AUD/USD and NZD/USD Fundamental Daily Forecast – Kiwi Pressured after NZ Government Closes Tax Loopholes

The New Zealand Dollar has been under pressure the last three sessions as investors reduced bets on higher interest rates domestically after New Zealand government announced plans to close tax loopholes that favored investor buying of houses, aiming to cool red-hot prices in the sector.

Traders reacted by assuming this would lessen pressure for any early tightening in monetary policy from the Reserve Bank of New Zealand (RBNZ). The price action suggests investors are now betting on lower house prices, higher rents, less future monetary policy tightening and less growth in housing debt going forward.

New Zealand Slaps Taxes on Investors to Cool Housing Market

New Zealand on Tuesday introduced a raft of measures to cool its red-hot housing market, slugging investors with new taxes and promising to boost supply after housing affordability fell to its lowest ever, Reuters reported.

Prime Minister Jacinda Ardern also pledged more support for first home buyers and foreshadowed further steps to come, with the country’s central bank currently reviewing proposed curbs on some types of lending.

“The need for further action is clear,” Ardern told a news conference. “The last thing our economy needs right now is a dangerous housing bubble. But a number of indicators point towards that risk.”

Ardern also doubled the country’s so-called bright-line test – the time that investors need to hold on to a property to avoid paying tax when selling – to 10 years.

Mixed Reaction to the Move

Opposition National Party leader Judith Collins slammed the measures saying more taxes on landlords would only push rents higher, and make homes more unaffordable for first home buyers.

The policy was another KiwiBuild, Collins said, referring to an earlier project by Ardern to build 100,000 affordable homes that was scrapped in 2019, Reuters reported.

The Banks Weigh-In

Westpac Bank said the moves could see home prices settle around 10% lower in the long-term, with potentially greater swings in the short term as some investors exit the market.

A tax policy change that no longer allows rental property owners to deduct mortgage interest from their expenses was a “game-changer”, Westpac economist Michael Gordon said in a note.

ANZ Bank chief economist Sharon Zollner said the measures were a bold move given how many New Zealanders had invested in property.

“For them it’s essentially a tax increase,” she said, adding that some investors may decide to offload property.

“It will have an impact on property demand from here, if nothing else, because the outlook for house price inflation is now tilted to downside and risk of house price falls has risen.”

For a look at all of today’s economic events, check out our economic calendar.