Any targeted 'macro-prudential' move against property investors could have a "noticeable impact" on the housing market, according to Westpac chief economist Dominick Stephens.
In the bank's latest Home Truths review of housing Stephens said in and of itself the regulatory changes proposed by the RBNZ for property investors would have only a modest impact on the interest rates that property investors actually face, and "therefore the impact on the housing market will be small".
However, Stephens cited the RBNZ's statement that the purpose of identifying property investors as a separate class of borrower “is partly to facilitate the introduction of a macro-prudential property investor policy, should that become necessary.”
"In other words," Stephens said, "the RBNZ’s next move might be to tighten the availability of mortgage lending to property investors, over and above the restrictions that already apply to all borrowers.
"If those restrictions are significant, there could well be a noticeable impact on the housing market."
Last week ANZ economists said they thought the RBNZ's proposed moves might have "more teeth" than the speed limits on high loan-to-value lending in place since 2013.
Stephens said that Westpac economists considered property investors to be the "marginal buyer" at the lower end of the housing market – "meaning they are the most important drivers of the price".
Property investors enjoyed tax deductible mortgages, whereas first homebuyers did not - and the investors had "plenty" of access to capital.
"This means that property investors set a price-floor at auctions – if a first homebuyer wants to buy a particular house, they must pay more than that house is worth to a property investor, tax deductions included. (No wonder young people are opting to rent for longer!)"
Stephens said the Westpac economists remained "comfortable" with their forecast for a 7.5% increase in nationwide house prices this year.
"...Auckland will probably exceed that figure, while the rest of New Zealand is a little more subdued (including Christchurch)."
Stephens said the main driver of this year’s house price inflation was low fixed mortgage rates – "among the lowest mortgage rates New Zealanders have seen in a generation".
"...And we see no scope for the Reserve Bank to push mortgage rates higher again this year. Consumer price inflation is awfully low, and that obliges the RBNZ to keep interest rates low."
4 Comments
By the same logic, foreigners with access to 2% mortgage interest are the “marginal buyers” in the hyper inflated Auckland market. If NZ property investor wants to buy a particular house, they must pay more than that house is worth to an overseas investor with access to funds at a very low interest rate.
Um...young people are renting longer becuse they cannot afford to buy a house in a market where house prices rise $1,000 per week.
This analysis might well be true in a free market but since Auckland Council are doggedly making the market completely unfree a different set of drivers are in play.
It has been a long time since you could actually make an economic return from rental income on an investment property in Auckland (there have been plenty of articles published here showing that rental returns are not rising in sync with property prices).
So anyone buying a property in Auckland as an "investment" is looking for capital gain not rental income. There is no floor on prices in that game. The economists beloved "rational actor" is nowhere to be seen. This is the gold rush - Gabriels Gully here we come!
Everything else being equal, including the current excess demand from immigration, any drop in house prices with an increase in home ownership will simply reduce the availability of rental properties & push up the rental prices relative to house prices.
The only way to lower both in the short term is to take away the excess demand by managing the 12 month rolling immigration rate.
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