Elections rarely disrupt market activity from its existing trends, research has found, but Colliers says this one could be an exception
Research undertaken by Colliers on residential and commercial property market sales activity immediately prior and post the past seven elections in New Zealand highlights that elections rarely disrupt market activity from its existing trends, unless there are significant government property-related policies in the limelight.
Given the current differing policies and views between the major parties, and the recent resignation of the Prime Minister creating policy uncertainty, there is potential that the 2023 General Election in October will have a rare influence on property market sales activity, but mostly for the residential sector.
Residential
In six of the seven election campaigns since 2000, there has been little influence on sales activity. However, the one exception was the 2014 election campaign. In 2014, Labour promoted a capital gains tax (CGT) and restrictions on the ability of overseas entities to purchase residential property. These policies contrasted with National’s, which were viewed as supporting the status quo. This divergence saw a slowing of sales prior to the
election date and a surge following it when the emergence of a National-led government removed the uncertainty in outcomes.
Market dynamics during other campaigns post-2000 have been influenced more significantly by regulatory, economic, financial, and demographic drivers such as changes to economic activity, lockdowns, LVRs, interest rates, access to finance, migration, and the availability of housing.
When assessing the housing related policies of Labour and National currently, there are some similarities, but also divergence, predominantly on social and emergency housing initiatives, and tax-related issues such as the extension to the bright-line test, and the removal of interest deductibility for landlords introduced by the current overnment. The RMA reform process, and infrastructure and funding programmes are also areas of divergence between the two parties influencing residential property markets.
What also impacts residential market activity is uncertainty. The change in Prime Minister nine months out from the election adds some uncertainty into the mix of policies that could impact the sector. More announcements on policies will be released under the new Prime Minister Chris Hipkins in the coming months providing more clarity.
However, current indications highlight some tweaks to the status quo.
An ongoing area of contention is CGT, but new Prime Minister Chris Hipkins clarified that he would be honouring the commitments that have been made for this term of parliament. Therefore, no changes are expected to be made in this area until mid-October. However, no indication was provided on what a future term may hold if Labour were to be re-elected. Inevitably, clarification on CGT will be needed to quell any market concerns. In the interim, investors may choose to hold back until the stance is confirmed, as well as the election result.
Commercial
Analysis of commercial and industrial property sales activity and elections since 2000 shows little divergence in purchasing trends when analysed against election campaign periods. This is potentially a result of the sector being less influenced by policy outcomes than the residential sector. However, there is an exception, which occurred following the 2020 election.
When analysing sentiment rather than activity, commercial property investors seem to indicate there is some influence on the market from elections. Colliers’ commercial and industrial property investor confidence survey results surrounding the 2011 election showed an increase from a net positive 4.4 per cent (optimists minus pessimists) in the December quarter of 2011 to 15.6 per cent in the March quarter of 2012. Following the 2014 election, the September quarter figure of a net positive 25.1 per cent increased to a net positive 30.6 per cent in the December quarter. In 2020, the election quarter result was 7.4 per cent, which increased to 22.9 per cent and 37.7 per cent in the two following quarters.
This indicates that commercial and industrial investor sentiment is affected slightly before elections more so than activity, but investors are quick to resume their pre-election activity levels soon after. It also highlights the importance of economic and financial stability and low interest rates. By way of example, the jump in 2021 sentiment and sales activity was a result of the record low OCR rate of 25 basis points and other quantitative easing measures in play at the time rather than the election. By March 2022 when interest rates were being hiked, investor sentiment declined to a net positive 5.4 per cent.
Therefore, rather than any current election policies influencing commercial and industrial sector sales activity in the second half of 2023 and the first half of 2024, it will likely be short-term economic and financial disruption caused by high inflation, increasing interest rates, and a Reserve Bank currently preferring to engineer a recession for 2023 rather than a soft landing.
