Finance Minister says he wants full 'cost benefit analysis' and public consultation before considering introduction of debt-to-income ratios for house buying; DTIs now very unlikely before election

By Alex Tarrant & David Hargreaves

Finance Minister Steven Joyce wants the Reserve Bank to conduct a full "cost benefit analysis" on its plan for debt-to-income ratios (DTIs) as well as public consultation before he will consider use of DTIs.

The RBNZ has indicated that public consultation will commence in March and occur during the first half of 2017.

This new move announced by the Minister would appear to torpedo any chance the RBNZ might have had of adding DTIs to its 'macro-prudential toolkit' before the September 23 election.

It will be a blow to the RBNZ, which has enthusiastically championed DTIs, even though it has pledged it would not use them at the moment.

The original macro-prudential toolkit was signed off by then Finance Minister Bill English in a Memorandum of Understanding with Reserve Bank Governor Graeme Wheeler in 2013. Addition of any new macro-prudential tools will also require the sign-off of the Finance Minister.

Since late last year the Government has appeared to be pushing back against the RBNZ's plans for DTIs.

The new move by Joyce now affirms this resistance.

“The Bank has a number of regulatory tools available to it to address systemic risks it identifies and I am cautious about adding further tools," Joyce said.

“The use of macro-prudential tools can be complex and affect different borrowers in different ways. I am particularly interested in what the impacts could be on first home buyers.

“Given the novel nature of a DTI tool in New Zealand and the fact there are a number of possible policy actions the RBNZ could take, it is important that the costs and benefits of the different policy options be adequately and rigorously explored.”

Joyce did admit that the RBNZ did not go through the same analysis process before its loan-to-value ratio 'speed limits' policy was introduced in 2013, when English was Finance Minister.

"It (LVRs) was done in a slightly different way, but I'm the finance guy now," Joyce told Parliament's Finance and Expenditure Select Committee. A different set of circumstances existed when LVR restrictions were imposed, he told media afterwards.

Labour Party finance spokesperson Grant Robertson said DTI ratios were used internationally already. He asked Joyce to label concerns he had about giving the RBNZ the ability to use the tool.

The Reserve Bank has already done some work on the subject, finding higher DTI ratios in among Auckland house buyers and property investors, Joyce said.

The Finance Minister defended himself when asked if he had just kicked DTIs into touch, saying the issue could still well come up during the election year.

"They’re [the RBNZ] not saying this is analysis they wouldn’t do, they’re just wanting me to give them permission to put it in the tool kit before they do the work," he said.

"I’m saying no, you do the work then ask permission."

Update adds extra Joyce quotes.

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28 Comments

Cost: Votes
Benefit: NZ long term

They would be best to provide as much evidence of it NOT working as possible if they actually want them, that would be right up this Government's alley.

Yes, that's kind of testing the null hypothesis.

A cost benefit study on making banks more prudent?
A cost benefit study on saving borrowers from themselves?
Huh?
It would be an interesting exercise in cost benefit studies. You could come up with all sorts of answers depending on the assumptions made and the sensitivity analysis.

I'm not looking forward to Stephen Joyce's performance in his new job. He has the appearance of being in control, and certainly is controlling, but is a loose cannon IMHO.

I disagree. He's a consensual conformist tied to ideology and self preservation.

It's possible we agree J.C. Even given my limited grasp of those big words.

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11

They are trying not to make this an election issue. But housing, and the increasing RVs is likely to be th number one issue. You would think national would be wanting to put this to bed with some new policies. A DTI is used overseas and can be effective in making sure banks at least arent over lending

Seriously, DTIs would kill the housing market nationwide and would stop everyone buying and selling. Is that really what some of u want?
The lvrs at the moment is killing it for first home buyers at the mo.
Go and do something beneficial rather than worrying about what others and the Govt are doing.

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10

Do you have more recent data than that reported here last week?

http://www.interest.co.nz/property/85726/new-reserve-bank-figures-show-b...

"Their [investors] retreat has been the first home buyers' gain, with FHBs having surged to a new high tally of $897 million borrowed in November and following this up with $809 million in December"

Please at least try to check the data before posting your opinions as if they are facts.

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@THE MAN 2 ...... "Go and do something beneficial rather than worrying about what others and the Govt are doing" ...I will go and do something when my taxpayer dollar stops subsidising your mortgage interest "tax credits"..... the whole system is just a rort and this Gummint is sh*t scared of touching housing, as an election year, that would not only affect the "astute property investoor" voter pool, but also the bankers ! ...nothing is going to happen under National ....full stop.

"Go and do something beneficial rather than worrying about what others and the Govt are doing."

How very Orwellian.

Meet the new boss, same as the ol boss.
Delay, delay delay until Sept.

The key issue with respect to the CBA to be applied to the DTI limit policy is whether the scope is confined to narrow considerations of banking sector stability, or will the CBA examine the huge costs on the wider society caused by easy credit, imprudent lending, and reckless borrowing.

.... will the CBA examine the huge costs on the wider society caused by easy credit, imprudent lending, and reckless borrowing.

Hardly, that which you define is the malign substitute for missing real employee's incomes, previously shipped offshore. Only to be visited once a politician and the compliant central banker have retired at the taxpayers expense.

Others have explicitly detailed the artifice of time transformation to defer the liabilities in preparation to dump them upon the unsuspecting at a later date.

A financial security is nothing but a claim to some future set of cash flows. The actual "wealth" is embodied in those future cash flows and the value-added production that generates them. Every security that is issued has to be held by someone until that security is retired. So elevating the current price that investors pay for a given set of future cash flows simply brings forward investment returns that would have otherwise been earned later, leaving little but poorly-compensated risk on the table for the future. Read more

"Go and do something beneficial rather than worrying about what others and the Govt are doing."

This is so multi-leveled where do you start.... THE MAN (Big Brother Joke anyone?) is telling us exactly what "The Man" would.

Is he being sincere?
Is he trolling?
Is he just straight ignorant of the multiple interpretations of his statement?
Is it a misstatement?
Does that make it an alternative fact?
What is truth in this post-truth world?

Mind blown... I love reading the comments section.

We are at the top of the property cycle, values are on the way down, there is no need for DTI's anymore

That certainly touched a raw nerve with some!
Yes go and do something constructive it will put you in a far better frame of mind.
Firstly taxpayers don't subsidise my interest payments whatsoever, never have and never will.
The LVR at 80 per cent means that the FHBs need 20 per cent deposit rather than previously 10 per cent.
Parents who were previously able to stump up with say 10 per cent now in a lot of cases aren't able to.
This is because of the new requirements of 60 per cent LVR that was introduced.
The Banks are interpreting it as all borrowings previous and New lending security is calculated at the 60 per cent for rentals and 80 per cent owner occupied.
So effectively for a parent to lend 10 per cent to their kids they need to have 50 per cent equity In The rental property, so makes it harder and the fact that it won't be tax deductible they aren't bothering.

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12

If Parents are having to take equity out of their houses, to lend to their kids to buy houses, then houses are unaffordable.

If Parents are unable to take equity out of their houses, to lend to their kids to buy houses, then who the hell buys houses? Investors and cashed up Foreigners.

As for doing something constructive i might just go sharpen my pitch fork. With the way things are going I think there will be enough serfs around soon to stage a decent revolt, sometime in September I think.....

"Firstly taxpayers don't subsidise my interest payments whatsoever, never have and never will."

None of your tenants get an accommodation supplement from the government then?

Interest deductability against future non taxable capital gains is also a major subsidy. Take that away and the rest of us could pay a significantly lower tax rate. I understand capital gains taxes are political suicide, but taking away interest deductions for investors may not be. Or at least say, if you wish to deduct interest on an investment, then any future capital gain must be considered part of the income. The current system is eating the rest of our cake, and still having theirs.

@ the Joneses .....yes, I can guarantee the uproar from 'the man' and his ilk if the gummint started tinkering with the accommodation supplement and tax breaks for "astute residential property investoors" ....but he still doesn't get it !! .....where do the $$$ for the tenants accommodation supplement come from ? ....and does he not realise that the national tax take is reduced, as his rental income has the ability to claim on the mortgage interest expense !!.... the "system" is just a rort and in no way a "free market" ....not when the taxpayer is supporting the circus of the Auckland property market.

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Agree this will be the NUMBER ONE issue this election. National need to make meaningful change to protect the averageman who actually lives and pays tax in NZ, and his home ownership aspirations, or they will get kicked spectacularly to the kerb on September 20.

The other parties have worked this out and are making policy play already on ownership limitations and tighter immigration rules (Winston), or tax changes to discourage stupid levels of property debt (TOP). Overseas owners dont pay tax here and dont vote, easy runs here. Dont forget reclassification of the international student scam buying with overseas money....

Noticed the property press is a lot fatter this week with a lot of older rental type properties (deferred maintenance everywhere) filling its pages. The smarter specuvestor are starting to take their profit. Even Minister Joyce is clearly calling the sea change in global borrowing risk http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1179...

Government: pump up the housing market with policy decisions and globalisation conformity for 8+ years.
When bubble looks risky, & interest rates start to stress homeowners - then blame the Borrowers.
"Why did they borrow so much? It's their fault".

Joyce's statement today is just getting in his "I told you so" just before it craters, conveniently ignoring the cheer leading National did with housing since 2008.

He must be seeing some ominous figures to come out with this as immigration/housing has been a mainstay National policy. If you are looking to become a FHB, don't.

Election year time to pull levers to put the skids on housing market to have a chance of staying in power,interest rates up till election out of the way,dangle a decent tax cut and should be home n hose, hang a olive branch to Winston re tinkering with immigration and should be all sweet. PS earthquakes pose a risk these days so not keen to lock in long term rates. Just an alternative view ha.

No need for DTI as the banks know their level of risk and people that borrow should too.Banks are all about profits. DTI would bring prices down and interest rates up So eg; 7-8% on $500,000or 4-5% on 1.mil either way the banks win. Best bet is to pay down debt fast.

Credit markets are tight enough to not worry about DTIs.

We effectively have them in place already with banks running servicing rates of 7.50% (the rate they test affordability at) and minimum servicing passes that increase over 80% LVR. They have removed any reliance on offshore income, or boarder income on deals over 80% LVR.

We have already had a number of levers pulled:
- 80% LVR on owner-occupied
- 60% LVR on investors
- No reliance on foreign income (This one is way bigger than most people realise.)
- increase in capital held against investment property loans
- 75% core funding ratio

Then we have IRD numbers on property transactions, tightening AML and the bright-line test for tax.

Don't underestimate the impact from what is already done : )

Any solution has to start with voting national out of power for their policy of denial, lie and manipulation. People are fed up with their policies and now are able to see through their lies and manipulation.

Nothing can save national from loosing this election - only question remains by what margins will they lose.