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New Zealand home loan affordability improved slightly in January after a fall in median house prices more than offset a small increase in fixed mortgage rates, Interest.co.nz’s home loan affordability report shows.

Affordability improved most in Wellington and in the region around Queenstown as median prices slid the most there. However, Queenstown is still the most expensive housing market in New Zealand relative to incomes, but is now only slightly worse than Auckland.

Affordability is only just better than its worst levels since early 2007 near the peak of the housing boom, the monthly measure calculated by Interest.co.nz found.

“The sharp drop in house sales volumes and the fall in the median house price in January has helped affordability as home buyers held back because of uncertainty around tax reform,” said Interest.co.nz Editor Bernard Hickey.

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By Bernard Hickey

Prime Minister John Key has announced in his opening speech to parliament that a land tax, a Capital Gains Tax and a tax on equity in residential property investments would not be considered in the May 2010 budget and had been ruled out by the Government. It was however looking at unspecified measures suggested by the Tax Working Group to tax property more to help pay for an unspecified reduction in the top personal tax rate.

(Updates with My view that Key exposed himself today as a timid follower, not a leader. Update 3 includes reaction link. Update 4 includes link to video of Key’s tax comments. Update 5 includes link to full speech)

Read the full speech here.

Watch on YouTube here.

“Some of the options discussed by the Tax Working Group are not favoured by the Government, for a variety of reasons, and will not be progressed,” Key said in speech notes prepared for the address and obtained under embargo by Interest.co.nz in Wellington.

“In particular, we will not be developing any proposals for a land tax, a comprehensive capital gains tax, or a risk-free return method (RFRM) for taxing residential investment properties,” Key said.

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The ASB Investor Confidence survey has found confidence rose in the fourth quarter of 2009 to a net 30% expecting better returns in the year ahead, the highest level recorded in the 12 year-old survey.

Property remained the popular investment, just ahead of bank savings accounts and term deposits.

Here is the full statement below from ASB.

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New Zealand home loan affordability was unchanged in November after house prices were steady nationally and a slight increase in income was offset by slightly higher interest rates, the BNZ Home Loan Affordability measure shows.

However, affordability worsened in Auckland and Northland through November because of a jump in house prices and affordability for first home buyers also worsened because of a rise in lower priced houses. Auckland is fast catching Queenstown again as the least affordable region in New Zealand as prices rise in the harbour city while prices fall in the alpine resort.

Affordability remains at its worst levels nationally since November last year and has degraded faster in late 2009 than at any time since the peak of the housing boom in early 2007, the monthly measure calculated by Interest.co.nz found.

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Prime Minister John Key has agreed that it’s not fair “on balance” that property investors pay no tax on NZ$200 billion worth of property, but he is not committing to taxing them. Key made the comments to TVNZ Political Editor Guyon Espiner in the final Q&A programme of the year.

My view

Key seems to be leaving himself some wiggle room for reforming taxes on property investment, but his comments are hardly a clarion call to get on with it. We’ll find out more after the Tax Working Group comes back with its report at the end of this and we see more detail in Budget 2010. It’s hard to be confident though that Key is serious about reform when he talks like this.

‘On balance’ he seems more like a populist politician reluctant to reform than someone who really wants to use government to make long term improvements in the structure of the economy.

Your view? We welcome your comments below.

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House prices were up 0.2% in the three months to October from the same period a year ago, but market activity remains below normal spring levels as listings fail to materialise, Quoteable Value has reported in its monthly report on house prices.

Prices remain 7.5% below the peak in January 2008, but are now up 4.1% from their trough in April 2009.

“Market activity remains below normal spring levels. The number of sales has remained relatively static over the past few months, and there is little evidence of an increase in new listings in most areas” said QV Valuation Manager Glenda Whitehead.

“The continued shortage of properties, especially in the main urban areas, is leading to a continued imbalance in the market with more buyers than available properties. As a result our Valuers are seeing many properties sell for well above their expected values. These demand-based price increases are likely to continue until the balance in the market changes.”

The full QV report is below.

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