Auckland housing investors likely to ‘worsen the damage’ – Reserve Bank

Spencer said that macro-prudential policy, limits on bank lending, could help moderating the risks to the financial sector and broader economy associated with Auckland’s housing market. Half of the new lending to investors is being written at loan-to-value ratios of over 70 per cent.

Auckland prices rose a further 24 per cent over the past year, compared to 3 per cent for the rest of the country.

He said the RBNZ recognised low interest rates had been a factor in boosting the housing market, but it couldn’t use that tool to cool the Auckland market.

“While some of this growth was at the expense of first-home buyers in early 2014, the more recent increase from late 2014 has been at the expense of “movers”, Reserve Bank deputy governor Grant Spencer said today.

“Investors are now accounting for 41 percent of Auckland house purchases, up 8 percentage points since late 2013”, Spencer said.

“In the meantime, net migration is at record levels, and investors continue to expand their influence in the Auckland market”, he said.

“The NZPIF disagrees that rental property activity is the prime cause of Auckland house price rises”.

“We have seen a particular increase in purchases by smaller investors and investors reliant on credit”.

From November, the bank will require higher loan-to-value ratio limits for rental properties in Auckland, and Labour leader Andrew Little says that’s a sign.

“Tax policy is also an important driver, and we welcome the changes – including the two year bright-line test – announced in the 2015 Budget”.

More intensification was needed, and key supply-side restraints remained a limited supply of ready land, restrictive planning processes and a lack of co-ordinated infrastructure development.

The speech was seen as an interim Financial Stability Report, as much as about monetary policy, economists said ahead of the speech. Banks will be able to make up to 15% of their new mortgage lending to borrowers with LVRs exceeding 80%, regardless of whether the borrowers are owner occupiers or residential property investors. Banks faced restrictions in their lending to home-buyers with a deposit of less than 20 per cent.

The central bank said about half of all Auckland investor loans now have equity of less than 30 per cent. The response must be multi-faceted because “the current weakness in export prices, economic activity and CPI inflation means that interest-rate increases are likely to be off the table for some time”, he said.

Labour’s housing spokesman Phil Twyford says Mr Spencer has delivered a “scathing criticism of the Government’s inaction” on the housing shortage.

The situation would be heightened if banks then tightened their lending conditions markedly as it would result in greater declines in asset markets and larger loan losses for the banks. “Maybe Nick Smith should stand down as Housing Minister and ask the Reserve Bank to take his job”.