By Bernard Hickey
Finance Minister Bill English has pointed to ongoing discussions between the Reserve Bank and new home builders about whether high Loan to Value Ratio (LVR) loans for new buildings should be exempted.
Asked ahead of a National Party caucus meeting if he thought the Reserve Bank should exempt new builds from its 10% speed limit on mortgages with an LVR over 80%, English said it was up to the Reserve Bank, and he understood it was discussing the issue.
"That's up to them. I understand they're in some kind of discussions. That's been mentioned publicly. It's up to them about what rules they make about that. We're focusing on what will have a bigger influence in the long term -- and that's getting more houses on the ground faster," English said.
The Registered Master Builders Federation (RMBF) said last month it was seeing early signs the high LVR speed limit was reducing orders for new homes and said it was in discussions with the Reserve Bank about exempting new builds.
The Reserve Bank and the RMBF were not immediately available for comment. The RMBF has estimated around 15% of new builds are financed by high LVR loans and the policy could reduce new home builds by around 3,000 per year.
The Reserve Bank itself projected in a research note published this month the high LVR limit could reduce new home builds by as much as 5% or 80 consents a month, although it said the effect could be smaller given the policy doesn't apply to property developers borrowing from non-banks and because banks were reluctant anyway to lend high LVR loans to home buyers building homes.
Reserve Bank Deputy Governor Grant Spencer also downplayed the speed limit's impact on new supply in a speech delivered to the Property Council in Auckland earlier today.
Spencer said the high LVR limit may reduce inflation, but New Zealand's house price metrics of prices relative to incomes and rents would remain high.
"In this sense it is hard to see how these restrictions will materially reduce the existing incentives to develop new residential property. Provided the “red tape” costs and delays are reduced, there will remain a strong price incentive to expand the housing stock, particularly in Auckland and Christchurch," Spencer said.
English agreed there may be a short term impact on new home building from the policy.
"You could get some transitional effects. We do know overall supply needs to increase and that's why we've started announcing the special housing areas and why we need to do that at scale," he said.
A Reserve Bank spokesman later declined comment.
"The Reserve Bank meets with and discusses LVR-speed limits with a range of parties," a spokesman said via email. "The content of the discussions and the parties that we meet are not a matter we wish to comment upon in the news media," he said.
RMBF CEO Warwick Quinn said the survey results were due back late next week and it had not had further discussions with the Reserve Bank, although it had some talks with Treasury.
'Don't do silly things'
"Internationally, overpriced housing markets and fast growing housing markets are recognised as one of the biggest risks to financial stability. The worst thing we can do for first home buyers is take risks as a country that pump up our debt when there's a lot of indications that global financial markets could go wrong, and if they go wrong they'll punish us for that and that'll leave everyone worse off," English said.
English has just returned from meetings with the IMF, the World Bank and ratings agencies in Washington and New York. He said leaders in other countries also dealing with asset bubbles were curious about New Zealand's approach, which was relatively unique in being a speed limit on high LVR loans rather than a simple ban.
He warned again about the risks New Zealand faced because of its relatively high foreign debts held on behalf of households through its banking system.
"There's still risks. We don't want to become victims of our success where we think everything's fixed and we can go off and do silly things," English said.
(Updated with RBNZ and RMBF comment)
We welcome your comments below. If you are not already registered, please register to comment
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.