Potential property market implications of a National and ACT coalition

How the two parties’ taxation, financial regulation, economic policy and spending priorities could impact the commercial property market.

National and ACT are largely cohesive on major policy initiatives impacting the property market, with overlaps and similarities across several policy areas, although ACT generally advocates for more aggressive versions of the same reforms.

Zoltan Moricz, CBRE Executive Director and Head of Research, said a stand-out point is the significant focus from both parties on policy initiatives that will remove red tape in the property and infrastructure development sector.

“If implemented successfully, policies aimed at simplifying and speeding up land development will have positive impacts across all property sectors from a supply perspective, notably in the housing market.”

Policies around increasing foreign investment, shortening or removing the bright-line test and streamlining consenting processes are proposed by both parties. These are considered to be generally positive for the property sector overall. However, National’s plan to remove depreciation on commercial buildings is likely to have counter-productive outcomes.

“Rather than a one-way flow of benefits, there will of course be both positive and negative implications of the proposed policies on different sub-sectors and participants in the property market,” Moricz said. “Focused lobbying from the industry on some proposals could be beneficial in achieving optimum outcomes.”

Foreign Investment

Foreign investment into New Zealand commercial property has dropped dramatically. Over the five year period from 2018 to 2022, the average net annual flow of overseas investment into New Zealand reached around $628 million. In the first half of 2023, overseas investment plummeted to just $93 million. Both National and ACT seek to amend the Overseas Investment Act to attract foreign investment back to New Zealand shores. ACT’s proposal to exempt OECD member countries from the Overseas Investment Act regime, except in cases of important national security assets, could widen and diversify the pool of potential foreign investors and improve liquidity in the New Zealand investment market. National also proposes to amend the Overseas Investment Act to help encourage the development of more build-to-rent housing.

Changes or Elimination of Bright-Line Test

National wants to reduce the bright-line test period for rental properties back to two years, while ACT proposes it to be completely scrapped. Either initiative is expected to be largely beneficial to the liquidity of the residential property sector, with potential for capital released from residential investment to be channelled into the commercial sector.

Streamlining Consenting Processes, Enabling Land Development and Providing Incentives to Councils

A major focus for both National and ACT is facilitating more land development, faster. This is considered a strong positive for the property sector, said Jorge Chang Urrea, CBRE Christchurch Research Manager.

“While most of the parties’ policy proposals are specifically aimed at housing, there will also be benefits to the commercial market, through introducing quicker and more cost-effective consenting requirements for commercial property developers.” 

National’s proposed measures include streamlining building consents and enabling greater efficiency in construction, including redefining the Building Act to remove the need for consent for negligible product or design changes. 

National would also make two key changes to New Zealand’s planning system to reduce resource consent timeframes and costs: introduce an infrastructure fast-track consent process and a quick decision framework for projects qualifying as major infrastructure priorities (MIPs).

ACT considers serious reforms will be required to the current resource and building consent regimes as part of its plan to increase housing supply. The party advocates for greater certainty and lower costs for developers by reducing consenting red tape, costs and timeframes. 

National proposes to incentivise councils with a $1 billion fund to be distributed to councils which deliver more new housing. National would also require councils in major towns and cities to rezone land to cater for 30 years’ worth of housing demand immediately. 

ACT has put forward an infrastructure cost-sharing plan whereby the government would share 50% of GST revenue raised from the construction of new homes with councils. This aims to provide councils with adequate incentive and resources to facilitate housing growth. 

Ending Depreciation on Commercial Buildings

National’s proposal to remove the commercial building depreciation tax break is expected to have a negative impact on the commercial property market, by deterring investment into maintaining and improving buildings and likely adding extra costs to business. The move would also result in the New Zealand property market becoming less attractive to foreign investors compared with Australia, where there is a favourable tax regime allowing investors to claim depreciation deductions. ACT’s position on this point is unclear.
The evolving political landscape therefore suggests both opportunities and challenges ahead for the commercial property market, Moricz said.

“The National and ACT parties’ initiatives indicate a strong possibility of a more favourable environment emerging for increased investment into the property market in New Zealand. However, some negative factors warrant close attention from the industry as the parties negotiate to form a new government.”