Any Real Solution For NZ Real Estate & Market ?

Just when you thought that the government will leave the market alone after recent inflation increases, it seems as though the government have now swung their mighty mallet in the form of changes to the CCCFR, to finally put a nail in the property market coffin.

As the readers will know, this is not the first time the free market system has been pushed aside, other attempts by the Labour government to reign in the property market include:

1. Removal of depreciation
2. Reduction of landlord’s bundle of rights
3. the extension of the bright-line, removal of interest rate deductions
4. Reduction of LVR for investors so they require more equity to purchase
5. Central bank reducing number of low deposit loans allowed by banks
6. Debt to Value changes – more stringent now
7. Changes to the Credit Contracts & Consumer Finance Act(1)

The last blow comes when the market finally faltered as the rise in interest rates started to take effect. This has bought the property market down to one knee, finally visibly wounded as shown by several Auckland property auctions passing in and a reduction in the number of sales.(2). The government, seeing the weakness of the adversary that has being haunting them over the last two years, came in with a crushing blow to finish the job.

However, the market is down but by no means out.

The property market has been hit before, mostly by laissez-faire forces as opposed to government interference, but the effect has been the same. History shows that the market finds a way to bounce back, it has before and will in the future. See below for the statistics of the rising market since 1992. (3)

The market knows that there are a large number of kiwis wanting to return home. A survey of 15,000 ex-pats was carried out and 49% said they will becoming home. There are approx.. 1 million ex pats currently overseas.(3A) When the world opens up again post covid, the demand for property will follow and so will the increase in prices. The new Housing policy (4) which is expected to be effective from August 2022 is designed to increase the supply, thereby counteract this increase in prices. However the writer believes that the policy is chaotic and is a slightly desperate attempt to try to make a workable difference before the next election. The plan demands that infrastructure be upgraded and installed where it currently isn’t, for this plan to work. The trouble is the Councils do not have the funds to implement this radical process and sometimes effective workable action just takes time.(5)

CCCFA

So lets take a closer look at this mallet that may or may not have taken the property market from one knee to be laid out flat on the floor.

The CCCFA was changed back in 2015 and calls were made after that that the changes were not substantive enough to counter the irresponsible lending of loan sharks to the broke and unsophisticated among us. In heeding this call the government has now doubled down on the restrictions which was a blanket move covering all and sundry. Now, first home buyers, investors and developers are having their loans turned down from the main banks for fear from the lenders of doing something wrong.

If a director or even a manager of a lending institution allows one of their staff to provide a loan to an individual who has a frivolous spending habit on something that is not deemed appropriate by the authorities, then that individual could well be in hot water. Hot to the degree that the Manager/Director could be fined up to $200,000 and they cannot ask their company to reimburse them or in anyway to cover said fine. So, as you can imagine the banks are being ultra careful and have provided a stringent new policy that provides an attitude by their staff that customers are guilty unless they can subsequently prove their innocence. (6)

The due diligence that the lending company needs to undertake is related to the client’s ability to repay. If the proper and full enquiries are not carried out and the loan fails, woe behold the lender as the courts have a long list of perpetrators that have previously been caught out and fined.

Penalties

The CCCFA has captured several large companies for various breaches of disclosure. For example, last year:

• Harmoney ordered to pay back $7M to borrowers for unreasonable fees
• ASB ordered to pay $8M in compensation to borrowers for disclosure issues
• UDC Finance agrees to pay back borrowers for dishonour fees
• Auckland Council warned of irresponsible lending regarding the Retrofit your home program

All in all, the government, I believe, is providing good policy to keep those in the game, honest and to depress the greed factor.

The CCCFA crack down on dodgy lenders has affected the property market like never before and one would wonder about the coincidence of this seemingly unrelated Act of parliament to control the loan sharks is now directly affecting the property market.

Coincidence?

The Minister of Commerce and Consumer Affairs, the Hon David Clark is making an official enquiry on whether the banks have acted over the top in response to the changes in the CCCFA. Clark stated:

 "Banks appear to be managing their lending more conservatively at present, and this is likely due to global economic conditions. It may also be that in the initial weeks of implementing the new CCCFA requirements, there has been a decision to unduly err on the side of caution,"(7)

This has been the situation (8):

Note that the changes in the CCCFA came out on 1^st December 2021, Check above what happened in December 2021. It seems that the Act to stop the small dodgy dealers was used precisely to affect the property market and it also seems that this wolf in sheep’s clothing may well have done the job.

Summary

Along with all the tools this government has thrown in front of the runaway property market, some of them have been unnecessary and some have had a minor effect. In the end the natural market forces such as inflationary pressures has slowed the market with little influence from the local government. The CCCFA came along at the end to finish off the job. Laissez-faire is French for ‘Let it be’ and is the mainstay for our capitalist system, allowing markets to self-regulate. This is all good and well however as if the government did nothing, they would have been burnt at the stake.