Acting Reserve Bank Governor says the central bank is currently reviewing the LVR restrictions 'and the criteria we would adopt for their removal' and will say more on the subject before the end of the month

By David Hargreaves

The Reserve Bank's dropping fairly firm hints that it might be about to start removing the restrictions on high loan to value lending (LVRs), with a decision possibly set to be announced late this month.

The LVR restrictions, one of the RBNZ's 'macro-prudential' tools, fall under the gamut of the bank's financial stability role.

The bank is due to give its next Financial Stability Report on November 29. The FSRs are generally the forum in which the RBNZ has previously tackled issues relating to the housing market.

Since the RBNZ applied the latest iteration of the LVRs, the 40% deposit limits for housing investors, last year, the housing market has eased considerably, with prices now close to flat.

Prior to the election, both the Labour Party and the National Party had suggested they would like to see the LVRs gone soon.

In releasing its latest Monetary Policy Statement on Thursday, the RBNZ expressed a more confident view than previously that house price pressures would remain off in the foreseeable future.

Acting Governor Grant Spencer suggested that some of the new policies being implemented by the new Government, including Kiwibuild, the expansion of the Bright Line test out to five years, the ban on offshore ownership of existing houses and the upcoming taxation review, would help to keep investor demand for housing at a moderate level.

"We are projecting house price inflation to stay quite low."

Asked at the media conference, after the release of the MPS, whether the RBNZ was therefore now considering lifting the LVR restrictions, Spencer said: "We are certainly reviewing the restrictions and the criteria that we would adopt for their removal.

"We'll be saying more about that at our Financial Stability Review, which is in a couple of weeks. We'll talk a little bit more about the LVRs and those criteria at that point." 

Asked further whether this meant the restrictions might be lifted in the next year or two, Spencer said:

"When we introduced them we certainly said that these were a temporary measure and at some point we would look to remove them, so, that's right.

"But, I think it's also fair to say if we are looking to remove them that wouldn't be done in one hit; it would be a gradual more cautious approach."

Spencer was also asked about debt to income ratios. These are something that the RBNZ has been trying to get included in its 'macro-prudential toolkit' although it has stressed it would not use them at the moment.

Previous Finance Minister Steven Joyce effectively kicked the issue into touch till after the election by getting the RBNZ to run public consultation on DTIs ahead of getting ministerial approval.

"We've had a consultation as you know," Spencer said.

"There are a few issues that are raised in that consultation about how we would make such a [DTI] policy work.

"We still think that it makes sense to have some sort of macro-prudential debt service tool in the macro-prudential toolkit but at this stage we are planning to sort of wind-in that issue into the macro-prudential review, which we are conducting jointly with Treasury over the coming several months.

"Certainly given the conditions in the housing market we are not looking to introduce any new macro-prudential tools. But we think from a long term point of view it is still makes sense to have an instrument of that sort and we will be considering it in the review."

Asked whether the RBNZ might look to replace LVR limits with DTIs, Spencer replied: 

"I think that's unlikely."

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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117 Comments

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We've got to keep the Ponzi going... IMO a better time to do this would be 6 - 12 months after all the proposed buyer restrictions have been put in place by Labour.

Reserve bank is tasked with stability of the financial system, so figuring out/speculating on when to rollback the LVRs to help cushion the fall of the property ponzi well in advance isn't a silly move. They need to act fast enoughonce it starts that it doesn't turn into a complete implosion and resulting 10year depression and just deflates gently.

Something tells me that if an implosion does happen removing LVR's will not help.

I agree entirely.. I hope it doesn't come to that, but it is a real possibility.

Yes I share your view, have they forgotten that it's the Ozzy banks that provide most of our mortgage funding. And I doubt that they're willing to lift their block on lending to overseas Speculative Investors (That includes us Kiwis).

It's an Auckland problem. They could remove LVR's entirely, it will not affect (a) peoples ability to service a gigantic 12x income mortgage, and (b) theirs, or the banks perception of the market.

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LVR were put in place to shut out those who stood most to lose from an abrupt correction - FHB and amatuer specuvestors. Regular reviewing of LVR, I would have thought was part of the course - removing them is something else. I can see RBNZ removing them at some stage with little effect. QE removal will see that monetary conditions continue to tighten. Cheap money has been made available to the masses on an unprecedented scale. On an equally unprecedented scale the Johnny cm latelys will try and exit their misfortune. The more time passes, it will only become harder as we are fast running out of fools.

If you remove them, you can gear up 100% into a falling market and not have to worry about losing your own money - you can just hand the keys back to the bank whenever you like. How awesome!

(strangely enough, I foresee the banks introducing their own LVR limits to prevent this happening. Sydney prices in some areas have dropped 18%, and land values have dropped 30%. Banks are going to be in a world of hurt soon)

just hand the keys back huh. don't think so. this is not the USA.

Sure. You can hand the keys back, even post them back to the bank if you like, but in NZ your loan is called a "Full Recourse Loan", which means your bank will come after you for every last cent that you owe, plus interest accumulated on overdue amounts likely to be in the 20% interest range AND then still sell your property out from underneath you to the highest bidder on the day AND then they will also hit you with added Real Estate Fees on top, Lawyers Fees and even the unpaid Rates and Utilities if you are in arrears with these too. If the housing market has tanked in the mean time, you can easily cme out of it with NO house and a few hundred thousand still owing if you bought at the peak of the Auckland market. Just don't even try it. Banks are ruthless when they are recovering their money. Read the fine print that came with your loan docs.

Why shouldnt Banks recover their money? As a net depositor, I would expect them to.

Govt should change the rules to limit how much the bank can recover so the banks are taking some of the risk. Would help prevent housing bubbles if the banks stood to lose large coin, they might think twice about writing million dollar mortgages on 1960s shoeboxes.

Agree, in fact it should be a full no-recourse loan IMHO. The banks are the professionals only they can truely gauge the risk but they are not forced to.

Yes, because that prevents a housing bubble just like it did in the USA. /SarcOFF

Not all US states have non-recourse loans (only ~11 of 50), so it's impossible to know how much effect it would have if the whole country did. And some of those non-recourse mortgages state only apply to the initial mortgage, once you refinance its a full recourse mortgage.

http://www.businessinsider.com/us-style-jingle-mail-could-hit-canada-201...

Who is the professional? as an engineer I am/was expected to know what I am doing, have a duty of care and that is enforced with the risk of liability for damages or even death for which I would be wise to carry PI insurance.

Other professionals like doctors, accountants and lawyers also probably face a similar situation.

So the Q is why are the banks not shouldering much of the risk as they are professionals in this situation? As it stands right now there is little duty of care just maximising their annual bonuses earnings. So in effect you are trusting a "professional" who carries little liability for his/her actions.

With a no-recourse loan the banks gets the property but shoulders the loss if they lent un-wisely into a property bubble.

This I think would be more protection for you as a depositor.

The banks have a fiduciary duty towards all customers (investors, depositors and borrowers). However, our banking system is much more complex than a hospital or law firm. Right put, a bank is an aggregation of the greed of millions of people.
When one hospital goes down, it hardly affects the entire healthcare system of the world but if a financial institution were to go down, it would wreak havoc on the global economy in more ways we can imagine. The whole system is so intertwined that it would take much more than the governor of RBNZ to resolve it.

Who says they aren't shouldering the risk? They have loan loss provisioning. Customers will still declare bankruptcy and avoid paying it back.

The fact is though, people want to borrow. The people who borrow should be responsible to pay it back - whether they are borrowing from a Bank or a local tradie who has extended them credit.

And lenders should only lend to people that can pay it back, and at fair rates.. but that has never worked. There are always shysters on both sides of the equation, and when mortgage brokers have KPIs to meet to get their bonus they will of course juggle the numbers the system goes wrong.

Well, bankruptcies usually are caused by such situations, and in that case, a bank still loses out if there are no other assets that can be liquidated. It does mean 5 years of difficult life with severe financial and personal restrictions. Provided that there are no other assets, family trusts or anything else that can be traced back to that person within a certain period of time prior to the bankruptcy, the effect for the banks in the end is the same as it was in the US just a few years ago.

Bankruptcy is only for 3 years now. Even better, the No Asset Procedure is only one year.

Then you just declare bankruptcy. See ya!

Years ago, I was a member of a Central Bank Advisory Committee (not in NZ) which entailed a regular get-together on their 31st Floor to discuss developments in the marketplace, and I can recall one meeting, vividly, when the Bank asked' Why are you guys doing this ?" - (a market mechanism we were employing) and looking across the table at Ivan Ritossa, (who represented a bigger firm than mine!) and it dawned on me, that we were both thinking, "They haven't got a clue!". No one was about to tell them, as that's where some of us made a return, and eventually, they worked it out....You might say' That was your job, to let them know" and that's probably right! But right then, right there.....?
And judging by the above article - they still don't have got a clue.....

The Australian housing market is starting to falter. The Australian banks have spoken.

If there is an event in China, we can assume Australia will be left on life support. The tidal wave of cheap money has left Australasia totally vulnerable. Banks over reliance on property as security has set the stage for the next episode.

Agreed. Spoke to one bank recently about options, and they used the words "the Reserve Bank in Australia said.....". Clearly the big four take their instructions from there.

Addicts managing to shake their addiction? If yes then pump more drugs into the market to get them hooked again.

Maybe the RBNZ thinks they can maintain tight conditions without LVRs maybe they're right or maybe they're wrong. Perhaps I shouldn't fault them for making adjustments but this could be too soon. If this creates a surge of new debt/money this could prime the housing market for a larger fall. I could be wrong and they may have advance statistics that are concerning.

The RBNZ is so impotent it is beyond belief. It surprises me they actually brought in an LVR because it doesn't strictly relate to their measure of control, which is CPI or the price of basic necessities. If they had balls they would be adding more risk management controls because the runup is so over-done that even a 12-year-old can see it's not sustainable. Better to have a slow measured easing of the bubble through genuine risk management than some laisse faire approach that will just lead to new mortgage holders being screwed and banks running cup in hand to the government.

They've been fed the "permanent plateau" theory by real estate lobbyists, banks, and every one else connected to this property ponzi. ie. property wont go up if you remove them, they will stay flat for years, pinky promise, so consider your job done.

Did someone ever thought that continuing LVR for longer than necessary would choke the market and could cause permanent damage to a vital sector of the economy.??
Do you think that everyone is rundown by emotions and stupid political correctness??

LVR could have irreversible damage to the economy at large as housing is a big and important sector affecting business as much as just lodging people, and that needs to be handled with care ....you just cannot slam on the brakes of a big train for ever !!

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I think you'll find that it is property doing the choking of vital sectors of the economy

Maybe. But its a chain reaction and we are a small economy !!

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Yeah that sounds like a good plan Eco Bird. Let's get
rid of all ligitamate business to preserve the property
ponzi with excessively high cost of living generated by high prices, and then we'll see who left to pay the rent?

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And what is the risk to the economy of allowing unfettered borrowing at 95% of an asset that is overvalued by every conceivable measure?

Your grasp of risk is on par with your grammar. If you don't read all the words it sounds OK, but look closely and it's filled with inaccuracies.

low blow, I know, but reading it hurts my OCD

Typed on a phone?
I like Westie dude's idea of government loans to first home buyers at low interest rates (3%) guaranteed for ten years. I'm sure there was something similar in place, long ago, when I was growing up.

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Housing Corp loans, yeah. Paula Bennett got her first property that way, apparently while on the benefit too.

https://teara.govt.nz/en/1966/finance-public/page-9

However note that the interest rates werent that different to prevailing market rates (4.75 v 5.50) .... so seems akin to welcome home loans now.

Backwards thinking for a backwards economy, a bunch of Frankenstinian monsters created by a perverse collection of incentives (low value added commodity production, selling (renting?) houses to each other, reliance on low wage labour, bogus qualification rorts propping up a fake education industry), each terrible, each too big to fail - except they could.

Eco Bird(brain),

Forget the poor English(thought instead of think);this is just about the most idiotic post on the property market I have yet come across. Precisely how did the Auckland domestic property market become "a vital part of the economy'? LVRs were put in place to help slow down an out of control market and should be removed only once it is clear that they are no longer required. We have not reached that point yet.
Just what has political correctness got to do with it?

why remove them, only to have to monitor when the market is out of control, to know when to re-introduce them. Why not leave them in place to prevent the market getting out of control, as the Irish have done with DTIs?

I wont bother explaining as you seem to have a simple mind and little or limited exposure to what's happening around you ... enjoy your simple world !
But here is a clue: Borrowing is not solely used for buying houses, it is also used to oil the business machine and grow investments ( especially SMEs) and real estate is usually used as collaterals .... higher LVR increases the cost of borrowing or could even prevents starting new businesses ... LVR has its side effects too.

Eco Bird - I'm not sure but are there different rates of lending between business loans and landlord housing loans?

Yes, there are...could be as much as 2-3%pa in best cases or even more depending on the risk factors and where you "could" get the loan from ... . but the essential obstacle is the collateral and the overall guarantees presented to a Bank as securities ... when Banks toughen borrowing rules and apply the 40/60% ratios on almost everything owned ( especially with screwtinized serviceability which came with the new rules) then borrowing amounts and costs become much more expensive. All this came after tightening lending conditions by the RBNZ last year.
Here is a live recent example : A property investor friend, who has reasonable equity in his properties and also invests in the Local Share Market, applied for Margin Lending against his free held shares as advertised by the Bank ... this should have been a routine transaction because the existing shares are used as securities held by the bank ( as advertised) - The Bank refused to lend him the money, they have gone over everything he owned and applied the 40% rules and harsh serviceability measures to decline his "Margin Lending" application ...!
So that is a live example on how these rules can prevent new investment in the local share market using free hold shares as collaterals.
While LVR was required to slow down the housing price runaway last year, it could start having other negative effects on the economy if it was allowed to overstay its welcome, and RBNZ knows that for sure...

So as a landlord are you running a business?

The increased LVR loan to value ratio on houses indicates that the reserve bank considers that similar sized losses are very possible.

EB @ 10:24 - Bollocks - the only trickle down that has happened is to throw more on the housing bonfire.
National's tax cuts did the same.

Kiwis are such astute investors - 87, finance companies, pinetrees, National Party, plaster houses, the beat(ing) goes on.....

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I think thew main driver for Auckland housing is immigration. Duh. As of now there must be approx 100,000 Student Visa and 1 year post study holders in NZ. Just assume half of those intended to stay on semi permanently in New Zealand to try and gain residence. NZQA, MBIE and the IRD have finally woken up to the scams and the loopholes are closing fast.Even the most dodgy employers will be thinking twice now. Because after MBIE have finished slapping you with their wet bus ticket. The next guys to visit will be the IRD and that will not be so pleasant.Ask the Masala gang. If the government holds the line on immigration policy then at least 20,000 current Visa holders will be leaving Auckland/the county in the short term and they wont be replaced. That's at least 5000 Auckland dwellings loosing their tenants. Say ballpark another 10000 dwellings complete in Auckland 2018. That's 15000 total available. Matched with the continuing trend of Aucklanders bailing out to the provinces. We may reach equilibrium in the Auckland market sooner rather than later. So if you are an investor that would struggle with a few weeks of vacancy or someone looking to sell up and move out of Auckland. Then get your house on the market now. Don't worry about tenders,auctions and by negotiation bollocks. It just delays the inevitable.By the time you settle on a price in a couple of months.It will probably be lower than what you could have got by putting an asking price on it to start with.

When Western Australia removed itself from the Fed Govt PR Visa system (due to high unemployment) foreign student enrolments dropped by 32%. That was just the first year!

"" NZQA, MBIE and the IRD have finally woken up to the scams and the loopholes are closing fast.Even the most dodgy employers will be thinking twice now. ""
Still well underestimated and I'd judge these 3 statements as True, False, False. When they are all true and exploitation stops and low paid Kiwis are no longer being undercut by foreigners then the rest of your argument will hang together. However still net population growth and therefore continuously increasing demand for houses.

They're mostly living with families, renting a room or sharing beds in inner city apartments. We're not all rushing out to sell our properties at the same time. Older Aucklanders aren't moving out to the provinces in any great numbers.

I agree, but the younger children of those older Aucklanders are leaving in reasonable numbers, but this will also help with the current shortage of housing and anything that helps stabalise prices is a good thing right? It is certainly good news for the regions where skills and experience is valued and needed.

Where ever they are living it is not for free. They are making a financial contribution that is going towards covering rent and other expenses that make that flat, apartment household viable. Removing that contribution will be disruptive and make some tenancies nonviable. There are half a million occupied dwellings in Auckland at least 30% 150,000 of those are rentals. Altruism is not the main driver. If landlords need to keep tipping in their own hard earned money just to break even with no chance of further capital gain or perhaps even a capital loss. Why wouldn't they sell sooner rather than later.

Agree Zachary,

While many of us who come here are of lesser means and can't cope with Auckland house prices, there are plenty of people in Auckland with money - or with access to money.

And many of these people won't consider selling their posh homes - or their investment properties. In fact, plenty of them are still buying.

Whatever, we need to acknowledge that while this blog gives us access to a certain world and a certain set of prejudices, it's not the only "world" in Auckland.

TTP

I'm not so sure "plenty" are still buying. Seen the REINZ data?

...

I totally agree...

I find this all very interesting. The elephant in the room is the new Government. Someone has pressed the button. If rentals are not being purchased voters do not get housed. If they are not housed they have to sleep on the street. Housing NZ is a minority player in the rental market. Private landlords provide the vast bulk of rentals. Only a failed communist would shut supermarkets to make food cheaper. Banishing the landlords is a classical communist trick that has always failed.

The "elephant in the room " will try everything to satisfy its voters, they might succeed in few areas where splashing money is an easy solution albeit with limited effects like a sugar fix ,,, the danger is when they try to re-engineer systems and intervene to regulate a market with ( apparently) little consideration of its collective effects -

"At least we tried" will be the final statement when things do not workout as promised !!

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How many times does this argument need to be refuted? Housing doesn't get created by investors buying existing stock and renting it out. Investors selling rentals does not mean that nobody gets to live in the house any more. Most people renting right now in Auckland would rather own their own home with a mortgage, if it was affordable to them. People selling rentals on mass will make the houses more affordable for those living in them.

Exactly the Joneses. It truly amazes me that these spruikers keep using such an inane argument, Especially on a site such as this that attracts an audience probably above the norm if we exclude the spruikers.

its like they think that when an investor sells a house it disappears so its only the land left, and the same when they buy it was bare land and poof now there a house.
they dont add to the supply side all they do is add to the demand side of the equation and have the tool of leverage to drive up prices on lower decile housing out of the reach of their future tenants
does not surprise me with housing investors most have limited investing experience outside of housing so will fight tooth and nail with nonsense arguments to support their one investment option

Sharetrader - did you not read the missing pages of the bible....on the 8th day god created landlords.....he deemed they could do no wrong.....they were made immune to the risk/reward principles of investment....

Hold on....remind me...how many days in the week are there?

Investor: My fault for buying an overly expensive property

As part of a comprehensive response to the housing crisis, the Labour-led Government will remove the ability of speculators to offset losses from their property portfolio against their other sources of income in this term of office," Revenue Minister Stuart Nash said.
https://www.stuff.co.nz/business/98710346/ringfencing-makes-it-harder-fo...

"its like they think that when an investor sells a house it disappears so its only the land left"

Yup, that is exactly what will happen when investors cant get the price they want for their crappy investment property. Demolish the house, and sell the land as a development project to a foreign investor, who can build a brand new house on it. All perfectly legal under Jacinda's plan.
Its also what happens in Australia, as foreign investors are able to buy existing houses for "redevelopment" purposes. They buy the land, submit a redevelopment plan to Council, then sit on the empty house/land for a few years waiting for prices to go up. There are whole streets in parts of Melbourne full of empty homes owned by foreign buyers. Just like soon there will be whole streets of empty sections in parts of Auckland owned by foreign buyers. Where there is a loophole, expect it to be exploited.

en masse or less elegantly, 'in a mass'.
Trouble is in such a scenario with everyone having lost their equity and probably many bankruptcies the economy will be in bad shape. People probably wont be able to buy even at half price because they will have lost their jobs and banks will have tightened their purses.
Do NZ home owners really want to lose all their equity?

What kind of economy do we have if housing prices returning to an equilibrium would crash it?

A normal economy with many things interconnected.

And the very risky situation New Zealand faces is directly linked to stupid, short sighted, greedy speculation on housing, especially in the Auckland market. Have you no shame!

I say again, to all house owners out there, do you really want to lose all your equity? You will still have the same mortgage you know.

Obviously you have no shame!

*sniff sniff*, ah, the smell of specuvestor fear in the morning.. Goes well with the flat white!

I don't particularly want to lose any equity and neither do most Auckland house owners I imagine.

You reap what you have sown but sadly you bring down many of the gullible as well.

And whats worse is the previous governments encouraging behaviour to find ourselves in this position....

"I don't particularly want to lose any equity ..."

When interest rates are zero, debt and equity are equally meaningless.

So you say you don’t want to lose equity ZACH ?
Then you should’ve followed my advice to you 18 months ago and SOLD

I'm not the type of person that will throw tenants out to sell the house just because house prices are wobbly. House prices have been wobbly as far as I can remember. Also I stick with a game I know just like in my casino days, blackjack only, always lost money when I went to the roulette table.

We have a bit of a problem if the RBNZ ends up being forced to sacrifice hard workers who have saved all their money in order to protect investors in a sector that is known to have ups and downs. What of all the pensioners who depend on the interest on their savings to live, for example? Why choose to inflate away investors' debt and sacrificed those who have scrimped and saved and are now on fixed incomes?

DGZ do you ever think about anyone other than yourself? What about those entering the Auckland work force in Auckland now for the first time who are facing 10 times income loans to buy their first home.

Personally, never had a mortgage. Against Spruiker advice, my wife and I saved hard and rented (all risk on the Landlord) and after six years paid cash for our house during the height of the Asian Financial Crisis. Initially we moved around several flats and from our own experience, found to varying degrees, Landlords were all self serving and greedy people - there was no trust. It was anything but the provision of a social service! Having not paid mortgage interest we have accumulated significant savings both in Kiwisaver and otherwise plus raised a family. We are both well under the official retirement age and no longer need to work - all hobby time, volunteering and or casual work. We could not care a less if our house price tanked - never will. Homes are for living in - raising families. Now its time for the speculator to pay the Piper, homes will become more affordable whether the highly leveraged like it or not. The pendulum is swung the other way and in the coming years I sincerely believe the FHB will be rewarded for their patience as were we. Its all in the timing and seeing this "house prices are a one way bet" illusion for what it is - false.

I think I might be a younger version of you Retired-Poppy!

similar story, paid for my house cash off the back of the investments straight after the GFC, i was very lucky to be in the postion to take advantage of one of the best investing periods especially as it was fueled by many central banks prinitng money

Me too. Although cashing in the shares to buy the house mortgage free was what saved me from the GFC. Then a little bit later I used a line of credit on the house to buy back all the shares at half price :-)

This is what I would aspire to do tbh

Own house outright, surplus buying shares.

Shares AND houses are looking overpriced atm so will hold off buying either.

On average 3.9 people live in every rental property, and 2.1 in the average owner occupier property. So for every 1000 houses that move from being rental properties to owner occupier properties, new dwellings need to be found for 1800 people. So investor sell down to owner occupiers would exacerbate the housing shortage.

I disagree, its the readily available cheap finance that has allowed owner occupiers to rattle around in bigger houses. In recent years its never so easy to borrow so much to leverage ones future. Once the tide goes out, together with the construction bust, highly leveraged kids, adults will have little option but to head back to their parents. The reverse of this great spreading out will occur leaving many vacant houses and still many homeless - many unemployed. We as a country have little control over hot money that is always seeking the best risk/reward.

I'm impressed with the disagree to a factual statement, in favour of your own opinion. I guess that is what makes this country great.

mja, would it be a stretch for you to believe that right now there is an accommodation surplus? Just think of all those spare rooms in owner (2.1) occupied houses that could potentially be filled by demoralized adult kids and/or extended family in the event of a slump. I agree with your numbers - just not the ongoing housing shortage part. In the coming construction led slump, I suggest a trend towards more person per owner occupied house (larger family groups) while many houses being left vacant yearning for a tenant. It wouldn't take a high vacancy rate for rents to quickly head south as involuntary Landlords strive to compete. My wife and I benefited from this first hand after the 87 crash when renting and am confident this occurred in other countries post 2008 GFC. Through QE and unprecedented access to the cheapest money in 60 years there presently exists an affordable housing shortage - not an accommodation shortage (based on your figures). I wouldn't count on there being a huge pent up demand of FHB in a slump as consumer confidence will take a huge hit plus a lot of today's tenants are tapped out. If unemployment drifts up, a lot of people could depart Auckland Airport back home overseas leading to less eligible buyers to meet cautious bank mortgage lending criteria.

Retired-Poppy, As an example, in Auckland, my sister rents a ground level room (converted into self contained unit with shower, bathroom, kitchen and small lounge) from the owner occupiers who live on the upper level. There is another ground level room being rented to another tenant in the same dwelling. So the number of people per household can increase when rents are high relative to incomes and when the cost of buying is too high. In South Auckland, there are a number of converted garages where family members are sleeping - this is raising the number of people per household. My brother previously also had rented rooms out to high school students in his area. The Auckland Council projects accommodation demand using a historical 2.9 people per household for the purposes of infrastructure planning, etc, and the underlying assumption with the use of this figure is that it assumes that accommodation is affordable. However when accommodation is unaffordable, the number of people per household can increase.

Link to Auckland accommodation demand estimate

http://www.stats.govt.nz/browse_for_stats/population/estimates_and_proje...

What this might mean for Auckland’s housing demand
Auckland had an average of about 2.9 people per household (private dwelling) in 2001, 2006, and 2013. Applying this simple ratio to the population projections indicates how many more dwellings need to be built to accommodate the population

mja - what do these stats tell you about the state of affairs in NZ? It probably means that there are a lot of older people (kids have left the nest) who have become property investors and get to remain owner occupiers (and landlords at the same time).

So there might be a lot of families being forced into renting for life? But what would happen if families could buy and become owner occupiers? I dear say the average number of people in owner occupied property would lift a lot from 2.1 and be more towards the 3.9 figure.....

I'm not saying for sure, but your 'factual statement' might be 180deg out...

No owner occupiers will be unlikely to approach the 3.9 average occupants for rented homes. Picture say 4 bedroom house in standard suburb, typical owner occupier may be couple with 1 or 2 children so 3 to 4 dwellers. Use spare room as study or guest room, and provision for future ie room for a future child. . Renters do not provision for the future as it is less permanent, so get minimum number of bedrooms to save on cost, so the this 4 bedroom house if let would usually have 4 to 5 dwellers ie all rooms occupied permanently with children often sharing a room.

Reduction in average NZ property price would speed up gentrification in large cities, as future middle class owner occupiers would purchase earlier in life, and rental properties would be converted to owner occupiers. So these suburbs for example Otara/ Manurewa/ Ranui would transition to a larger mix of owner occupiers. Displacing many renters. As the reality is many people rent as they cannot save, you could up their household income 25K per annum and most would not be able to save as this is not how they were raised. If the money is there you spend it, and if a relative needs money and you have access including drawing down on a loan, you get them the money.

I get the impression you are looking at the situation through middle class rose tinted glasses. I myself was raised and schooled in a low end decile 1 suburb. So having grown up within this pervasive culture, foregoing instant gratification via saving and not providing for extended family if doing well, in general would not be looked on in a good light.

Hmmm, some bald faced assertions there. I'll be the exception, myself and my partner are renting, big old three bedroom house with double garage for us and our three flatmates.. oh, hang on, no flatmates, just a three bedroom house for the two of us. We're at the age where we don't want to share a house with others, and can afford a bit of room. And yes, we are saving, probably putting about $700 a week into savings between the two of us.

Correlation != causation!!!!!

A family of two adults and two kids that are renting don't suddenly become a family of two when they buy a house.. unless they sold the kids on the blackmarket for the deposit?

I'd put it more down to age brackets ie: 20 somethings renting and sharing with others, 30s still mostly renting and starting a family, 40s and upwards more likely to have purchased and kids starting to move out, 60s to death, 80%+ are owners and kids have flown the nest, and they don't want to share a house, and probably don't need to financially. Or at least that how it was in the past. maybe not so much in the future with high house prices and people putting off families till later.

MJA, where was the source for these statistics?

@the Joneses The argument has never been refuted because studies show a clear positive correlation of prices to consents. This correlation is at the core of price signals; what you are saying is moronic. Prices paid for existing stock effect prices paid for new stock. I know it takes more than 1 step logic to get there but hey, economics aint easy...

I’d rather the elephant than the pony

If most NZers agree property is overvalued then the best option for the RB is to leave the LVR restrictions in place for the long term. When is someone going to have the spine to make the tough decisions?

The country has been trapped in a false paradigm....its going to be a painful process adjusting to reality...financially and emotionally for some...'I can have my cake and eat it too'......well. actually, no you can't...

I reiterate. The housing market is just not Auckland.
The LVR change that the Reserve Bank brought in should not have been for the whole country, as it affects too many when the reality is that the problem is Auckland.
The LVR will be reduced in the near future so that First home buyers etc. will be able to buy again.
It is dumb allowing first home buyers to have a lesser deposit to buy a new home as their debt level is always tooo high compared to second hand.
Labour is not going to be able to build these affordable homes that they say they will be able to unless they are
A small box on a minute section and they purchase the land.
Developers won’t be bothered allowing box’s on their land as it will become a ghetto.

Play a different tune!

What tune would you like me to be playing?
The doomsayers negative ballad?
Life is about what you do and not about what you think!

TM2 - is there any self interest involved on your behalf when you want to lure FHB's into buying housing assets that are, by all fundamentals, heavily overvalued?

Housing does appear to be overvalued in many parts of Australasia.
It is not vervalued in most parts of Australasia though.
You can still buy houses in Chch for less than renting, as we are able to still buy with rental returns of 6 per cent minimum and you are able to borrow at not much over 4 per cent.
It is just a matter of speaking to someone who is experienced in the housing market and knows what they are doing.
If you are prepared to listen and work you are able to get ahead in NZ.

Get ahead of what exactly? Other people? (and using them as a personal ATM via rents as you force the price of housing up..?)

Mortgage at 4%, rates at ~2%, maintenance etc. Can you really buy at less than the cost of renting? (on a like for like basis, not comparing the trashy FHB stock with a decent rental property). And when mortgage rates rise a percent or two?

Yes you can buy for less than renting or I wouldn’t be a full time landlord would I.
I would need to have a JOB to be able to prop the properties up.
No you can’t in Auckland But Chch the most desirable place to live, you are able to, but most renters don’t see it!
Maintenance is no problem if you are prepared to do it yourself.
No you won’t be buying your dream home but it is indeed possible.

Right, so you are zero rating your hours doing maintenance, which many FHBs can't do since they have full time jobs and many would lack the skills/equipment to do decent work. And saying you have no job when in fact you are a (part-time) self-employed handyman.

And also probably propping up newer rentals with the profits/revenue from older rentals that you already have equity in.. which a FHB can't do.

Again, can a FHB really buy a property in in chch for less than renting.. on a like for like basis?

No, we don’t prop up any rental that we own, even bought in the last couple of years.
Anyone can do basic repairs if they want to by learning and asking questions.
I am self taught so others can do it as well!
I suppose I am a part time handyman but an hour or two a week isn’t too bad and I do,
have a builder who also works for us.
Yes it is possible for a FHB can buy a home for less than the cost of renting, or a investor to purchase positively geared!

Might have to look at moving to Chch in a couple of years if thats still true. I liked the pre-earthquake chch, but recent visits weren't so enjoyable.

like this poor guy who has hearld all the stories and jumped in with both feet
Twenty-eight-year-old Auckland property investor Tim owns one property that is negatively geared.
Each month, what he gets in rent does not cover the cost of the mortgage interest and repairs, rates and maintenance on the property.
At present, the sting of some of that pain is removed each year when he is able to claim a $2000 or $3000 tax refund.
The rental property's loss reduces his total taxable income, and means the amount he has paid in tax on his salary works out to be too much, so he gets a refund.
https://www.stuff.co.nz/business/98710346/ringfencing-makes-it-harder-fo...

I find this this article by Stuff to be disingenuous. Many property developers CHOOSE to be negatively geared so that they can get tax back, whilst making a killing on capital gains. The way this article phrases it, is as if, it was an accident of high house prices. I don't think there should be any sympathy at all for someone who has bought something hoping for speculative gain. There was plenty of global and local media highlighting that the market was peaking.

Why would the LVRs ever be removed?

They are a good thing that should become the agreed standard. If these standards of prudent behaviour are driven by the RBNZ rather than the government then so be it (since you know, government said there was no problem - nothing to see here!).

An anecdote from my father who was a bank manager in the 1980s - the neighbour walked into his bank one day seeking a loan for a new house. My father asked abut his equity and income (which were ~10% and negligible because the neighbour had just completed his MBA and didn't have a full-time job). The loan application was declined as the neighbour was a "bad risk" according to the rulebook and they never spoke to each other over the garden fence ever again!

LVRs are likely to be removed as they restrict the free market, we operate under a form of capitalism. They need to be set at a prudent level that would be 90% for owner occupiers and 80% for first 2 investment properties. With an overall investment portfolio LVR of 70% for 3 or more investment properties. In fact this was the rules applied to myself by one of the big 4 banks prior to the LVR restrictions.

Though, I am quite happy for the investment property LVRs to stay at 60%. As this reduces competition for investment properties and will lock out many Mum and Dad investors from purchasing their first investment property. This should increase the net yields of investment properties. In fact I'am looking at a 2 story house converted to flats in the inner city in 1.2-1.5mill range with net yield expected to be around 7.5%. If this keeps up we will go back to the good old days of rent covering all expenses + P and I mortgage.

Remember, regulations that restrict business activity tend to favour the wealthy and penalise the middle class and aspirational working class.

It looks like a credit crunch is on the way regardless of what the LVR's are set at. So I don't think what the RBNZ does or doesn't do will have that big of an impact at this stage. Although for the future well being of NZ and all its people, I would like to see DTI's of 4.5 and LVR's at mja's suggestion actually. LVR's to protect people from some of the ups and downs in the market, and DTI's because banks can't be trusted to lend sensibly and people shouldn't be encouraged to borrow more than they can afford. That's just asking for boom/bust cycles.

This website and all the comments are great. People becomes "smarter" as this site tells people when to buy and when not to buy. Kind of contributing to the housing market in a way.
Not all negative.