Finance Minister cautious about Reserve Bank hopes for Debt to Income multiple limits; say looking closely at unintended consequences; Key says Auckland housing market stabilising; points Mt Roskill voters to low interest rates

Finance Minister cautious about Reserve Bank hopes for Debt to Income multiple limits; say looking closely at unintended consequences; Key says Auckland housing market stabilising; points Mt Roskill voters to low interest rates

By Bernard Hickey

Finance Minister Bill English has given a cautious view on the ongoing discussions with the Reserve Bank of New Zealand about whether the bank should be able to add Debt to Income Multiple restrictions (DTIs) to its Macro-Prudential tool kit for dealing with the financial stability risks created by an over-valued housing market.

Last month the Reserve Bank formally asked English to add the DTI tool to its kit, but English's office said he had asked the bank for more information. See Gareth Vaughan's October 24 article for more detail.

However, English was less than enthusiastic in his first public comments since that confirmation of a formal request, and since QV figures showed earlier this week that Auckland's house price inflation had eased in the last three months since the Reserve Bank applied its third round of Loan to Value Ratio (LVR) restrictions, including a nationwide 40% deposit requirement for landlords.

Asked by reporters in Parliament about the progress with the DTI tool, English said: "There's just ongoing discussion. The Reserve Bank has a number of tools already available to it. You need a pretty strong case to put further tools in the tool kit. There's a discussion going on about what debt to income ratios would add or not add to the current tool kit."

English was particularly focused on unintended consequences.

"The case for...all these tools have indirect and unexpected effects as well as some direct effects, and you have to make sure you understand all those, particularly when the Reserve Bank has already got a number of levers that it could pull," he said.

"For instance, the impact on first home buyers, the impact of businesses that borrow against their households to source some of their debt and working capital. You've got to understand what you're doing."

Key says Auckland stabilising

Later in Parliament, Key was challenged by Labour Leader Andrew Little about housing shortages in Auckland and by home ownership rates of 20% or less in many parts of the Mt Roskill electorate for people under the age 40.

Key said he did not think home ownership rates had changed dramatically in Mt Roskill over the last 10 decade for the young, and he said a construction boom in Auckland meant the market was stabilising. He also pointed to the benefits of low interest rates for young homeowners, saying they could save them up to NZ$16,000 a year.

"There are a number of factors as to why home ownership rates around the world have been falling, but I think we can see, by the construction numbers, the consent numbers, and the employment numbers that we have seen, how much construction is now taking place," Key said.

"We can see that the elements of the plan are not only actually working in Auckland but, I think, starting to work around New Zealand, and I am confident that the housing markets will stabilise over time and more supply will be there," he said.

Key open to DTI in election year

On Monday afternoon Key was open to the idea of a DTI, but cautioned that the negotiations were being handled by English.

"Ultimately, New Zealanders have been saying they they recognise there's been pressure in the housing markets. They've been expecting the Government to respond and the agencies of the Government to respond and they can see that we're doing that," he said.

"They're realistic enough to accept that these things take time. Ultimately, I think it's a good thing that the Reserve Bank has more tools in the toolbox and if you look at the most recent results it looks like the LVRs are having some impact and certainly some impact in the investor category. Whether that carries on and whether this is a short term blip, I don't know, we'll have to get better data on that."

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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50% LVRs here we come? 60%?

Restrictions based on income rather than equity seem to make sense and if set at around 5x gross household income FHBs will be fine.

As a prudential regulator perhaps the RBNZ could enforce this the way APRA does - make it mandatory for banks to check servicing ability at significantly higher interest rates (say 7%) which will have a similar effect to DTI.

We are already at ~165% debt to GDP....I think it's unlikely to RBNZ will want this at 170%, 175%, 180%, etc so they will do something. Credit will be restricted one way or another.


Being cautious now. Where they not aware when RBNZ had proposed and PM said that they have no issue with DTI and is upto RBNZ.

Where they bluffing that time or now.



"The case for...all these tools have indirect and unexpected effects as well as some direct effects, and you have to make sure you understand all those, particularly when the Reserve Bank has already got a number of levers that it could pull," he said.

Shame on the government for authorising the RBNZ to pull the rate cut lever repeatedly without restraint, for no other reason than a narrow analytical process considers money and it's fungible surrogate credit a friction and not the fuel underpinning asset booms.

The Govt run the Reserve Bank. You know that.


Pathological Liars we know but now also pathological manipulators.

"You can't shame a shamess you can only remind them of the awesome shit they have done" Captain Perverto.

Captain Perverto we can remind them but do they care as are established shameless.


Shame not to national government but to us for electing such..............government.

The Reserve Bank was blatantly stupid to bring up,DTIs in NZ and as I have said previously the first home buyers will be taken out of the market for a long time unless it was a high DTI.
The more property an investor has would tend to have a higher DTI ratio.
Our ratio is over 5 and we wouldn't be able to borrow any more and provide any more homes for,people who require them.
That said, my Business Bank Manager has told me several times that I am by far his safest customer that his large lending book has.
Based on this why would a Bank want to restrict lending to us and yet would be allowed by the Reserve Bank decision to lend to others with less debt but without the same strength that we have???

You've said it yourself in your comment, it would actually be investors who are most impacted by DTI. At a DTI of 5 a FHB with a household income of $120k could borrow $600k - personally I think that's enough leverage.

In terms of a major economic/property downturn is an investor's rapidly shrinking equity going to pay the mortgage? If rental vacancies pick up (just look at many parts of Australia) AND the market has turned to s#&t, investors can't just offload a property or two. Big systemic risk.

I know you might reply with all of the reasons why your portfolio is so remarkably robust - but keep in mind my comment relates to investors in general, not you personally.

Zombie, I beleive that investors should have a higher DTI than an owner occupier.
With the owner occupier apart from the interest on the mortgage they also have thenrates and insurance plus their living expenses for that one property.
With the investor they only have the interest , rates insurance and maintenance but no living expenses on any of the properties so,it is certainly a different circumstance isn't it.
Time will tell but it will be a big mistake if they do bring them in.

You said"Our ratio is over 5 and we wouldn't be able to borrow any more and provide any more homes for,people who require them." Does this mean you're building new houses? No? Oh OK you're not actually providing more homes for people, you're just picking up homes that already exist so you can fleece more people who already don't have much of a choice (Unless of course you consider their income and the affordability of the rent you're demanding ... Yeah right!)

If the RBNZ cannot get a DTI approved, it will need to use the tools it does have to a greater extent.
1) reset LVR limit on investors to do the necessary work. An LVR limit of about 35% on investors might be low enough to constrain credit growth to reasonable levels.
2) increase the core funding ratio to prevent banks from borrowing overseas

Question is what were the minister thinking when they agreed to RBNZ proposal of DTI when it was suggested. At that time the response was that we (government) is fine as long as RBNZ is fine and are with RBNZ so what happened now.

Were they not aware at that time or were they just taking people of nz for a ride as they normally do and playing with time.

How can they be do shameless and arrogant. Why does not the expert and media expose them. It is for this reason that they know that they will get away with anything that they can be so ............. (run out of words and donot want to swear but YES this bunch of people have to go).

Bill English is certainly showing a lot more sense than most of the commenters here (Except THE MAN 2). Of course such a tool would have to be thought about very carefully. You guys will have to wait a little longer for your much anticipated doomsday.

so you admit DTI's would slow credit growth and with it house price growth.
of course national are not going to bring it in, there whole economic plan is built around immigration and houses, without that we would have next to none GDP growth and people would finally see what lack of productive growth plan they have for NZ.
I am surprised they still have any toes with the amount of cans the have kicked down the road for future generations to deal with

Those in deep, are the issue and always have been. I suppose that is why they protest too much.


What happened to their sense when it was first suggested and they came out in support of it.

It is No Secret -National Government is working for - definetly Not FHB ( Their advice to FHB is if cannot afford, which defintely you will not be - get out of city and make way for rich foreigners)

If concerned about FHB would have acted longtime back and also would not have manipulated and lie about non resident /Foreign buyers.

Still if the intention is good can announce DTI and defrentiate between FHB and Speculators - So called Investor.

In China tour operators are running NZ tour only for house hunters like shopping tour - what more. Government and so called investors are blind to fact which is obvious to one and all.

Another issue for the RBNZ which again is showing up in the currency markets, is the strengthening of the NZD. Appreciating quickly against the AUD, approaching decade highs against the CAD and looks headed for 75 USD . If the government is unwilling to come to the table in regards to DTI restrictions the RBNZ should be questioning its reasoning and be questioned on its reasoning to lower the OCR, Is it lowering the OCR to maintain the housing market under the guise of targeting the CPI , is it being boxed into a corner by a government that knows a faltering housing market would crush it in the polls, or should the RBNZ stand firm , accept a higher NZD and lower inflation in light of the recent economic data.


. "You need a pretty strong case to put further tools in the tool kit."

1 million average house price and household debt at 230Billion growing at 9% a year isn't a strong enough case ?

We are past crisis point !!!

Key: Speech to New Zealand Contractors Federation
Tuesday, 21 August 2007, 9:29 am
Speech: New Zealand National Party

John Key MP
Leader of the National Party

20 August 2007

Speech to Auckland branch
New Zealand Contractors Federation

Over the past few years a consensus has developed in New Zealand. We are facing a severe home affordability and ownership crisis. The crisis has reached dangerous levels in recent years and looks set to get worse.

This is an issue that should concern all New Zealanders. It threatens a fundamental part of our culture, it threatens our communities and, ultimately, it threatens our economy.

The good news is that we can turn the situation around. We can deal with the fundamental issues driving the home affordability crisis. Not just with rinky-dink schemes, but with sound long-term solutions to an issue that has long-term implications for New Zealand’s economy and society.

National has a plan for doing this and we will be resolute in our commitment to the goal of ensuring more young Kiwis can aspire to buy their own home.

It’s a worthy goal and one I hope you will support us in achieving. Thank-you.


Easy case if all you investors are so worried about the DTI impact on FHBs then it is simple


They make up a majority of the buyers currently ie Demand.

If the objective is to stop the investors, cannot the law be passed only to bar them and to exclude the FHB. Isn't it lack of honest intention of government to remediate this crisis?

Did you just use government and honest intention in the same sentence? Didn't they teach you anything in school?

You mean you want investors to trade companies or trusts that own houses as opposed to the houses themselves?
This would make it more difficult for new investors to enter the market because they would need a lot of legal know how, the result would be a widening income gap between those with ability and those without.
Wouldn't you prefer to make laws simpler and fairer (so that everyone can play at any level) as opposed to having complex legal rules that people need to navigate in order to even get to the start line.

As said earlier in this stream FHBs shouldn't be too badly affected by a DTI of 5, but investors will be. The Government didn't hesitate on tools that hammered FHB's first, but now dithers over a tool that will primarily target investors? Looking after the greed and money, they are no longer even subtle about it.

Bill English will probably be NZ's next thing he is not is a knee jerk reactionary. Safe pair of hands, very prudent.

Tui Ad ... Yeah Right!


Current national government history proves that current government is working only for elite few - may be because they all are one and their mindset allows them to think in similar lines and not able to understand the other view points.

For the same reason whenever their is any policy or any agency wants to act - the government is defensive and goes all out to protect their elite friends - Be it housing or panama papers.

In both (Housing and panama papers) the pattern is clear - First deny and when unable to deny any more , will come out with manipulation and lies and when even that does not work try to DELAY the remedies (That may harm their elite friends)if not able to avoid them.

Did the national government first denied Panama papers and housing issue and than they tried to manipulate and lie and now when forced to act are delaying everything - what does it shows.

I am not an expert but national government stands exposed today.

Elite few, elite friends, deny, manipulation, lies, delay, panama papers, exposed - your words. What a rant. I think you need to find a political blog to gas bag in. How the fook does national stay in power if they only look after an elite few (is that the top 1% / top 10% top 0.5%?) still not enough votes to stay in power. Or is national just a non-typical center right government that is doing a lot things right and maybe a few things that need improving like immigration. Certainly cutting off unemployment benefit after 12 months would be a good place to start.

Can't see how the Reserve Bank can't see that the DTI at say 5x won't work?
Example: Investor with rental income from property $500k that is 25 properties @ $20k
DTI @ 5 would only allow Bank to lend to investor $2.5 million
So effectively the Bank can only lend $100k on average per property.
So effectively the Rental property needs to be rtruning a20 per cent return and only way that is happening is with tenants paying huge rents!
With houses in Auckland that are liveable requiring say 700k and Chch $450k then this is not going to work is it.
As for first home buyers I am doubtful that there are that many couples that are on 130k consistently and there would be no opportunity to drop to one wage etc.

exactly so DTI's favour owner occupation
so in that regard national will not allow it
remember many of there MPs are landlords BE included

Best they don't start interfering with the RBNZ now, I'd have thought, well, I'd have hoped.

Sharetrader, I am telling you now, it is not going assist owner ccupiers either.
It will only be of benefit to current positively geared property, as there will be more tenants forever.
Negatively geared property owners will be in trouble as prices won't increase as there won't be anyone qualified to buy your negatively geared property.
Too many on here think anything that appears to be to the detriment of property investors is great but dont think they have thought it out.

Yeah, we've thought it out, investors have ownership of far too much of the market, anything that could reduce that is positive.

Plus no-one to buy their over-priced properties means prices fall until they are affordable to FHBs. Sounds like a win to me.

But if Investors can't buy any new properties then the ones that they do have will become "super rare items" and they are likely to want to hold on to them as best they can, especially given that RBNZ rules aren't retrospective (ie. they only apply to new lending).

Investors not selling means fewer houses being traded. Lower volumes can often result in higher prices.

While the rules may not be designed to retrospective, it depends on how the commercial banks choose to interpret them. I read one anecdote from an investor who approached his bank and they changed the rules i.e. the deposit / equity required applied to his existing rental as well if he wanted to borrow more.

I would suggest a combination of LVR and DTI might address that scenario. The last thing we want is rental property not being available at all. An investor could be allowed a higher DTI by having a better LVR.

So many comments and all concerns are addressed beautifully by David in his article in the same website but I though like sharing the link with all the comments

Well done David. We need to expose the government and should not let them get away with their manipulation and lies as is playing havoc with NZ - Socially and also economically in times to come.

Can government answer to David comments in his article ?

DTI is a very very blunt tool. There are plenty of other options that have been canvassed here such as restricting foreign money, taxing capital gain for all investors who are negative geared (well of course they're in it for capital gain they just proved it) under existing tax rulings etc etc.
It's like talking about loan servicing ratios. For someone on $40k pa vs someone on $240k pa the amount of money left over to live on is obviously much different.

Robt you are correct, lots of other option but they can only be taken by government AND we all know where the government interest are.

So RBNZ is doing what it can do in the absence of any action by government and even that the national is trying to block and remember desperate times call for desperate measures.

Where the Government forgets that ultimately will have to face the public and the time is not far away or may be they have realized that their time is up and trying to gain the maximum in that short period of what is left of them

The saying that “pride will come before the fall” is an universal truth understood by everyone.

Lot easier to require banks to double their capital ratios, and halve their leverage, say over a 3 year period.

What about older retired people who need to raise funds for medical expenses? If they have an asset with plenty of equity why should they be forced to sell it because of DTI restrictions?
DTI is a bad idea.
LVRs are much better and maybe just stress testing borrowers at a higher rate - which banks generally do anyway. The housing market in Auckland is clearly slowing anyway, it is working, and keeping the LVR restrictions where they are will stop it from taking off into double digit increases again. Maybe even loosening the LVR restrictions for FHBs might be a good step forward.

If there was enough supply, I don't think any of this would be an issue. But allowing so many immigrants into NZ with the infrastructure already built, has meant many Kiwis just can't buy a reasonably priced house. Those houses in Auckland that are being sold for 1 million, many are that value because of the future land value potential, when higher urban intensification occurs. In many cases the actual building is probably only worth 100-200k max, it is the land that has the value.They are more unlikely to be homes that people will live in for the next 40 years, as developers will want to land to build high intensive housing.

I am not sure if the savings they state are correct, with these record low interest rates. Maybe they apply, if the interest rates stay down. Over the lifetime of the loan, they are likely to rise, and people will be paying far more on that huge loan. The way I see it, you either have lower house prices, and high interest rates, or you have high house prices and low interest rates. Which one of these do people want? I know I would far prefer low house prices and higher interest rates, otherwise there is the potential risk that people will be caught out with a loan they can't afford to service.