The Government’s ban on foreigners buying New Zealand houses is “unlikely” to have a significant impact on housing affordability, IMF officials say.
They have also revealed any further restrictions on loan-to-value ratios (LVRs) “would not be helpful under the baseline outlook,” but debt-to-income (DTI) restrictions should be added to the Reserve Bank’s macroprudential toolkit.
A group of IMF economists has completed their annual assessment of New Zealand’s economy and addressed media on Tuesday.
They gave the economy solid marks for growth and say they are “comfortable” with the country’s fiscal position.
Finance Minister Grant Robertson has welcomed the IMF’s assessment of New Zealand’s economy.
The policy was one of the first to be introduced by the Government.
"A ban of residential real estate purchases by nonresidents is unlikely to have a significant impact on housing affordability," Helbling says.
He says the ban is a capital flow management measure under the IMF’s Institutional View on capital flows
"The measure is unlikely to be temporary or targeted, and foreign buyers seem to have played a minor role in New Zealand’s residential real estate markets recently," he says.
He adds the Government's broader housing policy, Kiwibuild and the focus on lowering tax distortions, if fully implemented, "would address most of the potential problems associated with foreign buyers on a less discriminatory basis."
He says if bans, such as the Government’s policy on foreigners buying New Zealand homes, are enacted – “you might want to worry about the signal [it’s sending].”
Although it’s difficult to fully assess the impact the signal the ban is sending to foreign investors, he says it “would be one thing for the Government to worry about.”
There has been a recent stabilisation in the housing market, he says, adding that vulnerabilities will continue to decrease.
“But despite the decreases household debt remains relatively high, even under the baseline outlook, and we are concerned it could amplify the risk of large downside shocks.”
LVRs and DTIs
When asked about adding DTI limits into the Reserve Bank’s macroprudential toolkit, Helbling suggests it’s better to have them and not need them, than to need them and not have them.
“We continue to think that it is useful to have this instrument in the toolkit for the Reserve Bank. But for the moment, there would be no need to use that instrument.”
He says the housing market has cooled and because of this, there is also no need for further LVR restrictions at the moment.
But at a time when the market is cooling is the best time to add DTIs into the Reserve Bank’s toolkit, Helbling says.
“If you only have one instrument that is suitable for that purpose, LVRs, you can use the instrument in excess which may have unintended consequences.”
He says the Reserve Bank has not used LVR’s to excess, but the tool has been used “to the max.”
“If the housing boom were to rekindle or for other reasons household debt were to increase again, it would probably be useful to have another instrument to use, rather than only relying on LVRs.”