BNZ chief economist Tony Alexander is casting serious doubt on whether the Reserve Bank will be able to start removing restrictions on low deposit lending by the end of this year - as it has indicated it might.
In his latest Weekly Overview, Alexander said it was "possible, yes" that the RBNZ may start the process of removing the 'speed limits' on high loan-to-value lending at the end of this year, "but likely - no", he said.
Alexander cited the high Kiwi dollar, likely further rises in house prices and increasing rates of net immigration as factors that would probably block the RBNZ from moving on the LVRs.
"Firstly the rules are doing the job of about 0.25% - 0.5% worth of Official Cash Rate rises [by the RBNZ]. Were the rules to be removed then the OCR would need to be that amount higher than would otherwise be the case," he said.
"Given that rising interest rates lift the Kiwi dollar and that this is something the RBNZ would like to avoid given their recent strong expressions of concern about an over-valued currency, one condition which would have to be met is a falling NZD. Is that likely?
"Again this is possible, but not probable," Alexander said.
He noted that the NZ economy was "in fine fettle" yet offshore, other central bank leaders were emphasising how they do not plan raising interest rates for a long time and the European Central Bank is actually expected to ease monetary policy next month.
Alexander said therefore "the chances are" that the NZ dollar will be at least as strong as it is now by the end of the year.
"However it does pay to note that such a scenario still would not rule out removing LVRs because the strong currency itself will be like a tightening of monetary policy beyond what the RB have factored into their forecasts."
Moving on to the housing market, Alexander asked whether by the end of the year it would be as "contained" as the RBNZ would like.
"Probably not," he said.
"Although the pace of activity has eased, population growth has accelerated and will almost certainly lift further as this week's black budget in Australia will discourage even more Kiwis from crossing over."
Alexander believed the chances were now "quite strong" that within 12 months NZ would have a net migration gain from flows with Australia. The last time this happened was in 1991.
Migration inflows have already exceeded RBNZ expectations this year.
"More people, more price pressure, and that is exactly what the Reserve Bank Deputy Governor also expressed some concern about.
"The media have chosen to highlight the chances of LVR rules disappearing but failed to outline the rather stringent conditions which will need to be met before this can happen.
"To all you first home buyers out there, best get on good terms with your parents and butter up those childless aunties and uncles if you are planning to make a home purchase in the near future," Alexander said.
Commenting on the recent Real Estate Institute housing sales figures for April, Alexander said he struggled to see evidence of house price inflation slowing down following introduction of the LVR rules.
"Frankly it looks like only turnover has been affected," he said.
"The Reserve Bank have estimated that prices are 2.5% lower than if the rules had not been introduced. But to make such a calculation one needs to have a model which has proved it's accuracy in predicting house prices rises - and in over a quarter of a century back in these shaky isles I have never seen such a model."
Alexander said "an industry commentary" had during the week noted that there was a huge level of pent up demand for houses from young buyers currently frustrated because of the rules.
"Were the rules to disappear he said a flood of buyers would then step forward.
"Thinking about that, if you were an investor contemplating a purchase, would you have more incentive to act early or less?
"More of course. To the extent one believes that the LVR rules are temporary they provide a good window of opportunity for investors to make more purchases.
"Similarly, if you think Labour could defy the odds and help form a government with the Greens later this year, would anticipation of a capital gains tax on housing cause you to buy more or fewer houses now?
"More of course as the chances are that existing holdings would be grandfathered in tax free and only fresh purchases from a future date would attract the tax."
Alexander has strongly pushed for more information on foreign buying of New Zealand houses as well as for this country looking at the adoption of some sorts of limits on offshore-based buying similar to that in Australia.
Alexander referred to the information released this week from the IRD based upon rental property returns showing that in 2011 some 11% of all rental property owners lived offshore with no obvious upward trend in this proportion.
"There is no way of telling unfortunately what proportion of this 11% is foreigners and what proportion is non-resident Kiwis," Alexander said.
"One also can't tell what proportion of the foreign owners plan shifting to NZ or what proportion will sell as soon as their offspring finishes varsity.
"In addition we don't know to what extent the 11% is biased downward by not capturing foreigners who own houses which they leave empty or perhaps just use for the occasional visit.
"We also don't know the proportion who own the houses through structures which may not show up as non-resident owners. We also don't know the current situation as the data are three years out of date.
"In other words we still do not know what proportion of the NZ housing stock is owned by foreigners and whether that proportion is rising, falling, or flat over time," Alexander said.
He said therefore that "plenty of scope" exists for strong statements "by those who think foreigners are on their way to buying lots of our houses as well as those who feel the problem is minimal therefore no legislation is needed".
Alexander said that with about 40% of NZ housing stock rented and with this stock owned by an estimated 199,000 investors in 2011, this meant roughly 4.4% of the housing stock was owned by people living offshore.
"Maybe - who knows given that on census night information of house status as owned and occupied or rented was not available for 20% of the housing stock."
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