RBNZ: LVR limits to hit house prices by 4%

ScreenHunter_08 Jul. 01 09.14

From Banking Day, the RBNZ has high hopes for the efficacy of its new LVR rules:

The bank’s regulatory impact statement on the speed limit announced on Tuesday said the Reserve Bank’s modelling suggested the limit could reduce credit growth by 1-3 percentage points in the first year.

Mortgage lending grew 5.4 per cent or NZ$9.3 billion in the year to June, suggesting a fall in the growth rate to 2.4 per cent would have seen mortgage growth NZ$5.1 billion lower if the speed limit had been applied over the last year.

“This reduction is likely to come about through a combination of slower housing market turnover, reduced house prices and higher average deposits for house purchases,” the bank said.

The bank said its modelling also suggested that house price inflation could be one to four percentage points lower over the first year of a policy where the mortgages with LVRs over 80 per cent were limited to 10 per cent of new lending flows. House price inflation was 16 per cent and 10 per cent respectively in Auckland and Christchurch over the last year.

“This reduction is expected to arise from reduced competition for houses, a direct lowering of the price that some purchasers are able to pay, and reduced house price expectations as a result of the restriction,” the bank said.

Bring it on. Bring it here.

David Llewellyn-Smith
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  1. GunnamattaMEMBER

    Stephen Koukoulas…….

    ‘Whatever those relative macroeconomic benchmarks say about New Zealand continuing to lag behind Australia, New Zealand could well be leading Australia with its approach to managing a potential housing bubble in the context of ongoing low inflation, a high currency and let’s say a problematic outlook for the economy.’

    Read more: http://www.businessspectator.com.au/article/2013/8/21/economy/new-zealands-bold-move-against-housing-bubble#ixzz2cYG7WmQN

  2. Lending growth of 5.4% is not at all high, which tells us that loose lending isn’t driving price growth, it’s supply.

    As I understand it growth was slowing anyway, so they might claim a hollow victory.

    They are kidding themselves unless they also tackle the undersupply problem.

    • Here’s the lunacy of the supply side issue. We had probably $50 billion worth of damage done to our 2nd city a couple of years back. The solution to easing the financial pain for those who lost everything ( the uninsured and bare land holders) and those who suffered other material loss of varying degrees was…. to make the cost of replacing what they’d lost, cheaper. But no! What did we do? Restricted the amount of land available to be re-zoned in Christchurch; kept the land covenants on etc. Because to do otherwise would have impacted the prices of relative property holding in other parts of the country ( read that as, Auckland!), and it benefited non-damaged regions to have instantaneous demand suddenly appear on their doorstep. Any compassionate society looks after its weakest in times of need. But what we saw, was an opportunity to make money…..
      (NB: Christchurch is on a vast, flat plain that expands 100 kilometers in 3 almost uninhabited directions. So lack of immediately available land wasn’t an issue!)

      • New Zealand elected a banker who knows the price of everything and the value of nothing. He’ll sell off whatever it takes to make his bonus!