RBNZ Looks at Property Investor Crackdown
Speaking at the Finance and Expenditure Select Committee today, Reserve Bank governor Graeme Wheeler told Labour Party finance spokesperson Grant Robertson about the possible introduction of measures to tighten access to credit for investors. The Reserve Bank's current measures are limited to Auckland property investors, who cannot borrow more than 70 percent of the value of a property. Changes could see this limit lowered, together with the introduction of a wider net to capture investors nationwide.
According to Reserve Bank governor Graeme Wheeler, tougher controls for investors are needed and could be introduced before the end of the year, with debt to income limits also on the horizon. "In Auckland, investors account for 46 percent of the transactions, for the rest of the country it's around 40 [percent] or a bit more, so it's very significant," adding that property investment is "providing a lot of impetus in the market. So that's one area we're looking at around the LVR [loan to value ratios] around investor activity [though] we're still doing the analysis."
Along with an extension of current lending restrictions, new measures to introduce loan limits based on income levels are also in the pipeline. While debt to income ratios are complex and difficult to implement, according to Deputy Reserve Bank Governor Grant Spencer, they are an effective way to limit investor lending: "If you look at the lending that is high debt to income, a much bigger proportion of that is investor lending than is owner-occupied lending... So, a debt to income ratio, the appropriate threshold in terms of the hurdle, will tend to impact investors more than owner-occupiers."
In order to work, any moves to dampen investor demand must be met with additional moves to increase housing supply. While investors and high immigration levels are often singled out, a shortage of housing in Auckland has enabled prices to grow to unsustainable levels. According to Deputy Mayor Penny Hulse, 20,000 to 30,000 new dwellings are needed to meet the current housing shortage, with another 13,000 a year needed just to keep pace with Auckland's growth. While the introduction of special housing areas (SHAs) has helped to fast track the consenting process, bureaucratic and construction delays are making it difficult for supply targets to be met.
While most people agree that a new approach is needed to help cool the market, tools designed to dampen demand do have their limits. According to ASB Bank chief economist Nick Tuffley, "The challenge with all of these tools is that the impact on the housing market at least does wear off after a period. So up to six months is all we can hope for with some of the tools that are coming through... But there are aspects these tools do have which are longer lasting. For example, banks' share of loans with low deposits has actually reduced as a result. So you've had changes in the banking system... The impacts on the housing market, however, have been temporary."