House price caps to increase - but is it enough to help first-home buyers?

Increases to house price and income caps are welcome news for first-home buyers but in the short-term, they may not be high enough, REINZ says.

On Tuesday, among a range of measures to help first home buyers, the Government announced it would raise price caps in 'target areas', along with income caps, effective from April 1. It would also pump $3.8 billion into accelerating the pace of new builds, increasing supply.  

But REINZ February data shows only a small percentage of homes sold were under the new price cap ranges. Acting CEO Wendy Alexander says while the increases are positive, current sales data shows they're unlikely to make a big difference in the short-term.

"Currently, only 13 percent of properties sold across New Zealand [7 percent in Auckland] fall under the thresholds," Alexander says.

"This is particularly true in places such as Porirua City, Lower Hutt City and Tauranga City where only 2 percent of properties sold recently were below the threshold."

Alexander was surprised to see no change to price caps in Queenstown-Lakes, Waimakariri District, Selwyn District, Christchurch City and 'the rest of New Zealand'.

"Currently, only 12 percent of properties sold in the Queenstown-Lakes District fall below the $650,000 threshold and only 11 percent fall below the $550,000 threshold in Selwyn District," Alexander adds.

First Home Loan and First Home Grant price and income cap rises

Under the Kāinga Ora First Home Grant and First Home Loan, first-home buyers can get up to $10,000 towards a new build home (up to $5000 for an existing home). They can also take out a loan with just 5 percent deposit. But house price and income caps restrict the number of buyers able to use them. 

From April, the price cap for existing homes in Auckland will rise to $625,000 and for new builds, to $700,000.  House price caps in Wellington will increase to $550,000 and $650,000. Income caps will rise to $95,000 for a single person, and $150,000 for two or more people.

The house price caps will take effect from April 1, 2021.
The house price caps will take effect from April 1, 2021. Photo credit: Supplied.

New price cap for Auckland could free up 414 homes

Over the year to February 28 2021, REINZ confirms 1795 homes above 50 square metres and below $600,000, were sold in the Auckland region.

Based on a Auckland price cap of $625,000 (effective from April 1), 414 more homes would've been eligible - a total of 2209 homes.

Auckland's median sale price, $1.1 million in February, grew 24.3 percent year-on-year. The number of homes sold within $50,000 of Auckland's lower quartile range of $820,000 was 298. 

As not all first-home buyers will be able to take advantage of the First Home Grant and First Home Loan, Mary Holm, financial journalist and author of 'A Richer You - how to make the most of your money' says in the long-run, house prices relative to incomes has to come down. 

The most important thing for first-home buyers is just to keep saving.

"Start with an automatic transfer into a savings account of a painless amount - perhaps $50 or $100 a week. Every month increase that by, say, $10," Holm suggests.

Among other measures announced by the Government on Tuesday are the extension of the bright-line test (tax paid on investment property) to 10 years, excluding family homes. The ability for property investors to offset their interest expenses against their income for tax benefits will also be removed.

With fewer incentives for property investors, changes to tenancy rulesLVR restrictions back in and house price growth forecast to slow first-home buyers may decide it's worth saving and waiting rather than rushing in to buy.

More information on price cap and income cap changes for first-home buyers can be found here