Reserve Bank Governor Adrian Orr says if the aim is to get more people into houses, it makes sense restrictions don't apply to KiwiBuild

Reserve Bank Governor Adrian Orr thinks KiwiBuild homes should be exempt from loan-to-value ratio (LVR) restrictions.

Speaking to The Nation on SaturdayOrr said this makes sense as the policy is aiming to get people with lower incomes and families into homes.

"It's about adding supply [to the market] not demand."

He says it makes sense to make housing more available to these people - the quicker and less restrictive, the better.

"Whether it's an LVR exemption or some kind of income restriction, if the aim is to get affordable houses out there to people who can't afford them presently, then make [houses] more affordable."

Speaking to reporters after releasing the Reserve Bank's Financial Stability report on Wednesday, Orr said the central bank would wait until at least November before it loosened LVR restrictions further.

Speaking to The Nation, he said if inflation pressure comes out of the housing market, and credit growth remains very low, then LVRs may be able to be removed.

"Our nervousness is, if we remove them, do banks just go back to pumping the credit again?"

He says the Reserve Bank needs confidence that won't happen.

Meanwhile, Orr is leaving the door open for a Royal Commission inquiry into New Zealand's banking sector.

He had previously said one is not needed.

"Our recommendation might be, there needs to be a legislative change here."

This week, Orr and Financial Markets Authority (FMA) Chief Executive Rob Everett briefed MPs on their progress in looking into the banking sector.

"We have a pretty clear guide as to where we now need to lift the lid and say 'well they said this, is it real? If so, show us how it happened in practice,'" Orr says. 

"We need to be talking to staff, customers, chairs of the boards - and that's what we'll be doing over the next few months."

He says the regulators will be looking into the banks' governance, their code of conducts, their consumer focus and their remediation practices.

From what he has seen so far, the latter two areas don't seem to be an issue in New Zealand. 

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?

We welcome your comments below. If you are not already registered, please register to comment or click on the "Register" link below a 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.

49 Comments

Strictly enforce a massive CGT on everything other than the family home and -- maybe -- one holiday property. Watch the property roaches curl up and die.

What generally happens if there's a CGT tax is less people sell therefor it adds to the under suply of houses and drives up prices.
Another trick people use is they buy a "family" home and renovate it,live in it and sell and move on with a huge gain.
Look at Australia,they've had a capitoll gains tax, stamp duty and look at prices over there in their main cities

CGT dodgers go to jail for minimum five years and forfeit all assets and funds, including trusts, be they family or whatever. Anything hidden offshore earns an automatic addition of ten years.

A

*What generally happens if there's a CGT tax is less people sell therefor it adds to the under suply of houses and drives up prices.*

How does people not selling an existing home lead to undersupply? the house already exists and the number of people hasn't changed.

I'd say less houses that would be usually be for sale.investors would think twice and not sell as they'd be taxed.so therfor there would be less houses on the market.

Investor wouldn't sell.. so they rent the house out.. either way its a house for a family to live in. And yes a CGT might slow down the churn of houses, but that sort of the point of it.

Also, if the investor doesn't sell now.. they sell later and pay more in CGT then?

... my take on the horrible nasty CGT is that if the family home is exempt , that encourages people to buy the biggest most expensive house they can afford .... a McMansion... and shovel all their savings into it ... rent out some rooms AirBnB style ....

Not sure how that assists in keeping houses affordable for FHB's .... someone may enlighten me ...

Surely the level of a cgt is critical in terms of how efficacious it is. If it's set at 15-25% it's unlikely to make any difference, if it's set at 40 or 50% it will...

... the Aussies set their CGT quite high initially .... then dropped it considerably after a few years ...

Their accountants and tax planners absolutely adore it ...

... but it doesn't seem to raise much for the government's coffers ...

When you think about it ... a CGT acts to discourage improving the value of properties and businesses ...

CGT makes bugger all difference to the churn of houses in the UK (although the family home is exempt). What has made a bit of a difference to the housing market though.... removing mortgage interest as a tax deduction. HMRC are staggering the change decreasing the amount of the permitted deduction by 25% per year until it has been eradicated by 2020.

So from 20/20 no leverage tax advantage for property investors.

Yes, look at Australia indeed, how much richer would the New Zealand government be if they were charging at stamp duty and had applied a capital gains tax for the past 9 years.

What evidence do you have that a capital gains tax would stop people selling or reduce supply - none I bet. People might be more inclined to sell as there are no more capital gains to be had. If prices keep going up like many believe, I'm sure you'll all keep buying .. after all you don't quit your job over income tax.

If a CG tax makes housing less valuable, that could encourage developers to build more high density housing, as land prices would have declined. Also property owners holding onto their properties would possibly add a dash of stability to tenant's rental tenures.

If prices stabilise and near instant capital gains dry up, perhaps investors might consider a more traditional why to make money through housing, aka rental yeilds. This could encourage the construction of properties renters want, rather than top percentile, bespoke homes. A capital gains tax could also encourage the renting out of currently vacant homes.

I'm not saying there should or shouldn't be a capital gains tax, but your argument isn't very thought out, which is probably because of main-stream-media brainwashing or at least omissions, which is a form of mind control.

Look at Australia,they've had a capitoll gains tax, stamp duty and look at prices over there in their main cities

Huh? The cities comparable in size to Auckland (Brisbane and Perth - ) are much cheaper. Auckland is about as pricey as Melbourne, which has almost 3 times the population. The only city consistently more expensive is Sydney.

No, no exemption for the family home. All real estate subject to CGT, otherwise it just creates distortion.

Excepting something from a tax will open up for abuse, you gotta tax everything

How do you make the unaffordable affordable? By making credit freely available to sub prime borrowers. Or am I missing something here?

Surely all these well intentioned schemes just inflate the price of housing? Like National's laughable first home buyer subsidy, effectively adding $50,000 or more to the price of all entry level housing. If you give someone an extra 5% towards their deposit then they can borrow an extra $50,000 at a 10% deposit rate. So they can bid $50,000 more for a house.

All these bright, well intentioned bods are all from the same intelligentsia caste that created the house price problem in the first place, not to mention the leaky home fiasco. When will they actually identify the real causes of the house price bubble and stop believing in comfortable platitudes?

The Texans make us look really dumb:
https://www.zillow.com/homes/for_sale/Gainesville-TX/pmf,pf_pt/house_typ...

Exactly, the first home buyers subsidy is otherwise known as the first home sellers subsidy.

How hard is it to reduce the ridiculous price of development land? Simply rezone sufficient land for 50 years worth of demand and levy an annual tax on the undeveloped value, say 3% p.a., and watch development land prices converge on the price of rural land.

Throw out the planning restrictions that arbitrarily limit owner's ability to increase density and we might have a vaguely functioning property market.

up
11

Hi, It is not that easy, I am developing land in Papakura at the moment and the council fees are ridiculous. For subdivision:
$40k development contributions fee(bribe to the council),
$15k water meter (bribe to watercare),
$6k resource consent application(bribe to the council),
$4k building consent application(bribe to the council),
$1k engineering approval application(bribe to council again)
$2k for new power connection (bribe to Vector)
$15k Engineering, surveyor fees if you are lucky
$5,5k draftsman

All up $88.500 before you even start any works plus

$30k drainage, power on site, water mainconstruction
$20k driveway
$20k fencing, lanscaping, decking
$330k for 3bed 150sqm house which is 2,2k for 1sqm to build

Subtotal $400k for construction

Some of you people who never tried to subdivide or build a house dont have any clue how long, painful and expensive the process is.

$10k project management - If you are not a skillfull project manager you will need one
$5k engineer and council inspections and extra time
$2k lawyer

Another $17k for possible additional costs

TOTAL $505.500,-is a PURE cost of new build in South Auckland of 3 bed 150sqm, on 500m subdivided land and that does not include your land price.

In conclusion you are saying that people who cannot afford to spend $505k on development of their site, so you and others can have a cheap house deserve to be taxed by 3%p.a.?
Most of current home or land owners do not have half mil sitting on their accounts so they need to take a loan with cca 4,5% interest rate. Lets say that you are a mastermind and finish the project in 1 year. Thats another $22,7k just on interest paid on this amount plus you need to revaluate your property after every stage for bank to release additional money for your next stage, thats how construction loans work. So add $1k for approved valuator for every revaluation.

If you want to make housing cheaper now, we need the council to stop charging these ridiculous fees so the current landowners or owners of houses with big sub-dividable gardens can afford to develop for reasonable costs. You need to let those land owners to make some profit as well, so they are motivated to start with such a big and potentially risky expensive project, mum and dad developer will spend 1-1,5 years of their lives and experience lots of nightmares before even the land is subdivided.

The government would need to ensure:
stable property market with modest, but steady growth in house and land prices
ensure steady economical growth and high business confidence
cheap interest rates ie 2% pa for construction loans with whole amount payable from resale after completion.So the landowners are not afraid of massive mortgages.

There is plenty of land suitable for development around within current limits, the question is who would willingly do it in:

current environment of high council fees with
incompetent and unpredictable government wanting to tax everything and everybody, with
tight landing criteria without any interest rates incentives for landowners, small developers
in a sleeping market with a risk of bubble deflation?

Thanks for putting some real world figures into the debate and I see that not one CoL supporter tried to engage you on them. KB is what happens when you put dreamers with no real world building experience into office.

Thanks Rex Pat

Thanks for putting some real world figures into the debate and I see that not one CoL supporter tried to engage you on them.

XXpat, that's a terrible attempt to score imaginary points. I have not seen any Labour supporters arguing that the council regulatory environment is not a problem. There's pretty much universal agreement that council compliance is a problem.

Too much vodka in the breakfast Bloody Mary this morning?

Rick, I’m not a big drinker, and certainly not in the morning. My point is that the price to build a home is very easy to find out, you just talk to a developer and they tell all, like the above. Once you have the cost structure you can look for ways to make it cheaper if you want affordable homes. WTF were Twatford and Labour doing announcing prices just months ago that are not doable? Did they talk to anyone? What is the paradigm change here? I can’t see it. What I expected from the COL supporters was a response saying that KB will work because of x, y, z. Is it that much to expect facts? Posters like Didge talk about KB success but have no facts.

Hi Rick, I am glad Labour supporters agree with me that this excessive taxing from council needs to stop to make housing cheaper. I just showed you on numbers this change could make any new constructions cheaper by cca $65k which is roughly 10% of current median house price in Papakura. Our government has power to do this decision right now, they can remove council rights to charge development contribution fees, as easily as they recently allowed councils to start charging regional petrol tax. Council greediness is not the only issue in construction of affordable housing. Another agency responsible for excessive cost of construction is Ministry of Business, Innovation and Employment and their certification process of all new building products and methods. If you want to use any products or methods which have not been used in NZ before, you need to get a certificate to be able to do so. Such certification process takes months and costs between $70k-80k for single product or method. This bureaucratic machinery and connected costs are main reason we have monopoly in building industry i.e. Fletchers. Their building products are 40% more expensive for NZ market then for Aussies where competition exists. Imagine if the government had focused on decreasing the council DC levies and simplification of certification process for new building materials instead of wasting our tax money on underwriting current private projects. We would have houses cheaper by $100k per new build not just for selected ones but for everybody and without any new taxes or kiwi build required, how good would that be?

Fully agree. When I voted for National I hoped they would do something to address these things, and was disappointed when they didn't. Likewise, we need constant pressure on the Labour government to address these things.

Completely agree Rick. Nationals did not do anything about it but to be fair they did not promise to address housing affordability pre election last year. Labour party was the one who did and their pre election rhetorics was very confident so it looked like they already have a solution ready and just asking for nations blessing to implement it. They convinced sufficient percentage of population to get into the government and now logically people want these promises to be delivered.... and it will be fantastic if they would, I just personally thing they cannot and that a lot of people could feel deceived, if the government dont start delivering soon.

National did campaign on the housing crisis and their plans to address affordability: http://www.scoop.co.nz/stories/PA0708/S00336.htm

After nine years they hadn't delivered, but had done the complete opposite. If people were not prepared to hold them accountable for non-achievement after nine years...well...They might be in danger of having a double standard were they to rant at Labour after nine months.

Hi Rick, I respect your point but this article is 11 years ago. Do you have something fresher ideally post GFC? Decade is long time.

I am not developing land in NZ as it does not add up....as you rightly pointed out...DCB.

No incentive to Work and Income.

No incentive to employ.

No incentive to think out of the Box....

Tax is fine.....now Council is Fine.......I have been "Fined enough"

Well, yeah, you've got every incentive to put money in land instead of employing people in business because no one has reformed the RMA to make land development easier. National didn't do it in nine years of governance.

In fairness, you do have some incentive to employ: the taxpayer subsidises your wage bill via Working for Families.

Great to have the cost breakdown, I wonder why you’re talking about a 150sqm house though. You’d save a minimum of $100k if you built an 80 - 100sqm house. But I agree, you’d save a good chunk if there wasn’t so many other unnecessary costs.

How many of those costs are proportional to the sqm though? If all of the fees and contributions are a sunk cost then it’s best to build big and have a lower cost per m2

Sounds like a user pays system for funding Infrastructure, why should existing home owners subsidise Developers.

Exactly Roger.

It's becoming a little bit sad to see this level of a lack of understanding from someone as high up the tree as Orr.

But the evidence is there for all to see - ie a completely dysfunctional housing market.

For Orr to say "It's about adding supply [to the market] not demand." and say Kiwibuild should be exempt from the LVR, show he hasn't a clue when it comes to how demand for housing works.

If removing the LVR would work for Kiwibuild in increasing supply, then imagine how many more houses would be built if he removed the LVR's on ALL housing. Of course we know this to be nonsense, all that would happen is more instant demand, without first having removed the restrictions that stop houses been built, and prices would rise.

And considering there will be no income testing, why would the Govt. give themselves a competitive advantage with the LVR removal or lowering, that they would not allow the private market. All that will happen, is a sideways movement in demand from the private to the public sector.

What a cluster........, it would be laughable if it wasn't ruining peoples lives.

yep, it's ruining a lot of lives and ultimately society and the economy. But a lot of people are benefiting from the bloodbath. There's a few on this website who are consistently gloating about their portfolio.

The problem is, how do you differentiate the equilibrium for the supply and demand needs of the ponzi market vs the equilibrium for the supply and demand of the real housing market (actual families that want one home to live in and raise a family)?

At the moment we think we need to satisfy the needs of the ponzi market equilibrium without realising that isn't the long term sustainable balance....

Yes indeed, how do you covert from a Ponzi into a stable market?

The Westpac CEO wants house prices to remain stable for the next thirty years, so presumably incomes can catch up to get the ratio back to affordable 3x income. He didn't mention anything about keeping interest rates stable though.

I think the Govt. are also seeing this as an option and are trying to increase supply, but not lowering prices, and then back dooring new buyers into the market by making it easier with deposit requirements, ie exempt from LVR's (Orr's latest out burst), shared equity schemes etc.

The can't afford to have house prices decrease, and by moving the market more under the control of the public sector, they can then control demand and supply.

I don't think the Govt. has any intention to reduce the non value added costs, which includes making land supply less restrictive with presumptive rights to build, especially on the urban fringe.

LET'S BE CLEAR - you can't tapper or stabilise a Ponzi Scheme - you either feed it ever increasing capital, or it collapses, that's the definition of a Ponzi Scheme.

People on here don't seem to understand what a Ponzi Scheme is.

People on here don't seem to understand what a Ponzi Scheme is.

Thoroughly agree with this statement. It annoys be no end when people refer to NZ's property market as a Ponzi scheme.

Driven by high immigration, needing to be kept going by more and endless high immigration, can't think of anything that better illustrates a ponzi, to be frank.

"Lets give high LVR loans, to people who don't have huge amounts of money, to borrow in a flattening market where there is about to be a tidal wave of supply"

I typically really like his approaches, however this seems like a risk to the banking system...

So far Philip Stoner Twyford has indicated there won't be means testing on the Kiwibuild houses, and they will be available to permanent residents as well as New Zealand citizens.

Reality is that the people who can’t afford to buy now, won’t be able to afford the so-called KiwiBuild homes!!!!!
Banks will not lend to people with insufficient deposit or don’t meet serviceability criteria!
KiwiBuild is not going to work, and Twyford chopping and changing each and every week just makes him look even sillier and out of his depth!

If people want to buy homes they should move to Christchurch where there’s so much value to be had, and such a great lifestyle.

But.. christchurch.. crusaders fans, and having dated a couple of Chch girls.. they are a little odd, I think the winter cold does something to Cantabrians. Just look at our most prodigious cantabrian poster :)

are there still heaps of neo-nazis there?

Quite a lot at the moment.

ChCh girls are good value as well just like ChCh houses.
ChCh does have cold days but far better than raining every day like what happens in Auckland.
Winter doesn’t worry “ The Man” as I can stay in bed until I want to get up, and we travel overseas when we want, so the cold of Winter doesn’t worry us.
Thing is that there a a lot of intelligent people moving into ChCh at the moment and no.s will grow as they see the value and lifestyle that it offers.

First home buyers might decide it's just not worth the risk or ongoing commitment. NZ properties aren't the best deal at the moment (quality/cost-of-living) and KiwiBuild is yet to complete even a handful of homes.

Sure, there will always be desperate FHB but if you're that desperate you're probably subprime. I'm sure many of you, bulls and bears agree NZ property is shocking quality for the price.

A borrower is a slave to the lender, and all that.

If you want value for 'Money" when building Kiwi Build houses, ya have to cut out the Middle Man...or us taxpayer and everyone involved will get ripped orf, before we start.

Material gain and sensible prices are achieved by buying Materials at wholesale prices, not rip-orf ...prices.

https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12062945