Ryan Greenaway-McGrevy says reintroducing LVR restrictions on property investors is urgently needed and the maximum LVR on investment properties should be 60% or perhaps even 50%

Albert2020

Spot on. LVR less effective if borrowers are allowed to dip into unrealised equity gain. Very unproductive except to dig the pit deeper for the borrower to wallow in increased indebtedness. Paper gain. Nothing but a Ponzii.

Albert
I agree with you that given the increase in house prices over the past decade, a LVR on its own will have little impact for most potential investors leveraging off equity in their home or existing properties. The only investors affected by a LVR (without leveraging restrictions) will be those investors who are very highly leveraged and sailing pretty close to the wind.
However, while the possibility of a leveraging restriction as you suggest may provide a sense of "feel good", in reality it is not as simple as that.
Its worth looking at the impact of LVRs.
In 2016 when LVRs were in place - but with the market still peaking - RBNZ data shows that most months the number of mortgages to investors were over 5,000 per month and for four months of that year it was over 6,000.
Late last year, and pre-Covid this year, when LVRs were in place - and an increasing perception of upside to the market - the number of mortgages per month was only around 3,300.
In April at the height of the Covid concerns and the future of house prices, the number of investor mortgages was only 1,400.
Since the removal of LVRs in May - and the perception of a strengthening market - the number of investor mortgages has been around 3,900 to 4,000.
So currently without LVRs investor activity is well short of the 5-6500 in 2016 and up only slightly up on pre-Covid when LVRs were in place.
So yes; the past experience of the impact of LVRs may be over-estimated and are seemingly less significant or secondary to other factors such house prices and yields.
So yes, there is seemingly an apparent need to strengthen LVR's bite.
However, while your view that investors shouldn't be able to leverage on existing a property(ies) may appease you and provide the sense of justice and "feel good", in reality that may not be possible or likely toothless.
When a potential investor is leveraging off an existing property, in effect what the bank is doing is extending credit on an existing loan or asset to provide "cash" or a credit facility.
Leveraging is a common practice for Mum and Dad to provide support for son/daughter to buy a home, to fund a business, for home alterations, surgery, buy a campervan/boat, or (although not currently) overseas travel, buy a holiday home . . . or as a deposit on a rental property.
So how does one regulate that a bank can't extend credit on a mortgage or as to how is to be used?
I have had a good relationship with my bank and have had a substantial open credit facility (at minimal cost) - more than enough to put a deposit on an investment property.
Even if "leveraging on investment properties" was somehow stipulated, there are so many ways around that. What about one's existing credit facilities? What is so different between providing cash to a son/daughter to buy a home and a rental property on one's behalf? Use the credit facility against another asset - such as one's boat - and use the proceeds from that as a deposit on an investment property? . . . and that is just a knee-jerk reaction thinking.
Yes, current increases in the property market are unsustainable and create both economic stability issues and affordability issues.
Yes, we urgently need LVRs despite seemingly being secondary to other factors such as the state of the market, house prices, interest rates, and yields.
And, unfortunately, as much as they may have a "feel good" factor and address our sense of envy, investor leveraging is unlikely to be possible or practical.
What is needed is for RBNZ to not only focus on inflation and employment for economic stability reasons, but also take more responsibility to ensuring stability in the property market.
Unfortunately RBNZ don't seem willing to take that on board and are bullish on housing as a means to achieving its existing goals.
What we do need is a LVR targeting investors especially, FLP to be directed at business purposes only (quite possible as RBNZ is providing banks with the facility so they can do this), less QE, and no further cuts to the OCR.
The government also needs to accelerate housing supply to address the current shortage (there are still a number of motels here in Hawkes Bay full of "homeless")
It is in everyone's interest that the property market needs to stabilise; current rates of increase are unsustainable and are increasing both affordability issues and risk of a severe correction.
A LVR with restriction being placed on leveraging for investment a property is just a simple feel good reaction to the issue.

Based on the last few years of consents supply is less of an issue (although obviously still important). It's the demand side that governments have refused to acknowledge (because implementing demand-side measures is not politically palatable) and thus this crisis will never be addressed until regulations are imposed to slash demand.

Interesting article yesterday on how poor building standards and housing are in NZ. Enter Mike Greer with his solution to import houses from Japan that were built to a much higher standard only to be told, you must downgrade the building material used as they exceed our lower standards in NZ. You really couldn’t make it up! Have we really got to the stage where we have to build cheap crap at astronomical prices which will need repairing at equally astronomical prices within a few years.

Bit of a coincidence that prices did not accelerate markedly until after LVR was removed, despite interest rate cuts that were mostly done prior to LVR removal.
According to Niness article yesterday, supply is starting to improve last 2 years.
Immigration also plainly not the driver this year, despite media blather not reflecting INZ stats.
Agents have a lot to do with this, as they are not pricing in what potential buyers might pay as a factor in CMA, which is not how CMA inputs normally work.
Normal CMA rests primarily on what was paid recently for similar property. But agent is now using discretion to include what he sees market likely to throw up at auction in particular, which is substantially above CV. Banks merely respond to what price (mortgage) needed is when buyer asks.
So, crux is Agents pricing higher and banks lending it. Key to reducing prices is for both factors to change
Most likely scenario is one we had in Auckland for 3 years 2016-19, where prices rise less than wages or GDP
Hence falling in relative terms, rather than absolute terms.

Printer 8: When you mention "Supply" you should also mention "Demand". Neglecting the latter ignores the important thing in the equation.

printer8..agreed. The problem is that for banks, lending to an investor with high equity in existing property poses far lower risk than lending to a first home buyer. We need an urgent ten year rent freeze (to encourage renting over buying) and tax on unoccupied homes together with a huge reduction in migrants (to reduce housing demand). These three things would create other (smaller) issues but would pretty much solve the housing problem.

Bindi should be paying you a retainer.

@two otherguys

Hello, I rent. I tell you what, if I brought a house my whole attitude towards this 'housing crisis' would probably change.

Reflect on that, in terms of if you were a renter. But yes, some people are rogues .. there is risk in owning rental properties. You can't get blood out of a stone. I think even Moses only managed to get water out?

Well i think if investors are brining money, not unrealised equity in their stock, then they should be subjected to the same 20%. I guess they should be a multiple for their unrealized equity: like you would need $2.5 for every $1 of hard cash. So if an investor is leveraging its unrealized gain, their LVR will be 50%. I think this is sensible approach.
On taxation, you want capital gain tax? I have no problem with that. But do not expect any magical outcome. Any impact of CGT will be one off and soon the market will be back to where it was.
On lending to productive activities: I totally disagree with you. Bank lending is good for expansion of established successful businesses. There is so little room in this space in NZ that it will be impossible to lend them money that justifies the lending risks. Why do you think all the money is flooding into property? there is obviously a lot of money in NZ who is seeking return. It flows to any opportunity offered. The fact that it flows to property is a symptom of lack of economic opportunities.

Well put. Printing money without changing the economic output of a country will inflate the prices, as sure as sun coming out every morning. In 70s and 80s the inflation was in everyday goods and services. Now, it all goes to asset prices (shares, houses, gold, anything you can think off really).

I agree Mr pink. One has to only look a gold over time as a measure. Gold is stable, unchanged and lasts for eternity.
It is not that it's become more valuable, it's value is unchanged, the price change is just a reference to the way in which govts continue to devalue their dollars, thereby destroying the savings of the people. Mr Orr just playing along with other central banksters to steal from us.

It's a tax on the poor.

I wonder if you would have said the same if National was in power. a miss step :). The language we use to describe the same thing, depending if the thing is done by some we like or detest, is truly amazing.

More government (CGT, Tax etc.) intervention is not the solution.

Government is the PROBLEM in this whole thing. They inflate prices by restricting supply. It's too damn hard to build in this country.

Everything they do just pushes out a problem in another part of the market. Let's "help" FHB with a welcome home grant - all FHB homes immediately jump in value by $10k. Let's limit the grant to a max of $500k, all starter homes are immediately bid up to that max. Increase LVR, regions get inflated.

The government needs to GTFO.

Already happening I'm afraid

You're going to be waiting a long time if you think inheritance taxes will do anything - and a huge chunk of people have no chance of ever paying off a mortgage off now without accessing inherited wealth. And the government has plenty of money and a printer going brrr overtime - it can't competently manage that now, so good luck getting Kiwis on board with the idea of being taxed for dying - which will end up in more Wellington policy wonks and virtually no extra houses on the ground.

You need to increase holding costs and stop people amassing huge portfolios, using the gains in one to outbid owner-occupiers. You do this by taxing land interests and scaling with each subsequent ones (e.g. 0% on family home, 1% if you have a second homes, 2% once you have three, 4% if you own four, etc.). That will diffuse ownership away from the investor class and back towards the people who are currently underwriting their losses while they make sweet sweet capital gains.

That we allow property investors to use equity in other properties to purchase more properties makes the whole housing market a giant ponzi scheme.

I wish I could do that with shares.....I don't need to sell any shares to buy more of them because the price of the ones I previously owned have gone up! No cash required....no need to sell what I own to buy something else. And I can do that with leverage! Its absolutely bonkers.

'The real issue in regards to affordability must surely be to better support first home buyers with the onerous deposit requirement.'

Disagree - that will just push prices higher.

Are you a property investor - if so how many properties do you own?

What's your point?

They could also provide a better financial future for their children by starting a business in the productive economy which would create jobs, god for bid, then retire early when you sell the business. Irrational thinking I know.

Sorry, you're the problem.

Thank you for your service. I regret to inform you that your services are no longer required. The different set of circumstances and different set of issues we face today mean you're now a part of the problem.

I like your "One last point" re today's 1st home buyers being tomorrows property investors. The ridiculous prices mean that less and less are able to become 1st home buyers which has massive generational inequality consequences. Hopefully we fix the rules so they don't become property investors and you know invest in other things that are actually productive.

On point as usual.

Karl You have hit the nail on the head. It is often overlooked that mass immigration of recent years is the root cause of the housing crisis.

Yes banks used to add a 1% loading as they considered a rental as commercial loan but competition by Citibank in the 1990's (who didnt charge any extra for investors and introduced the revolving credit product to NZ when no main banks had R/C's) saw all the banks eventually drop the loading.

Yes that could be done, just wonder how renters would fare though when there's few properties available to rent... Of course that could suppress value growth for some time or push values down but cause unintended consequences like rents could spiral up due to lack of competition. and available rental stock UNLESS Housing NZ reignited the very reason it was created in the first place ie make home ownership affordable for first home buyers or give them an affordable rental to occupy!

10 year guaranteed rent price freeze would cool the investors jets. We had a total price freeze in 1982 so why not? My Dad tried to increase my board from $20 to $30 in 1982 and I informed him he would be breaking the law!

The thing with 1st home is that many dont really care what happens to the value so much bacause it doenst matter unless you sell or HAVE TO sell. (I didnt care after my 1st home property value initially fell 10% before bouncing back up).
People say the bank will call up your loan but that really only happens when you dont pay the mortgage payments. The banks dont want to call up mortgages and sell properties at a loss when the mortgage payments are still being made, they would be nuts to as they would potentially collapse themselves in the process of unnecessarily incurring losses on otherwise good loans being paid on time every time.
They do chase those who default or have a massive exposure to them, but not typically a 1st home buyer who is paying their way.

To most its more about no longer wasting money on rent for someone elses property. 1st home buyers usually hunker down for the long term view imo.

Sure thing... here's the rub. Median income is $55k p.a. so at say even at 5 times that means a median house price of $275k

The national median price is currently $725k

Assuming wages keep rising by say 3% p.a. and house prices don't rise at all ie $725k then it would take 32 years for the median income to reach the 5x median multiple.

Of course alternatively the median price could drop to $275k but that's a drop in the median value by 63%.

Investors are not the only ones who sell property and bank the profits.
Many homeowners and investors adequately maintain and renovate their properties pushing up the value, value growth is not all capital growth but you wont see that reflected in the explanation of the cold hard $ figure of the median price. Nor will you observe the impact of the old house that 3 years ago was apparently worth $700k (for a one house section so land value excluding the house was say $500k reflecting that only ONE house can be built on the section) but the section has since been rezoned by the council (ie the Unitary plan) and now 7 townhouses can be built on it so it's worth $1,400,000 which is a land only price of just $200k per site...

YES that is a reduction in the land value per house of 60%...

Homeowners represent a very large % of house buyers so even removing investors completely would not stop the capital growth train.

Of course theres another alternative where the state owns all property and rents it to you in perpetuity for your lifetime... ie no-one owns a house per-se, no private investors, no capital growth, welcome to the socialist state.

Get those builders trained. Use some good project management companies and bring building prices down. Free up land and reduce restrictions. Hopefully they have some vision.