RBNZ juices new home construction

ScreenHunter_02 Jun. 14 21.43

By Leith van Onselen

The Reserve Bank of New Zealand (RBNZ) has today changed its limits on high loan-to-value ratio (LVR) mortgage lending to exempt new home construction, in a move that is clearly aimed at stimulating housing supply:

New residential construction loans will now be exempt from the loan-to-value (LVR) restrictions introduced from 1 October, Reserve Bank Deputy Governor Grant Spencer said today.

“The Reserve Bank has recently consulted with the building industry and banks on the impact of LVR restrictions on residential construction activity,” Mr Spencer said. “While high LVR construction lending is only around 1 percent of total residential lending, it finances around 12 percent of residential building activity.

“This exemption means that low deposit lending will fall outside the 10 percent speed limit if it is financing the construction of a new house or apartment.”

“However, any new low deposit construction loans will still need to meet the internal risk requirements of the lending banks.”

Mr Spencer said that the new exemption will apply to all qualifying construction loans from 1 October 2013.

“This exemption will help to support the supply of new housing and, in doing so, reduce some of the pressure arising from excess demand in the New Zealand housing market.

Seems like a sensible move.

Leith van Onselen


  1. Cool! Now someone who is sucked into getting a 95% LVR to build a new home is stuck with it until someone who has a deposit sufficient to overcome the 80% Rule comes along. Welcome to a long term hold, new build owners!

    • Good one, who said investors do not need FTB? ( to take the hit)
      Negative equity from day one, but to be fair as prices are still rising strongly even with the genius MB rules, they ll probably be ok.

      • prices are still rising strongly even with the genius MB rules

        In NZ? Proof?

        MB rules have only been around for a few months.

      • The RBNZ, just like many in the wider economy, now realise that deflation may be just around the corner. Articles in the local press etc are sounding the warning (Bernard Hickey); property developers of decades standing ( who’ve seen more than their share of ups and downs!) are nervously imploring the RBNZ to recognise that it is in ‘no one’s interest for property prices to decline’ ( Olly Newland). BNZ economist , Tony Alexander, cautiously warns that “doesn’t mean (NZders) will be splashing out over the festive season….17 percent say they intend spending less than they did last year…overall they still are intent on paying down their debt.” Yep. Paying down their debt = Deflation in its truest sense of the word. So will property prices keep rising to get the new-build owners off the hook? Not in my opinion…!

      • @dam so you take the first point after the introduction as evidence that it is not working. What bull crap.

        The banks probably have around 6 months of pre-approvals on their books. Moreover the Oct-Nov data would include all those “that didn’t want to miss out” and paid whatever they could borrow.

        I’ll get in touch with my developer mate but I suspect today’s decision is due to the fact it has already started to have a significant impact on new builds going forward.

      • @ff

        Perhaps, i dont have more data.So far you re right, genius MB is working, Investors can buy their favorite dwellings, close to amenities without competition from FTB and FTB are pushed to noman land to start extremely risky builds (building is far more risky than buying established dwellings, it s almost always negative equity from day one).
        Genius, I hope the RBA play copycat on that one.

      • @dam

        Investors can buy their favorite dwellings Good for them. Unfortunately, for the most part NZ property has Oz disease. Returns below holding costs.

        Let’s see what happens when you’re bleeding money holding onto a property that is also dropping in value.

  2. High LVR loans for new builds is not a smart move in Australia or New Zealand. The risks are too high for the home buyer if valuations fall short.

    This is like watching a policy train wreck.

      • I was referring to high LVR construction loans. The high LVR in itself is not the only factor that adds to risk, there are other more compelling risk factors that come into play than the LVR.

        The place that we are in at the moment is actually pretty good.

      • The place that we are in at the moment is actually pretty good.

        For some, namely those that got on “the property ladder” before others.

      • Specifically Australia – Federal government, state government, and local government policy failure sure, but I happen to think poorly of the RBNZ implementation of their MP policies.

        They could have done a much better job of it. Rationing lending is never the way to go. They could have simply implemented a universal LVR limit along with other prudent lending measures.

        I also don’t like exposing FTB’s to high risk, and high LVR construction loans expose them to the risk of valuations falling short when the market turns. That means on the ground people lose their deposits or end up with vacant land that they can’t afford to build upon. It’s tough meeting a loan on vacant land whilst paying rent and trying to save a deposit on the construction with falling land values – it stretches people too far. Land values will at some point fall, cycles happen.

        Some policy decisions sound neat, but they just don’t work for the benefit of those who need them the most when they need them the most.

        FTB’s are more suited to buying existing homes and it’s what they prefer. I don’t see the benefits of current policies pushing FTB’s towards new builds – I regard it as poor policy.

        If the powers that be want a housing construction boom, they chose the wrong group to target with their incentives. FTB’s have no capacity for price or valuation flexibility.

        But I don’t expect everyone to understand that, so it’s OK if people disagree. It’s a practical issue.

      • There’s a social factor that many overlook as well, Peter. I recall 35 years ago new estates full of doey-eyed FHBers going off to the outer suburbs; moving into their newly built 3 bdr brick veneer places, only to face the reality of life with a mortgage. It’s stressful when you haven’t had one before. And not to long after the estates filled up, they started to empty out as the couple went their different stressed way. Whole estates full of “For Sale’ signs and banks faced with non performing loans. You’re right. The FHBer is not the one who should be bearing the weight of the property market. It should be the established player. And they have only one of two options in today’s uncertain times. They can sell and cash up ( and probably do quite well!) or they will have to hang on. Some can afford that in terms of money and time. Some, many facing retirement, won’t be able to.

  3. Straight out of the blocks!
    Kiwibank has reacted immediately to the decision by the Reserve Bank to exempt new residential construction from the lending “speed limits” that restrict low equity lending.”

  4. This decision by the RBNZ is disappointing.

    New Zealand’s new residential consenting volumes per 1000 population per annum however are woeful at about 4.

    they need to be well north of 7 / 1000 … and can only be achieved with affordable land.

    We are STILL waiting.

    Hugh Pavletich

  5. The RBNZ have made a good decision IF the central government push on with land use reform. A strong bias toward new construction will help mitigate systemic risk, but the government needs to come to the party.