Will the official cash rate fall below 5% this Wednesday? New housing development finance scheme opens today! This week's key events for property investors

 

1

 

  How will the Reserve Bank respond to expectations of an OCR cut?

 

OCR movements from 2000 to the present (Source: Reserve Bank of New Zealand)

 

CoreLogic chief economist Kelvin Davidson said the Reserve Bank of New Zealand was very likely to cut the OCR by 50 basis points to 4.75%. Financial markets and leading economists also widely expect this adjustment. “With economic data remaining weak, further reducing inflation risks is clearly the Reserve Bank's top priority,” he said. Davidson noted that while there had previously been concerns that lowering the OCR would push up house prices, debt-to-income ratio rules now provide a degree of protection for the market. He expects these rules to begin taking effect next year.

 

 

2

 

  Inflationary pressures may continue to ease

 

Two days after the Reserve Bank's decision this week, Stats NZ will release monthly inflation data, including key measures such as rents that account for around 45% of the overall consumers price index (CPI). The latest figures are expected to show a further easing of price pressures, creating scope for more rate cuts. Falling net migration and stabilising rents are also helping to ease inflationary pressures in the economy.

 

 

3

 

  Government plans a KiwiBuild-style

  underwriting scheme to support housing development

 

On 4 October, Housing Minister Chris Bishop announced that the Government would introduce a new underwriting scheme to help private housing developments secure finance (click to read: Breaking! Government announces bold plan to rescue the market: new housing development finance scheme set to launch! Will developers find it easier to secure finance?）。The new scheme opened for applications today (7 October). The scheme aims to get projects under way by committing the Government to buying unsold homes, ensuring developers can meet banks' presale requirements. The scheme is seen as a revival of a proposal from 2020 put forward by the Labour government but never implemented.

 

New Zealand Housing Minister Chris Bishop

 

Bishop noted that building homes usually takes more than 18 months, so developers need to act quickly to address the challenges of high interest rates and low building consent levels. Building and Construction Minister Chris Penk said the scheme would apply to projects of more than 30 homes, with no price limits or buyer eligibility restrictions. It primarily targets the five largest cities but is also available elsewhere. Penk said the number of homes supported would depend on local economic conditions and developers' needs.

 

Urban planner Malcolm McCracken, who has previously advised the Government on housing policy, believes the policy could be positive and effective but has come late. Labour spokesperson Kieran McAnulty criticised the Government's changes to schemes for creating unnecessary uncertainty. Independent economic commentator Michael Reddell also questioned the move, saying the Government was providing free insurance to large companies without making a compelling case for intervention.

 

 

 

4

 

  Lower mortgage rates have yet to lift house prices

 

Although commercial banks have been cutting mortgage rates for several months, house prices have yet to show signs of recovery. CoreLogic's latest figures show national house prices fell 0.5% in September, the seventh consecutive monthly decline. Since February, New Zealand house prices have fallen by nearly 5%, while Auckland prices have dropped by around 7%. By comparison, prices in Dunedin and Christchurch have held up relatively well.

 

Davidson noted that although the downward trend in house prices would end at some point, sellers needed to adjust their expectations for prices over the next 12 to 18 months. Housing affordability pressures, a large supply of listings, a weak labour market and forthcoming debt-to-income rules could all put further downward pressure on prices.

 

 

5

 

  Home ownership rises

 

Continued weakness in house prices has created opportunities for first-home buyers to enter the market. Early figures from the 2023 Census, released by Stats NZ last week, show New Zealand's home ownership rate rose from 64.5% in 2018 to 66.0%. Waimakariri (82.2%) and Selwyn (80.5%) had the highest rates, while Hamilton (53.5%), Wellington (58.6%) and Auckland (59.5%) were relatively low. Although the figures contained few surprises, the rise in home ownership is clearly a positive sign.