PM and Finance Minister say they're open to RBNZ proposal for new Macro-Prudential measures, including debt-to-income limits

Finance Minister Bill English speaking to reporters in Parliament on Sept 15, 2015. Photo by Lynn Grieveson for Hive News.

By Bernard Hickey

Prime Minister John Key and Finance Minister Bill English have signalled they are open to a potential Reserve Bank proposal to limit debt-to-income ratios, just as is currently done in Britain.

Reserve Bank Governor Graeme Wheeler and Deputy Governor Grant Spencer said at their news conference releasing the latest half-yearly Financial Stability Report that they were seriously considering new Macro-Prudential controls to reduce the financial stability risks growing in a resurgent Auckland housing market. They said one option being considered was the introduction of British-style limits on Debt to Income (DTI) ratios, which would require the agreement of English in an expanded memorandum of understanding for Macro-Prudential policy.

The Bank of England limited loans with a multiple of more than 4.5 times income to no more than 15% of mortgage flow from October 1, 2014, as detailed in this policy. Currently around 35% of owner-occupier mortgage lending in New Zealand is done with debt to income multiples of more than 5, while almost 60% of investor lending is done with DTIs of more than 5, as detailed in figure 5.15 of the FSR (page 45).

Key told reporters in Parliament when asked about the possible Reserve Bank measures that the Government did not want to see a bubble emerging in the housing market.

"And potentially if there are recommendations, the Government is not ruling out adopting those recommendations or allowing the Reserve Bank to do it," Key said.

"We've already done that before with LVR ratios and there are other options," Key said.

Asked if DTI ratio limits might block first home buyers from the market, he said: "One of the ways to make sure they can get into the housing market is to ensure that the rate of increase isn't too fast for too long."

English also told reporters he was open to the Reserve Bank's proposals, but noted when asked about the potential effects on first home buyers that there could be risks of unintended consequences, although he said he did not have a firm view.

"I haven't seen any analysis done on that," English said when asked about the possible effects on first home buyers.

"It is one aspect of the Macro-Prudential framework that it can have unintended consequences. It might have some impact on the house prices, and it may be short term and you may end up creating more complexity," he said.

"It's up to the Reserve Bank to do the analysis and put the proposition. We haven't seen any of that in detail. I don't have a strong view about it."

Earlier, Spencer was asked in a select committee hearing if the Reserve Bank would target any DTI measure at Auckland investors, rather than borrowers generally and regional areas. The Reserve Bank's first LVR controls in November 2013 were politically controversial because they were seen as hitting first home buyers and regional buyers as hard or harder than Auckland property investors. The second round in November last year targeted Auckland property investors.

But Spencer said the Reserve Bank was more likely to take a broader approach with any DTI measure because house price inflation was now spreading more broadly than it was last year.

'Disastrous unintended consequences'

Property Institute CEO Ashley Church said DTI limits would have disastrous unintended consequences for housing supply and rents, saying a UK-style limit of 4.5 times income would limit a typical Auckland family to a mortgage of less than NZ$400,000.

“The number of new homes being built – the very thing that Auckland needs most – would plunge as the number of people earning enough to buy them would dwindle to a trickle. So the policy could very well kill off the one thing that can fix the Auckland housing crisis – the construction of new homes," Church said, adding it would also dramatically increase rents.

“Most Landlords are currently showing restraint and choosing to accept lower returns because capital growth is so strong. But in an environment where every extra dollar enhances borrowing power – Landlords will want maximum rentals – and they’ll be able to do it because the Reserve Bank policy will exacerbate the current housing shortage," he said.

He said DTI limits would fuel an artificial boom in apartment construction becuase most people would only be able to afford apartments and put up another barrier to first home buyers.

“There’s a strong case to be made that the introduction of stricter ‘Loan to Value’ rules has already compounded the issue and dragged out the speed at which the market corrects itself. We understand the Reserve Bank want to protect the economy against the risk of financial shock – but doing anything which reduces the construction of new dwellings is a hollow solution because it will only delay an even bigger problem down the track," he said.

“The only sustainable way to fix the Auckland housing crisis is to build more homes as quickly as possible."

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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"Key told reporters in Parliament when asked about the possible Reserve Bank measures that the Government did not want to see a bubble emerging in the housing market."

Luckily we know John normally acts pretty fast in these situations, so we can be comfortable he will start acting if a bubble begins to emerge...

Is a bubble 12-1 house price to income ratio, or 15-1? Luckily its sitting pretty at 9-1 now.



What they are really "open to." just more deflected divering

I am more optimistic than you Justice. I actually believe it is going to happen and when it does it will have a pretty immediate impact on the housing market. They are just breaking it to everyone gently. Everyone is calling for it - commentators, the media, a big chunk of the voting public. When it happens it will have a pretty major impact as prices are floating on hot air at the moment.

they will time it for next years election,
see look what we did to fix labours mess


The reason I'm not Clarence is ..well the past...Nick Smith and English's recent comments dismissing there is any problem whatsoever, and ofcourse the smiling assassin himself who can't seemed to ever tell the truth or take ownership or responsibility for anything he says or does.

So we will wait and see I guess. But, IF anyone thinks this will create a significant price correction then I would say you're dreaming. That would be a vote killer. So as Ive said before I believe only a natural inevitable crash or unforseen event will bring about that as a possibility.

This Government is appalling corrupt as far as I'm concerned, like the worst Ive seen in my 44 years of life. NZ is a sad place at the moment. Very little ethics, honesty or want of equality being shown at all.

They just don't seem to get it! Economies that put those things first are proven to do great. We are going off a cliff my friend willingly it would seem.

Don't you get it Justice. Come on. The free market and trickle down will solve all ills....

Hah, nice one Fritz's a bullshit paradigm, eh? This country needs a serious jolt to the left

Just some tangible hope would be nice. One day I will be old and I want the young ones to actually like having us oldies around and not poison my hospital food.

If the main cause is foreign buyers, who are not getting loans from NZ banks. How exactly will it impact, other than reduce NZers ability to compete?

This is the ultimate aim of globalisation - to remove all small private owners of farms, businesses and houses.
And replace with large corporate owners (with their funds/proceeds in tax-free jurisdictions!).
Were you expecting your government to be acting for your private citizen benefit to buy your own home?

No I am not that Naive. I just wonder when the People will finally say enough is enough.

Good to see RBNZ got permission first and the media let the people know. You have to love how these people handle the issue of risk. I think it would take a a bunch of ISIS kidnappers standing behind them to even seem just a smidgen rattled.

Just a smidgen is not enough..

Risk is what they created.

When the shite hits the fan, I hope and pray all Members of Parliament and Bankers, Mortgage Brokers, over leveraged idiots etc, and anyone who borrowed beyond their means, their future earnings, their sticky fingered laundry basket cases and miss-placed bravado, have their hands tied behind their backs and are full face on and open mouthed with amazement.

I do hope this is not miss-placed as an objective, nor just wishful thinking.

I could think of worse things, but that will do for a start.

Otherwise there is no Justice.

Just a smidgen of hope, in a sad sad World, ruled by idiots, for idiots who think the gravy train is never ending debt.


Given that the latest LINZ data shows that foreign buyers could account for as much as 48% of all homes purchased, then how will limiting domestic borrowing help kiwis compete with the foreign money and get onto the housing market?

Yes. It is a nice little deflection from that isn't it?
Very devious indeed


Key told reporters in Parliament when asked about the possible Reserve Bank measures that the Government did not want to see a bubble emerging in the housing market.

Brilliant don't want to see a bubble.... OPRN YOUR EYES

World's highest prices relative to incomes.
Auckland 940k average
. 80% of buyers investors in some areas.
Record private debt growth of 8% p.a. and 216bn and rising.
Only 37% of buyers NZ citizens
Investors making up over 40% of all buyers
House prices rising over 10% a year with wages rising at 2%

Bunch of crooks. They will be remembered for the government that did nothing. The all talk government.


The nakedly corrupt government.


The figures actually tell you what is going on and it is just the mainstream media's interpretation of these figures.

Instead of a headline
"Only 50% of buyers NZ citizens" We get
"Only 3% buyers live overseas"

Same data different headline. To much money is spent on advertising by Banks, Real Estate Agents etc so the papers have no interest in reporting the facts and they will focus on what keeps the circus going. Yes they try to look like they care however end of the day money talks.

Shame on the NZ media.

Those on temporary work visas and as students should be classified as foreign buyers also. They are not on permanent resident visas so should be classified as foreign buyers.

In Singapore only Permanent residents and citizens don't need to pay the additional stamp duty. They didn't say permanent residents and temporary residents. The same definition should apply in nz.

Complete joke. Temporary residents and those overseas are both foreign buyers. So the actual figure is the combination of these two groups. 4% + 35% =39%


There's an undertone here of a loss of sovereignty. Why should those of us that are born here, or have gone through the proper process of immigrating here permanently to make their home here, not have the inside running? Its the same with the TPPA and the foreign trust issue, we just seem to bend over backwards to not offend any foreign govt or corperate incase they wont sign a free trade deal or allow us on the security council. But at what cost to the actual citizens of this country?

That's why Im being drawn to Winston because as in the name, New Zealand First. Their default position is to put New Zealanders first. What s wrong with that? In return I certainly don't expect to go to any other country and expect to have the same rights as their citizens.

NZ First is "selfish nationalism". You heard it here first. Worship the chinese sponsored tea towel.

"Selfish Nationalism" I'm fine with that. And I'm not going to vote NZF even.

Debt to income limit will have a massive effect and I predict it will actually start the collapse of real estate values

One of the better ideas I've heard recently; there would be a significant market correction, but would have disastrous effects which the government would rather avoid.

So.....your telling me there's a chance? (Dumb & Dumber)

hence why they will wait until the election. if they lose they don't have to go through with it, if they win they can say there could be adverse effects to the economy and schedule a report to be done to delay implementing it.
after watching this do nothing, nothing is wrong here government for nine years, I think that is how it will pan out

All the kiwis who've been displaced by foreigners in the Auckland housing market, and who've fled to the provinces could get badly hurt with this policy. The combination of debt to income ratios and low milk solids prices mean the provinces could take a serious hit. Capital flows however, from baby boomers and foreigners will probably continue unabated, irrespective of any debt to income ratio rules.


Re FatPat:
When it's clear a year ago, that 48% of buyers of Auckland houses are foreigners ( and I believe it was pretty clear to most readers/researchers without the LINZ stats,) it was a pretty odd/dumb/politically calculated response to introduce the LVR.
This just locked more Kiwi first home buyers out of the market, clearing the way for more cheap, and dodgy foreign buyers.
Looks to me that this second proposal to further limit kiwi wage and salary earners from the Auckland market is just another political pretense to enable just the 1% and foreign millions (laundered or otherwise) to prop up the assets of the elite.
Key and his mates will be buying time to see if they can hold out 'upsetting the kleptocrats' hoping the "Global Correction" will present itself so JK will be able to blame that and not lose votes.
That's of course as long as he is able to continue his "Circus" of denial around the Foreign Trusts.
Hard to believe that anyone who worships wealth as much as The Smiling Assasin, hasn't availed himself long ago of every avenue to keep his loot safe?
Of course the RBNZ is supposed to act independently??

Anyone read this load of BS? The numbers don't add up and he won't expand on the exact deposit he paid.

Just says "Daum said the deposit was over $50,000, and the house itself was $510,000."

The house itself doesnt look worth half a million to me. More like $250.000 at most but hey that's the crazy world we currently live in.

Coy hints about high pay, too.

In that half a million, there's a component that's the value of the walls, roof, windows, driveway, place to plug in the fridge. Maybe $250,000 like you say. And then there's the other component of that price. A whole imaginary tulip of speculative value and greed and fear and delusion and magical thinking bolted on the side of it, which is completely uncoupled from the inherent value as a dwelling. Demand for houses as accommodation and demand for houses as speculative tokens keep getting conflated, and it's dangerous.

so that's a 10% deposit, I thought it was supposed to be 20. I don't think that is the full story my guess he has used equity from someone else or been gifted the rest of the deposit.
as for 500 for papakura nowadays that is cheap out that way.
and the last line comparing mangere bridge to ponsonby LOL, we have a couple of cafes and a bread shop no bars or nightclubs, but at least we can fish off the old bridge

Sounded like it was a good location for where he works, so he was able to buy out on the edges without the downside of a long expensive commute. That's worth a lot.

I don't bother reading clickbait garbage on stuff.

Have you noticed the amount of articles lately about people who really achieve their dreams of becoming property "owners" because they DO instead COMPLAINING? We need further demand restrictions for our own good as a society

Let's keep the mood up. Don't let the bubble loose steam. Now that the smart money has left the market let's attract some fools into it by convincing them that everything is ok.. they just need to try a little harder to save.. for a mortgage. And the reward will be your own house. Well, technically it won't be yours but the bank's until you pay all the interests first and then the principal. If you're lucky and your salary doesn't decrease, you keep your job, there is no deflation, interests remain at the historically lowest levels and the property bubble doesn't burst, in say 30 years you will own a house that at the best case scenario is 30 years old. And then, and only then, you will know whether buying was the best choice.
Congratulations. At least it's YOUR choice and only yours. It's important to remember that as usually when bubbles burst and some people loose "their" house to the bank (the real owner) they tend to say "we didn't know! Who took the ladder away?"

So remember, people, if you cannot afford a mortgage (I'm not gonna say afford a house) It's not because the total price is already 10 times the median annual household income, no. It's because you don't try hard enough. So just stop whining and work harder! If you don't know how to do it ask your nearest baby boomer and they will kindly tell you the story about how they paid a house during the biggest economic expansion in history with high inflation.

But overall, remember: renting is not paying for a service, it's wasting the money. It's better to rent the money! Embrace the new paradigm!! After all we can all get richer by selling houses to each other, didn't you know? Go to your nearest bank and enquiry today about their funny papers created out of thin air that they can lend you in exchange of real assets. They want to be your landlord and help you achieve your dreams!!

Yes, is it the media or banks trying their hand at social engineering? Either way it's quite revealing of the greater interests trying to influence us all that "debt is good" and No debt is just for losers

You're starting to learn, looks like the penny is dropping. Took me a while to get my around it too (worked it out around age 28). There's more that one kind of "debt" you know - "Smart debt" makes money "Dumb debt" loses it.

No such thing as smart debt, only living off the backs of others like parasites. I'll stick to my debt free real business thanks.

Good on him for getting on the ladder. What is your issue with him? Do you expect a 4 bed villa on 1/4 acre in Remuera for your first house? When this cycle does correct it may drop back 10-15% (the GFC was 15%) - there will be no wholesale 50-60% apocalypse predicted here by the crash trolls. At that point the guy in the article will have 300k odd in equity looking for his next move. What will you be doing?

I agree good on him for what he did and I wish him success
, but the story has holes in it. so if other young want to do the same they need to figure out how he got around the 20% LVR and how to make the type of money he is earning, our how to achieve the shortfall in income, ie take in boarders

mate, this is a property, banking and lending forum, you should know that NZ banks can lend a certain percentage of their clients a 10% deposit...if you are going to comment about banking affairs (which you seem to be quite the expert) then a little bit of research does not go amiss.

ok lets take this at face value, 51k deposit leaves 459k loan, taking there 2 year rate that's 22k pa in interest 0r using there own calculator at the two year rate 4.75 % over 30 years its 1101 a fortnight or 28 k we know he has to be under 80k gross. using the ird calculator with no deductions for kiwisaver and on 80k he would pay 26K in tax and have 54k left
so on face value he would have 26k left a year to rates insurance, phone, car, food
its can be done
but I still think there is more we are not told, i doubt hes on 80k, most likely 50-60 i still suspect the deposit was higher with help.
these puff pieces draw in the hopeful young until they start to do the figures and they do not add up

Taking in flatmates too. No sense of entitlement there. He's understood reality and doing the hard yards, good on him. A lot of whiners that grace this site could learn a thing or 2 from him. Its never been easy buying your first place. It takes huge sacrifice - be prepared to be flat broke living on baked beans and no holidays for 2 years. I know I did.

He probably only needs a 10% deposit as he is likely using a "Welcome Home Loan" from Housing New Zealand (it is under $550k). He would also have to earn under $80k to get one.

Your username is fantastic. I always picture you as some kind of condescending Cameron Slater wearing a tutu.

However, your numbers are nuts. Please explain how he gets to 300k equity at the bottom of the next correction? Putting aside any principal the guy pays down (which probably wont be much since apparently most of his piddling 50k deposit came from BOMAD).

You are implying this cycle is going to run another 50%, (250k equity) plus another ~15% of that total (the drop). So prices are going to go peak at another 72.5% from their current level?

That's lunacy. You are implying an Auckland median of 1.4 million. Something like 18x household income multiple.

At which point even after the 15% drop down to this poor guy will be looking around trying to figure out where he is going to find an additional 900k of serviceable debt to add to his 300k equity upgrade from a lower quartile to a median Auckland house.

It's not going to happen. Reality will strike long before then.

Thanks! I'm neither obese or a ballerina :o). Thankfully I looks nothing like CS. Auckland house prices have doubled every 7 years for decades. In an environment where rates are going 1% ish i wouldn't bet against that anytime soon. South Auckland still has loads of upside. Those lower decile homes have the largest % increases.

You really think rates are going 1%ish?

I doubt our credit spreads will get low enough to give 1% rates even with 0% overseas rates, especially with the way dairy is and how reliant our economy is on it. You also have to factor in the bank margins in NZ which are approx. 2%, whereby 1% rates implied that they are getting negative funding (both wholesale rates and credit spreads combined). Very unlikely.

I would say the floor is in the 3%'s, and that is at the short end of the terms (1 year, maybe 2 year).

2016 - 0.8M
2023 - 1.6M
2030 - 3.2M
2037 - 6.4M

All while CPI is targeted at 2%. 16% in per 7 years. Nope I think something will give.

But really, anyone who has their suburb overrun by investors from other suburbs is being disadvantaged by foreign suburban money e.g. all those in Remuera types buying up in South Auckland. The local South Akler that tries to save doesn't have a chance against these parasites.

There are companies set up to do this. Friends of mine went to a well attended seminar promoting 10 people to a 4brd house - because 'it's their choice to live like that and is good money'. Let's get some data on these purchases. Oh yes, I'm very keen to see, I like transparency.

Also I'm interested to see the 1) number of trusts that have purchased housing 2) volume that are negatively geared. Let's get this narrative right

Sounds a bit like the Dutch Tulip Boom to me.

Whys that? Can you live in a tulip? If you want to provide shelter for people can you rent tulips out? Can you plant houses and have more houses grow as a result? Doesn't really sound anything like a tulip boom to me.

It's a relevant metaphor though. Houses have become speculative fodder for speculators and investors and shelter is only one part of it. Tulips became more than natural decorations and a means of generating cash. This is why property can be a risky business and should be handled with caution.

its not even close.

It's a stupid metaphor as ObeseBallerina explained.

I would have used the 1997 Asian crisis, where investor money poured into growing Asian economies as guess what they only ever grow lots of people that need to work and spend money to buy goods
and in the end it all crashed, as the valuations were driven by investors not by fundamentals

Yes, if houses lost significant value but rent and mortgage interest rates stayed the same a point would quickly be reached where investors would rush in and buy up big. This is how it differs from the tulip thing. For instance if Papakura dude's house dropped to 400K it would be a great rental prospect.

Yes, but if most investors are negatively geared when the prices drop $100k, I predict more houses on the market forced on by banks

yes and he would be under water, my question would the bank continue to reup his loan until he got above 10% again?
I don't see why not if he is making his payments but I suspect not and I suspect they would ask for a lump payment to get it back to 10%

Given the only way 'investors' can make a buck in this environment is capital gain, when that stops there is no reason to be in the industry.

@ Zachary; Having been through the last GFC in the UK. I can tell you from personal experience as a Landlord, that when property prices drop so do rents.

Why does the rental income drop? Well if a property market loses significant value, that has a knock on effect of increasing job instability and large scale unemployment.
Even long term tenants can be affected which can cause them to move back in with their parents or move to economic safer locations for employment purposes.

So I suggest you hang on to your hats, we're in for a bumpy ride over the next few years if things continue at unsustainable levels.

You just know that if they even go near this idea there will be a major flaw in it. A loophole , a catch.....
God I'm such cynic but seriously has history not taught us anything?

The guy who bought the three bedroom house in Papakura also has flatmates helping pay the mortgage. He's got it all worked out. A large component of the 500k he spent is in the land he has bought in the super-city. Papakura is quite nice and many people buy there again.

It is very common and a necessity to do this now ZS the average wage/salary is incapable of paying down the interest and principle while paying for the basics.....I do wonder how many people collecting the rent declare this income with the IRD same with taking in boarders......

Every brain fart Ashley Church emits wreaks of vested interest. The Property Institute are a bunch of crooked charlatans.

What would happen if people were restricted to a safer amount of debt like $400,000 is that the bubble would stop dead in its tracks. Its a credit fuelled speculative bubble and he knows it. Debt to income ratios are kryptonite to these guys.

And the real thing holding back construction in Auckland is the OBSCENE cost of sections. I mean, seriously, even out in way Huapai they START at $500,000 for a tiny little parcel of land.

Exactly x
As a fhb I'm prepared to work with a DTI . Provided that the guv stop foreign buyers from been buying up existing stock. They should only be allowed to build new and either rent it or reside in it.
Never happen tho with the current donuffinguvament

Randomman you have the problem when you say you will do something but only if it has the strings you want attached to it !!!

Yes buy the section for $500k and buy a tent for $500 and then get a horse for transport a couple of cows and pigs sheep and chickens for beef, bacon, eggs and chicken then throw in a vege garden and all become jethro clampit types living in a hill billy third world.

I am very opposed to any interference by any politician or bureaucracy.......implementing a debt to income ratio is the responsibility of the lending institution on application of a mortgage and should not be interfered with by a bureaucracy ever!!!

I am sick and tired of reading the left wing rant on the Government and its cronies must interfere all the time and there is never any recognition of the fact that it is regulatory interference that has created the issues in the first place........I take it that most left wing ranters actually have no interest in the wider economy and are acting like charlatans wishing to line their own pockets by pushing for policy changes.......I have read most of the comments above and see not one benefit to the economy or the community........If people really wanted more houses and affordable houses then they would be pushing for deregulation and the people's rights to be upheld instead the are pushing for more regulation and more restrictions on people's right and this exposes their true agenda.......

I might've shot myself in the foot a while back. I live in a really nice two storey home on 2500 sq m, country outlook, lots of native birds including tui and kereru, as well as the requisite possum or two. Been in it for over 10 years, and bought it for a little over $200 k. But it is in Wanganui. Had a phone call a month or two back. Went something like this...

"Good afternoon, I'm XXXXX calling on behalf of real estate company YYYYY, based in Epsom. We would like to know if you are interested in selling your property?"

" Yup. $5 million"
"Excuse me?"
"I said yes, I am prepared to put it on the market. The asking price is $5 million."
The silence lasted for a few seconds.
" Ah Ok then, if we get any interest we'll get in touch with you. Good bye"

I told my wife about it, and said that now we just have to hold off the hordes at the doors. The phone has been remarkably silent since then... Can't figure that one out.

English cracks me up! "It is one aspect of the Macro-Prudential framework that it can have unintended consequences. It might have some impact on the house prices..."

No, that's the intended consequence.

Any kind of political bribe over this issue will be saved for just before the next election. Guaranteed

Call me crazy but I believe Auckland property prices will NOT significantly increase in the next 12 months (less than 5%), we shall see
DTI ratios, if implemented, will have a real big impact on house values, I actually think, if it is implemented, DTI will be the trigger for a serious downturn in Real Estate values (ironically exactly what DTI are aimed at avoiding)

Crazy Yvii ;)
The more I think about DTI the more obvious it seems that it will not be implemented. It is the single most counter productive idea I have heard lately.
It might just be sabre rattling after all I suspect.