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Opinion: We may have already seen conclusive evidence that LVRs have hit the housing market - we just don't realise it yet

Opinion: We may have already seen conclusive evidence that LVRs have hit the housing market - we just don't realise it yet
<a href="">Image sourced from</a>

Almost since October 1 dawned the New Zealand public have become like a load of restless children.

But in this case the refrain is not so much: "Are we there yet?" but "have the LVRs had an impact yet". There is this burning desire to know, now, just what effect the Reserve Bank's newly furnished weapon is having on the market.

So, of course there have been the anecdotes, the tales of banks withdrawing lending and of buyers being turned off.  Today's BNZ-REINZ Residential Market Survey results provided probably the strongest anecdotal support yet for the proposition that the LVRs are having an effect.

But most informed people are suggesting it will be another month before we get some sort of better picture in terms of hard evidence. The real-deal facts and figures.

I would suggest, however, that there is hard evidence already that the "speed limits" on high loan-to-value lending have had one heck of an immediate impact.

Bank economists on the whole gave surprisingly bland, wait-and-see, assessments of the latest monthly figures from Real Estate New Zealand out this week.

The figures showed a new record high national median sales price and a slight decline in the seasonally-adjusted number of sales.

What the figures didn't and couldn't indicate is what would have happened if the LVR limits had not been in place? That really is the million dollar question that endless sifting of the actual figures cannot answer.

I had believed for many months that with the way the house market roared on through the winter and with declining number of houses listed for sale that we would see an explosion of sales volumes and prices in October as the natural spring upturn and the over-heated, buy, buy, buy sentiment collided.

History cannot always be the guide, but if you look back a year, national sales figures in October 2012 were actually up some 17.5% on those for September 2012, while the Auckland sales figures were up some 17% in October 2012 compared with the month earlier.

But moving forward to 2013 and the national October sales figures were slightly higher than those for September, while the Auckland figures were actually down.

Strong gains

If we look back, again, as far as 2010 it can be seen that year-on-year September figures both nationally and for Auckland were up strongly in 2011, 2012 and 2013. In fact the 2013 figures were very strong - up by about a thousand.

Comparing Octobers shows that there were strong rises year-on-year for October 2011 and 2012, but not, as discussed, for 2013.

The definitive RBNZ announcement on what the actual "speed limit" would be came out on August 20. Any mad dash on the part of, particularly first home buyers, to get into a house before the limits bit would have been reflected in the sales figures between the end of August and the start of and running into October.

Perhaps the rush, such as it was, came in September with that nationwide year-on-year increase in sales of around 18.9%, while Auckland's sales were actually up by 22.5%.

But remember also that during October there would have been quite a few people still with pre-existing high-LVR loan approvals still transacting to buy a house, so you would expect that the October figures should have also got something of a pre-LVR boost. But the overall figures suggest not - unless without the pre-loan approval boost the 'natural' figures were actually considerably down.

A big hole

Using some admittedly fairly basic extrapolation of recent sales trends would suggest that the October figures could actually very easily have had a "hole" of around 500 to 1000 sales that might have been conducted without the LVRs.

Clearly people might disagree with such a viewpoint, but it comes back to the essential difficulty around not just looking at the figures as they were - but what they might have been without the LVR impact. I think there's clear enough evidence that even in the first flush, the LVR limits have really chopped back the sales volumes.

Consider further: The shortage of available listings during this year has had a restraining impact on the number of sales being transacted.

But the key point to note about October is that according to there was a very strong rise - 10% year-on-year - of new listings during the month. Seasonally-adjusted estimates of the new listings in Auckland suggested that they were up over 20% in the month.

Constraining factor

So, the constraining factor that had been there on sales volumes in previous months was, while still there, actually less prevalent in October.

Given then that recent mortgage approvals have been week-by-week significantly lower since the start of October - this week's figure was down 10.8% on the equivalent week a year ago - it has to be anticipated that November's national sales figures will show a significant drop.

The key thing then to look out for is whether the drop in activity continues and what happens to sales prices. As we saw prices rose again in October. But if sales volumes drop - assuming there are good numbers of house listings on the market - then prices should ease.

The big question will be to what extent house investors unaffected by LVR limits pick up the slack and keep pushing the prices up.

The idea that first home buyers are getting locked out of the market is already a hotly emotive issue. John Key knows well enough it could be very bad for the ballot box.

Back off, pressure off

If, however, prices do back off - or even ease - during the next few months, that would take a lot of pressure off. After all, anybody choosing not to buy a house now and seeing prices go down would feel pretty pleased they waited.

But, to go back to the initial proposition, it is going to be very hard to look at actual prices over the next few months and try to judge what those prices would have been if the LVRs were not in place. It is hard to sound convincing when confronted with a 5% rise in prices by saying: "Yeah, but without these LVR restrictions the prices would have gone up 30%."

The truly combustive mix would be if prices keep inching up and say in six months time our would-be first home buyers are in the position where a home they could have bought now with a high-LVR would be out of reach whatever the loan ratio. The logic of: "Yes, but it would have been much worse without the LVRs" is not going to seem compelling.

If we get to that point expect to see the Government back in the RBNZ's ear, more forcefully this time. National will not want to fight an election campaign dominated by images of tearful young couples locked out of houses.

For now, I think the RBNZ would be quietly very happy with what it has seen. 

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Wheeler says the reason behind the LVRs is not reining in house prices but bank stability. I can't see how taking out first home buyers from the equation and leaving buying in the housing market to foreign buyers, investors and existing owners to keep the market propped up was the best idea. That leaves New Zealand house prices vulnerable to any instability in the Chinese and US economies. I would imagine foreign buyers are keeping a close eye on what's happening with the LVRs and any sign that growth is slowing they will be out of there in droves, same as local investors. I would say allowing owner occupiers including first home buyers to dominate the market would be a better way to maintain bank stability. The government should be exempting new builds of GST, imposing a stamp duty on foreign buyers, requiring cash deposits for investment properties (not other property as security) to name but a few measures instead of punishing young New Zealanders.


Maybe GST on residential construction costs should go to local councils and in exchange councils be prohibited from charging development fees. GST on land capital gains should be exempt completely. So any construction work on land including the intial development -sewage, water, roads etc. is taxable for GST but the capital gains is not. This would bring land development in line with existing residential property where you pay GST on renovations but not on capital gains.


Local government are clearly revenue deprived as our poor transport infrastructure and terrible TomTom congestion figures indicate. So we need to find ways for them to up their game. I think they need new revenue sources but also incentives to stop buggering us around.


Councils should not get GST on land sales itself because they can massively inflate land costs through the planning process and so have a conflict of interest. The aim should be to minimise the capital gain in property while encouraging improvements in land development. Giving government the power to tax land capital gains just encourages them to exploit the system they control to get higher taxes and deprive the general public.


" encourages them to exploit the system they control to get higher taxes and deprive the general public."

You / the general public control the system when they go to vote.  To the limit that central government devolves decision making that is.


Maybar.  Like that one.   "allowing owner occupiers including first home buyers to dominate the market would be a better way to maintain bank stability"   Such people are far more likely to stay on in a stable way, that the motley collection of investors, foreigh buyers who seem to be a big chunk of the current owners.

But I would suggest that Wheeler is also right about the downside of overpriced houses and high levels of borrowing against them if there is a downturn of some sort.   Thats a lurking disaster.

As for first home buyers, limits on borrowing are less likely to harm them than an overpriced purchase is.  And it is nothing new, despite the howls.   Many here will remember the good old days of 1st, 2nd and third mortgages.   Personal borrowing to achieve a deposit was also common. 


" fairly basic extrapolation of recent sales trends"

why not just use the REINZ seasonally adjusted figures for October


"Sales volume in the Auckland region increased by 1.6% compared to October 2012 with strength in Manukau City, but declines in North Shore City and Rodney. Compared to September, sales volumes fell 3%, with North Shore City and Outer Auckland showing the largest declines. On a seasonally adjusted basis Auckland's sales were down 2.8%. "

Anyone who thinks the  LTVR rules will bring house prices down, is dreaming .

All that is happening is that those young Kiwis  with no savings will be forced out of the market while they accumulate the 20 % capital they need.

In the meantime there will be between 60,000 and 90,000 new arrivals in Auckland every 12 months, ( many of them coming with money under the migrant investment rules) , and they will , at best, keep current price levels where they are , or at worst , act as a stimulant for more price increases .

Couple that with cheap money , and an economy on the mend , and you have a recipe for a good run in the property sector. And then for good measure add the Administered costs of subdivision by Auckland City , the costs and complications created by  the Resource Managment Act issues, and you realise that with restrcicted supply  property prices can only escalate.   


expensive money will also push up prices.

rising house prices will push up house prices.

Increasing population will create demand that pushes up house prices.

failing economy will create a run towards more stable assets, and only the richer will be able to get their toe hold, house prices will rise.

Retricting funds will validate buyers pushing up prices.

rising economy will introduce more investments looking for a toehold, or growth, house prices will rise.

RMA and other compliance costs will make housing a rich persons game locking out downward pressure from cheap supply, house prices will rise.

Administration and council costs passed on will cause cost recovery to occur, which is done by higher rents, making income better, house prices will rise.

renters will demand better local services, access to good services causes demand, which causes house prices to rise.

competition for good low risk investment vehicles will cause house prices to rise.


Depends if you're buying or selling with me......



Said long time ago, NZ's GDP frame work can be simplified to


Spending on residential housing (C) + Govt spending (G) + Chch rebuild and other infrastructure spending (I) + (Export from primary sectors (X) - Machinary/oil imports for transportation, farming etc (I))


Housing enters the equation in C, G and I. A decrease in house price will see a crash in GDP, which no government will want to have. 


Simple as~~~


GDP = private consumption + gross investment + government spending + (exports − imports), or


There's only one thing worse than watching tearful young couples locked out of  housesand that is watching the same young couples in tears as their house is sold at a mortgagee sale due to a rise in interest rates.


Actually the biggest likelyhood is a huge house price drop and they are in neg equity and its full recourse.

They are done for and so are we as we bail out the banks