Finance Minister says RBNZ takes financial stability seriously and will use lending control tools if needed; says he assumes RBNZ will use controls if needed; has been advised generally on RBNZ plans, but watch for more direction tomorrow

By Bernard Hickey

Finance Minister Bill English has given his strongest indication yet that the Reserve Bank is considering a third round of tighter Loan to Value Ratio (LVR) controls in response to another resurgence in the Auckland housing market and could announce them as soon as tomorrow.

English was asked on the eve of the Reserve Bank's half-yearly Financial Stability Report (FSR) if the Reserve Bank should bring in further LVR controls to dampen lending growth into the Auckland and other housing markets.

Speculation the Reserve Bank could signal tougher controls on Wednesday has gathered in recent weeks after fresh Real Estate Institute (REINZ) data in mid April that Auckland activity and prices rose sharply again in March. See more in David Hargreaves' preview here. For more detail on the REINZ shock, see Greg Ninness' article here.

Barfoot and Thompson data for April that was reported last week suggested the Auckland market kept accelerating through April. Barfoot and Thompson has around 40% of the market. The REINZ data for April is expected later this week.

"It's up to the bank. There's still a bit of uncertainty about just what the dynamics of the Auckland market are. The bank has signaled pretty clearly that it takes the issue quite seriously and they've got a range of tools and they're likely to want to use them," English told reporters in Parliament before the National Party's caucus meeting.

Asked if he had received advice that the Reserve Bank might be reconsidering its LVR settings, he said: "Not in detail. They've got the Financial Stability Report coming out tomorrow and that will probably signal direction."

The Reserve Bank introduced new controls for Auckland rental property investors from November 1, limiting their amount of lending above a 70% LVR. Economists have said the Reserve Bank could extend this 70% limit to rental property investors outside of Auckland, and/or further lower the limit in Auckland.

English said the Reserve Bank had been consistent in saying that it regarded "further rapid increases in Auckland house prices as posing a risk in future and the data indicates that's possible, so I assume they'll be still focused on it."

Governor Graeme Wheeler was asked on March 10 if the bank was considering further tightening the LVR controls put in place on November 1 last year and he said he wasn't.

English was asked again if the Reserve Bank was about to announce more Macro-Prudential measures to slow housing demand.

"The Reserve Bank has signaled consistently that it's taking the issues around the Auckland housing market quite seriously as a potentially serious threat to financial stability in the long term," English said.

"They've got a tool kit they can use to have some influence on it and I'd expect that if they're going to take some steps there they'll let us know," he said.

English said the Reserve Bank "has been pretty clear that if the market looked like it was going to take off again the Reserve Bank is quite likely to look at whether it can use further tools."

English said it seemed likely the Auckland market would continue rising because demand was so strong.

"On the other hand, I'm hearing more people starting to realise the risks of investing into a market that is so hot, that if the market is this high then at some stage they must come down," he said, adding that the Government's role was to enact reforms on the supply side to increase housing supply in Auckland in particular.

'If lending is taking off, the Reserve Bank will act'

"The Reserve Bank works on the demand side and it can have some impact through the rules it makes for bank lending and you can pretty safely assume that if it looks like bank lending's going to take off for funding the Auckland housing market then the Reserve Bank is going to take some action," he said.

Reserve Bank figures for nationwide lending showed housing lending grew in March at an annual rate of 8.0%, which was the fastest annual growth rate since June 2008 and significantly faster than household income growth. Household debt to income ratios rose to record highs late last year. The Reserve Bank does not break out regional lending growth figures, but BNZ reported last week that it grew its market share in Auckland slightly by growing its mortgage lending by 12.9% over the last year to NZ$14 billion.

New demand-side measures in the May 26 Budget?

Asked if the Government would repeat its 2015 Budget moves to dampen demand using tax and other tools, English said: "You'd have to wait and see, but the main focus for policy making around housing remains on the housing supply, and the next big step there is the Auckland Unitary Plan, which shows up within a couple of months and that will give us an indication of whether the standard planning process is going to respond to what are pretty strong conditions of demand and those conditions look like they're going to be sustained."

"We've all been a bit surprised to find that interest rates have still been dropping, migration numbers have held up, incomes continue to increase moderately and that's created strong demand conditions that Council has had to grapple with, the Reserve Bank has to grapple with and certainly we have to grapple with."

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28 Comments

I wonder if the RBNZ will introduce more LVR controls, but once again not for 6 months, so that all those investors have plenty of time to rush in, pump the market even higher, before their window of opportunity closes.

Yes. They will need to give at least 3 months advance notice to allow for bank pre-approvals.

DP

Sounds like everyone is grappling with everyone else.
Its high time the Reserve bank actually acted.

@uninterested . they ( RBNZ) cant act on this , the issue has little to do with Monetary Policy or the "tools " available to them

Its about all tiers of Government that have become horribly dysfunctional , here's what I mean:-

At a national Government level its about our open door immigration policy , open door free-for-all investment policy and Tax Policy , etc which have fueled the fire

At a local Government level ( Auckland Council ) its about being unable to plan the orderly development of Auckland , artificial city limits , hopelessly complicated and awkward town planning rules and a total inability cope with the tsunami of migrants fueling the market .

In short its a huge cock-up that we all saw coming years ago

they need to make the tax on very house not owner occuppied that is sold no matter the time frame, not a 2 year time line that was stupid so many are now held for 2 years and 1 day and sold as change of circumstances

It's high time the government acted...seems to me that English is saying it's Councils problem and RBNZ's problem.

yeah thats about right. councils had 30 years to plan and get it right. rbnz have tools as well - they have been too slow to act, and/or pulled the wrong levers at the wrong time.

can't blame the govt. for the mess councils are in.

The definition of madness is doing the same thing over and over again expecting a different result!!!!

bill english saying the market will cool when supply coming on is me like saying i am going to buy a new car, sure it will happen one day but who knows how long it will take me to save and how long the one i have will last.

And meanwhile, the cargo ship loaded with cars has got the rudder stuck and is sailing around in circles somewhere in the Pacific.

Too little too late. I wish this were not the case but..... A crash is all that can correct anything now

Regulation to reduce banks leverage could do it if gradually introduced; say from 12 to 6 over several years.

Nah, we require a pop. A pop that should of occurred a decade ago but was fudge by more bank & government corruption. They can't fudge the next one cause this one is like a supernova now

What a mess. :(

I suspect the government will do one of their infamous U turns and will do something this year after all despite saying they didn't think it was necessary. The voices are getting louder about the housing crisis. And anything they do will probably have quite an effect now that prices have risen so high above income.

English talks like he's merely a mildly interested spectator....

"The Reserve Bank has signaled consistently that it's taking the issues around the Auckland housing market quite seriously as a potentially serious threat to financial stability in the long term," English said.

"They've got a tool kit they can use to have some influence on it and I'd expect that if they're going to take some steps there they'll let us know," he said.

English said the Reserve Bank "has been pretty clear that if the market looked like it was going to take off again the Reserve Bank is quite likely to look at whether it can use further tools."

English said it seemed likely the Auckland market would continue rising because demand was so strong".

He's the bloody Finance minister for goodness sake! Shouldn't it be him that's doing something?

he is most likely helping the immigration minister hold the doors open

From Hero to Zero , one cannot but come to the conclusion that Bill English is either clueless as to what to do next , or utterly incompetent , or blinded as to the consequences of these stupid LTVR rules which do nothing but exclude New Zealanders from the market .

He needs to slow down the migration into Auckland , make foreigners buy only "new builds" , disallow losses from negative equity to be written off against other income for investment properties and ring fence losses .

Then tackle land speculators (landbankers) who are constraining supply by taxing them as land dealers ( ie remove the tax incentive )

I find it hysterical he can be in parliament without representing any electorate.

Talk about unintended consequences ....this is the most disingenuous thing I have heard this week

We know that LTVR ratios have already had the effect of excluding New Zealanders from the market , it does not stop wealthy Hong Kongers or Shanghains hocking their properties to 150% and buying up our homes using foreign funds .

I think most of us here think that foreigners should only be able to buy new builds like in Oz. However, if its true that some of them buy with foreign money and don't have a mortgage with an NZ bank, then who gives a $hit if prices drop and they or their bank lose money. For ever case that this is true, it helps that an NZ bank won't be exposed to their foolishness.
Another factor may be that NZ banks will want an orderly sell-down when prices start dropping. I'd imagine that foreigners/ foreign banks won't share that same same concern and will sell, sell, SELL.

I am suggesting that any property investors make sure they restructure their loans to ensure they do not get stuck when changes inevitably happen.
http://northwestmortgages.co.nz/property-investing/reviewing-mortgage-st...

Thanks

It is good that we have an independent Central bank and government keep their noses out.

The best way to solve the housing shortage is to reduce lending. Mr English "You are a Genius"

Here's the bit that gets me;

"We've all been a bit surprised to find that interest rates have still been dropping, migration numbers have held up, incomes continue to increase moderately and that's created strong demand conditions that Council has had to grapple with, the Reserve Bank has to grapple with and certainly we have to grapple with."

A "bit surprised"???? He's supposed to be the Finance Minister, if these are the sorts of things taking him by surprise he's either a total idiot or totally incompetent. Probably both actually.

i think thats a reasonable reaction. if i implemented change as a boss, and communicated this to various departmental heads i would expect them to pull finger.

what the government has shown is how woeful local council is, and how little control the rbnz actually has.