IT professional Brendon Miszka and his wife Gauri are inspecting a house in Sydney’s northwest suburb.

They wanted to buy their first home but, despite the good work and decent deposit, they found it difficult.

“I think we are competing with a lot of people who would prefer to take more risks,” Brendon told me.

“There’s a general attitude that you go to the bank and see what the maximum amount the bank is willing to lend me and then go out and try to spend all that money on a property and everything will be fine.”

Edwin Almeida is their buying agent – he’s a property consultant with 25 years of real estate experience in both buying and selling.

“I’ve never really seen anything this hot,” he said.

While real estate agents are often known for their tendency to exaggerate, CoreLogic’s latest March data on house prices supports his observations.

“Over the month, Australia’s occupancy rate was 2.8 percent,” said Eliza Owen, head of Australian research CoreLogic.

“That’s the highest growth rate we’ve seen since October 1988 and it’s pushing values ​​6.2 percent higher throughout the year.”

Kiwi leads the way

But if you think the Australian property market is hot, try crossing it.

Since the COVID-19 pandemic hit a year ago, prices in New Zealand have risen by more than 20 percent, and about 25 percent in its largest city, Auckland.

“The economy was improving in its last place, only with lower interest rates, so the housing market massively exceeded expectations,” explained Sharon Zollner, ANZ chief economist for New Zealand.

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Like Australians, New Zealanders were already managing record mortgage debt before the last boom.

Unlike Australia, regulators are already starting to do something.

The Reserve Bank of New Zealand has had a cap on low deposits, or a high loan-to-appraisal (LVR) ratio, of loans since late 2013.

Limit it Australia did some a year later.

Australia removed these restrictions a few years ago, after the country’s largest housing markets – Sydney and Melbourne – saw prices fall by 10 percent or more.

But New Zealand held it back, only temporarily dropping it during the pandemic.

“The Reserve Bank suspended the LVR limitation for 12 months but, in the end, they reimposed it earlier than they expected,” Zollner said.

“The banks themselves were running it up front and putting it back even earlier than that.”

Ardern’s controversial tax change

But that’s not enough for the Ardern government, which was first selected on a platform to increase housing affordability.

First, he asked the Reserve Bank to consider house prices in its interest rate policy, a move the RBNZ rejected, which resulted in watered down terms.

“If the Reserve Bank does have to take housing prices into account to the extent that they take both inflation and employment into account, we will at some point have to swap jobs for homes,” said Brad Olsen, senior economist at Infometrics.

So now the Labor government has taken action on its own, with sweeping changes to New Zealand’s property tax.

“In the past, capital gains in New Zealand were generally not taxed on housing,” said Mr Olsen.

“Now the rules are very strict that anyone who sells a house, who was previously in five years, now anyone in 10 years, has to pay taxes on those capital gains.”

More controversially, the New Zealand government has removed a tax deduction on mortgage interest costs for property investors.

“Now investors cannot claim their interest payments to lower their overall tax burden,” explained Mr Olsen.

Ardern’s change of government was far more dramatic than the proposal that the Australian Labor Party submitted to the last federal election.

New Zealand has effectively hedged off claims for reduced interest on property income only – what the Australian Labor Party proposed, effectively removing negative gearing.

Now investors cannot withhold mortgage interest payment tax at all, even against their rental income.

Mr Olsen said that means the property is selected from nearly all businesses and other investment activities.

The changes are already in effect for new investments, and there is a four year transition for existing investors.

‘Now is the time’ to limit interest deductions

Some analysts had predicted that would shift New Zealand property prices from a 20 percent increase to a 10 percent decline.

But Brad Olsen disagrees.

“This will put some of the higher leveraged people out of the market and will likely see house price growth slow down significantly,” he forecasts.

“But in our forecast we don’t expect house prices to fall any time soon, as there is still a significant housing shortage in New Zealand.”

He said there were other factors currently softening the blow.

“Now is the time where there will be less impact on a lot of investors with low interest rates and the payments they are making are not as big as they were before.”

Will Australia follow again?

But what does all this mean for Australia?

ANZ economists on this side of the trench see us on the same trajectory as New Zealand, only months behind.

“Australia is rapidly catching up and so are our expectations by the end of the year – house prices are up about 17 percent – we will be in the same position as in New Zealand now,” said Felicity Emmett, senior economist with ANZ in Australia.

The prospect of an imminent property tax change seems minimal, with the Morrison government having campaigned hard against them in the last election and Labor yet to recommit to them.

However, Emmett is part of a growing chorus of analysts who now see it as almost inevitable that bank regulator, APRA, will again limit home lending later this year to cool the housing frenzy.

“Previously, they had introduced limits on investor lending and interest-only loans, so that’s a possibility,” he told me.

At the AFR Banking Summit earlier this week, the chair of APRA recognized the chorus, but suggestion is vague that the so-called macroprudential lending limit is complete.

By contrast, Wayne Byres played down the recent increase in low-deposit and mortgage loans that were at least seven or eight times the borrower’s annual income.

“It appears to be highly correlated with what is a significant increase in the share of first-home buyers who have been on the market to date,” he told the assembled bankers.

Prospective first home buyer Brendon Miszka may disagree with him.

“The size of the loan is a bit intimidating compared to income and figuring out how long it will take to pay off all that,” he told me.

“When you look at a list that’s probably $ 1.2 million in price and the house ends up selling for $ 1.9 million – whenever something like that happens you wonder, ‘I’d better think about increasing the budget, should I try and borrow more’. “

But he and his wife didn’t want to be pushed into a lifelong debt trap to buy a house.