Steady rates today, strategic cuts tomorrow

Boosting market confidence and growth

The Reserve Bank's recent decision to hold the Official Cash Rate (OCR) steady at 5.5% is a significant move that has instilled confidence in economists and the public, signalling a stabilising market. Infometrics forecasts that the Reserve Bank will initiate a series of OCR cuts starting from August, as the easing population growth alleviates labour market pressures and wage growth, thereby driving annual inflation back to its 1-3 percent target.

"Interest rate cuts will be gradual, taking the OCR to 4 percent by the end of 2025, but the easing will help foster more positive trends in spending and investment activity," Infometrics chief forecaster Gareth Kiernan said.

Having a pro-business, pro-development government now in power has helped restore confidence in the commercial sector, with many commercial agents reporting a spike in enquiries and activity. The confidence lift is mainly based on a government that listens to the business community and makes prompt decisions that enable businesses to grow.

The promise of lower interest rates, cost of materials coming back 12-15%, softening of cap rates, and a commitment to revamp the Resource Management Act (RMA) to fast track and streamline the consenting process has seen developers and investors re-entering the market. With vendors adjusting their price expectations more in line with purchasers, activity is strong, with deals in the sub-$20 million market up on the last quarter.

Prime Minister Christopher Luxon has outlined a comprehensive plan for significant housing policy reforms, which he aims to implement before the end of June. The government has started publishing quarterly 'action plans' to ensure the timely delivery of these reforms. While many of the targets are easily attainable, the public disclosure of each step serves as a reminder for the ministers to maintain momentum in their portfolios. The government's 36-point plan includes four items that directly address the property market, with proposed changes in zoning rules, public housing, rental regulations, and construction materials.

The Minister for RMA Reform, Chris Bishop, has indicated that work on the bill is happening at pace, and the bill is intended to be introduced this month. The fast-track process will be similar to the existing processes (i.e. two stages, with a Ministerial decision at the referral stage followed by an Expert Consenting Panel at the consent stage). Some projects in the legislation itself are expected to automatically go to the second stage (i.e., the referral would be baked into the legislation), making for a fast and cost-effective consenting process.

"New Zealand's consenting regime is holding New Zealand back. Our fast-track proposals will lift New Zealand's living standards, lift productivity, and grow our economy – all while still protecting our environment. We have let the RMA hamper progress for decades – today, we say 'no more'. It's time to get New Zealand moving," Minister Bishop stated recently. At this stage, the fast-track process is limited to housing and infrastructure. While these are both critical sectors, the door should not be closed on other projects that have the potential to provide significant benefits.

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