer large-scale projects progressing to the construction phase. “Interest rates are unlikely to come down until, say 2025, so funding is expected to remain a key constraint on development activity.
“This means we will likely see the planned development pipeline narrow, increasing buyer competition for a smaller pool of off-the-plan properties as they come online in the years to come.
“There is a tendency towards slightly higher business confidence when a centre-right government is in power, making the housing market a more attractive place to invest.
“While this bodes well for development activity, interpretation of changeable policy remains challenging, with firms increasingly seeking qualified advice in bringing projects to market. “In this regard, Bayleys’ New Build team is positioned to bridge the gap as the expert conduit between buyers, sellers and developers, recognising the strong connection between dedicated expertise and achieving the very best result,” she says.