By David Hargreaves
Despite another month of slower Auckland housing figures, I still think it's too early to call the Auckland market as officially in retreat.
Let's wait and see what March brings. I think those figures will be more definitive.
The March figures will also take us six months beyond the official start date of the Reserve Bank's 40% deposit rule and therefore to about the time I would expect to see the impact of that starting to wear off.
But certainly, I do think the Reserve Bank will now be hopeful that the wind has been taken out of the City of Sails sufficiently to get through to the election.
However, if we do get through this year with a more subdued Auckland housing market, there's plenty of reasons to believe there could be a post-election flurry of housing activity - as there was in 2014.
The concern would be that the current quiet period will encourage people - notably those in Government - to 'relax' and put the structural problems in our housing market on the backburner.
While we are still firing up new record levels of immigration to fuel a need for housing, while Auckland still has constipated urban planning processes, while the building industry soon seems to reach limits to how fast it can expand, while New Zealand still gives taxation advantages to housing investment over other asset classes - the situation is still ripe for another full-on explosion in prices in the Auckland market.
And this is at a time when household debt levels are constantly reaching new peaks.
The IMF pointed out, I think disconcertingly, last week that the RBNZ's existing weapons in its 'macro-prudential toolkit' are now "approaching their practical limit".
That's why I think it was really irresponsible of this Government to cynically fob off the RBNZ's attempts to get debt-to-income ratios installed in that toolkit early this year. That's one obvious thing that is needed to protect effectively people against themselves and putting themselves at risk by overstretching in an overstretched market.
In looking at why the housing market has backed off somewhat, I think it is clear that there's been more at play than simply the RBNZ's new 40% rule.
The banks have rather hidden behind that in order to considerably tighten up their lending criteria.
When you look at it, then it makes sense the banks would actually have quietly welcomed that rule because it's a lot easier for them to see they won't lend because they can't lend than to simply say that their current circumstances don't make it prudent for them to do so.
And of course in a normal market unencumbered by LVR restrictions if one bank doesn't lend another might - so all the banks feel under pressure to lend, perhaps sometimes inappropriately, so they don't lose market share. Apply a rule to everybody and everybody's market share stays the same.
Rising borrowing costs
The other thing helpful to the RBNZ has been the rising cost of borrowing, with more potentially ahead.
If interest rates do indeed start going up somewhat more aggressively in the US then that will keep more upward pressure on our lending rates.
And another thing is, I still think there's an outside chance the RBNZ might have to lift official interest rates as soon as late this year.
The 'market' is still giving some chance of that eventuality, while most economists say no way. I do note though that the BNZ economists are certainly of a view that inflation is going to surprise on the upside.
So, I think it is possible that interest rates will prove a dampener on the housing market. And let's face it rising interest rates are the surefire way to take the heat out of a housing market - even if sometimes it takes time as evidenced by what happened in the mid-2000s when the rates were squeezed and squeezed.
Because we are already at such high levels of indebtedness now, I don't think such energetic rate rises would be necessary. Indeed quite modest rises from here would have a big impact on debt servicing ability, I think.
The other fact mitigating against a strong recovery in the housing market now this year is the election itself. The market did take a pause before the 2014 election and there's no reason to believe something similar would not happen.
So, let's see what happens in March.
If there's no signs of strong recovery in Auckland house prices, then I think the Government might have got away with this till the election.
Masking the problem
But let's not kid ourselves, a slower market right now only serves to mask that there's an ongoing future supply/demand issue in Auckland.
It's to be hoped that the incoming Government later this year is quick to come up with some viable solutions.
We can't just keep risking the prospect of boom and bust cycles.