Australia’s big four banks face further restrictions on home lending in the lucrative NZ home loan market.
The Reserve Bank of New Zealand is looking after a further crack down on investor home buying a year after the bank and the country’s government tightened rules governing investors home buying, especially from overseas.
In a speech last night in NZ, the central bank’s deputy Governor, Grant Spencer warned the central bank was examining a number of options which include a tightening on regulations governing home lending to try and control investor activity, especially in the Auckland area.
Investors account for 46% of the transactions in Auckland, while its around 40% for the rest of the country.
The RBNZ and the Kiwi government introduced measures last year to restricdt investor activity from both within and without the country.
After the changes last year, banks are required to lend no more than 15% of their new loans to people with equity of less than 20%. In Auckland, they can lend no more than 10% of new lending to low-equity borrowers, and investors need 30% equity.
From yesterday’s speech by Mr Spencer, those changes are clearly nor enough.
Any tightening of the rules will clearly hit the NZ arms of Westpac, the Commonwealth, the NAB and the ANZ which dominate the NZ finance sector.
Earlier this week, the NZ government said the latest monthly House Price Index showed that nationwide residential property values for June have increased 13.5% over the past year.
Values rose by 5.6% over the past three months and are now 42.6% above the previous market peak of late 2007.
The Auckland market increased 16.1% year on year and 4.7% over the past three months. Values there are now 78.4% higher than the previous peak of 2007.
Those saw price growth, especially in the Auckland region slow, but they have picked up in the past three or four months.
Mr Spencer said growing imbalances in the housing market require policy action on a number of fronts by regulators, and by government as he indicated the government of PM, John Key, would be required to help in the crack down by changing tax laws on investment in housing.
He said the Reserve Bank “The Reserve Bank is considering tightening Loan-to-Value Ratios (LVRs) further to counter the growing influence of investor demand in Auckland and other regions, and to further bolster bank balance sheets against fallout from a housing market downturn.”
It is also pondering the idea of introducing limits on how much debt people can borrow, compared to their incomes, but says the final call will be up to Finance Minister Bill English. Further investigation of this option will be undertaken,” Mr Spencer said.
In a speech to the Wellington branch of the New Zealand Institute of Valuers, Mr Spencer said a range of factors had contributed to strong demand for housing, including record low interest rates, rising credit growth, and population increases.
"While housing demand has been strong, the housing supply response has been constrained by rigid planning and consent processes, community preferences in respect of housing density, inefficiencies in the building industry, and infrastructure development constraints around financing and resource consents," he said.
“A dominant feature of the housing resurgence has been an increase in investor activity, which increases the risk inherent in the current housing cycle.
“While housing demand has been strong, the housing supply response has been constrained by rigid planning and consent processes, community preferences in respect of housing density, inefficiencies in the building industry, and infrastructure development constraints around financing and resource consents.
“House price pressures have re-emerged in Auckland following an easing in late 2015 and have also strengthened across other regions. “The longer the boom continues, the more likely we will see a severe correction that could pose real risks to the financial system and broader economy.”
Mr Spencer said a broad range of initiatives is necessary to increase the long-term housing supply response, particularly in Auckland, and to help ensure housing demand is kept in line with supply capacity.
“The Reserve Bank has no direct influence over supply, but can influence housing demand through the credit channel. In this regard, we see the Reserve Bank as part of a team effort – that was the invitation to Mr Key’s government to do something in the tax area.
