More evidence NZ macroprudential is working

ScreenHunter_02 Jun. 14 21.43

By Leith van Onselen

From’s Friday Top 10, featuring David Whitburn – a professional property investor, comes more evidence that the Reserve Bank of New Zealand’s (RBNZ) loan-to-value ratio speed limits are working:

The Loan to Value Ratio (“LVR”) restrictions that took effect on 1 October 2014 have had an immediate effect on the market.

However this is not recorded by either the REINZ Indices which use median house prices, or the Quotable Value/Property IQ/Core Logic data which use averages.

The reason is the LVR restrictions hammered the bottom third of the market where first-home owners have traditionally dominated the sales, as well as newer property investors that needed to borrow at higher LVRs.

When comparing the period from October 2012 to June 2013 prior to the LVR restrictions starting, with October 2013 to June 2014 with the LVR restrictions in place, you can see a fascinating trend when sales prices are put into bands.

The volume of sales are down a massive 19% in the sub $400K price bracket, and down 4% in the $400 – $600K bracket…


ScreenHunter_3894 Aug. 22 12.46

RBNZ Governor Graeme Wheeler stated last year the aim of the LVR restrictions was “to help slow the rate of housing-related credit growth and house price inflation”, with the ultimate goal of “reducing the risk of a substantial downward correction in house prices that would damage the financial sector and the broader economy”.

The Governor has got what he wished for, despite huge immigration into NZ…

Home loan approvals across the board are down, making life tougher for many mobile mortgage managers and brokers:

ScreenHunter_3895 Aug. 22 12.48

Spot on. We should not be surprised about the results given the proportion of high LVR lending plummeted after the new mortgage caps were implemented (see next chart),

ScreenHunter_3896 Aug. 22 12.49

What makes the RBNZ’ LVR cap’s more impressive is that they have occurred during a period when immigration is booming:

ScreenHunter_3864 Aug. 21 11.38

And income growth is surging:

ScreenHunter_3897 Aug. 22 12.52

Which are both usually bullish indicators for the housing market.

Take note Glenn Stevens, who continues to refer to “dreaded macroprudential tools” and “the latest fad”.

[email protected]

Unconventional Economist


  1. “Home loan approvals across the board are down, making life tougher for many mobile mortgage managers and brokers”.

    My heart bleeds.

    “Take note Glenn Stevens…”

    Be informed by facts? Not likely. Like most of our leadership, it would interfere with his agenda and self-talk.

    • Agreed, GS has zero interest in improving housing affordability and reducing mortgage-related financial risks (both of which cleraly FAIL the RBA charter). So what is “working” for NZ is not welcome in Oz.

  2. Not surprising really, New Zealand has always been more progressive than Australia. Muldoon got it spot on when he said “New Zealanders emigrating to Australia raises the IQ average of both countries. Unfortunately for Australia those Kiwis are returning home.

    • Progressive?!

      Effectively freezing the first home buyers out of the market unless they have well off parents who can ut up their own title deeds is just another nail in the coffin of social mobility and the concept of “a fair go” and a reasonable degree of equality in society.

      • Progressive as in not allowing the younger generation to fall victim to overleveraged property investments.

        All it needs now is some practical solutions to increase supply so that first home buyers can buy into the market as sensible and sustainable values.

        I know which country’s policies are fairer and more sensible than those spruiked by Stevens and Abbott.

      • I think Wheeler knows that LVR restrictions do not improve “housing affordability” in the long term. He has other objectives and LVR restrictions are part of his tool-kit.

        Housing affordability is determined pretty much by the condition of housing “supply”. What is determined is pretty much who will be priced out and who won’t be.

        LVR’s and macroprudential merely determine how long those who are not priced out, will have to save their deposit (which can literally be a substantial chunk of the price of the house, as in South Korea). It also determines how much debt is built up relative to the value of the housing stock, and how exposed the finance system is to any price corrections.

        Wheeler intends to burst the bubble with interest rate increases sooner rather than later, and he is being kind to potential FHB’s now by shutting them out of the market until he brings house prices down. It is cheaper to rent anyway.

        I think Wheeler is one of the wisest central bankers in the world (and Don Brash was too). I think he knows that house price bubbles will crash anyway eventually, with forces beyond central bankers control being in play when the time comes. So it is better to do something tough sooner. He is also clear about housing supply and intends to force the hand of government nationally and locally to do something about it.

        The most stupid approach possible, is the common one where politicians and media response to problems with “housing affordability”, is to call for looser than ever mortgage lending and demand side subsidies. All this even does is push prices up some more, leaving the same people who were locked out of the market still locked out anyway, and the only thing that has changed is the amount of debt taken on by those not priced out. Very nice for – guess who? That’s right, the finance sector, which is making record profits still.

        Ironically, the media narrative following the GFC was that “loose credit” did it and this was the fault of the finance sector. The very same media organs now more often than not call for looser credit to “assist those locked out of the housing market”. Actual supply of new houses on greenfields is a sacred cow issue with them. Green theocratic idiots.

      • Even StevenMEMBER

        It’s rare I agree with another poster 100%. PhilBest, I agree with you 100%. Nicely said.

      • Good thoughts PhilBest. Wheeler and others like Raghuram Rajan of India (who Lawrence Summers described as luddite for warning of the pending GFC) appear to have a lot more sense than their equivalents in the most so-called advanced economies.

        Spot on assessment of the media flip-flopping too. Their ownership has ensured that any idea of them calling for accountability has long been forgotten.

  3. Pricing debt more sensibly and targeted structural reform might also have something to do with sanity being restored.

    • +1 raise rates significantly and soon. OCR floor (by legislation) should be 2x CPI to account for tax and under-representation of inflation (especially land) – Look what happens when you have a small unelected board of unaccountable self-interest.

  4. So smashing First Home Buyers out of the market is a win? 😐

    We could achieve that goal in Australia too, just remove any first home buyer grants or concessions.

      • Only if prices come down too or they stay renters for life. Otherwise it simply delays the inevitable and puts them in a worse position borrowing more down the track.

        It only seems to be driving a greater divide between the have and the have nots.

      • Wheeler intends to bring prices down. He is doing young people a huge favour. They will thank him for it eventually. It is cheaper to rent anyway and you are an idiot if you buy a house now.

      • PhilBest, [ultimate goal of “reducing the risk of a substantial downward correction in house prices that would damage the financial sector and the broader economy”]

        That doesn’t read to me like someone who is interested in lower prices… stabilized maybe.

    • Yeah amazing. Property prices going thru the roof in Auckland and this is seen as a victory of macro-prudential policy. Good grief.

      • Any slowdown in NZ is as a result of the interest rate increases, not much to do with MP tools at all.

        A good way to stop battlers getting a house at the bottom end though.

      • Yep! A good move to up interest rates. It lowers our NZ$ as debt assumption drops ( those pesky buyers at the bottom being kept at bay and all…) and cuts the bottom rung off the property ladder. Then, the moves on that ladder are = everyone stepping downwards if they want to move. The shame is…that we didn’t raise interest rates sooner; faster and higher. But maybe Graeme Wheeler can see about that……

      • Err…it has done, and will keep doing so! A currency exchange rate is determined by one thing, and one thing only – funds flow. They are influenced by commercial flows ( imports/exports) and capital flows. Squeeze the need for capital to fund debt ( as we are doing now) and that one leg of that equation affects the value of the currency – downwards. The nominal interest rate settings are of no value if no one wants the funds. If you have $1 to lend at 50% and I can’t afford that, how much will you lend me? Nothing. If you are asking 5%…I’ll take all you have etc. That’s an extreme example, but the principle applies at all levels of fund costs.

      • “But Janet. Your exports prices are falling, Dairy is down 40% over the last 6 months. That’s why the NZ$ is falling”. Rubbish! It’s because what export receipts we have no longer have to compete with capital flows for the exchange rate level that sees the NZ$ falling. That export prices are falling as well is both coincidental and misleading.

      • Yes, PF that is right

        A better solution would have been to drive through reforms to town planning so low cost housing could be built. Less taxes, less charges, no first user pays all, no fake scarcity.

        If necessary a govt land agency selling blocks direct to owner occupiers at lowest possible cost – like the old days before the ALP went mad.

        Low cost housing requires smaller mortgages and as a result the FHBs could stay in the market as their deposits are more likely to result in a lower LTV.

        I get that NZRB has decided to play political economy and is trying to force the governments hand by cutting low income earners out of the market but what a demonstration of how defunct the political process has become when the NZRB is wading into what is really a political issue.

        I would rather Joe Hockey grow a pair and have Gov Glenn’s shrivel and and enjoy a limited brief to sound the inflation alarm when required.

        This era of outsourced economic responsibility has to end.

      • migtronixMEMBER

        I love how you constantly look evidence in the face and deny it Peter. How badly did those buyers in the mid 90s do again?

      • So Janet there is a guy in China right now with a barrow load of NZD helping NZ fund their bank lending – is that correct?

        The NZD will bob and dip according to the capital flows I agree, but a higher rate in NZ attracts inflows it doesn’t discourage them.

        Hi PFH – hope all is well.

        Hi Mig – you have only about 548 posts to go today to make your quota. Try to make them count.

    • So what happens if the battlers don’t get on to the property ladder? And who says you should buy a house as soon as you have a 5% deposit…?

  5. migtronixMEMBER

    Gross government debt hits $330.8 billion:
    Up $57.6 billion in less than a year under Abbott govt.

  6. Home loan approvals down by -9.4% …
    FIRB sector will raise hell before they let this happen in OZ and it seems that our government and RBA are on their side

  7. Ah, yes. New Zealand…where we are so much more on to it that you guys! “Dunedin City Council is promising to do better after missing the theft of 152 vehicles over more than a decade. Police said the disappearance of vehicles from the council’s fleet was being treated as a possible fraud.” Ya reckon?!

  8. Yes, we know MP is working.
    But so does the RBA Glans Penis.
    And that’s exactly why you won’t see it here.

    I mean, Glans Penis would have to be a schizo to stimulate the housing construction with emergency IRs and cool it at the same time with MPs.
    So you might as well drop it, it’s getting old.


    Governor Wheeler of the RBNZ is playing a major role with macroprudential tools, in providing the essential pressure on the political authorities at both central and local level, to belatedly get on releasing affordable land and financing infrastructure properly.

    If the political authorities were responsible in dealing with land supply and infrastructure financing, the monetary authorities macroprudential tools and excessive interest rates would not be necessary.

    The dairy industry for example will not be appreciating the collateral damage with prices down 40% and the New Zealand dollar artificially elevated with the higher interest rates due to unnecessary housing inflation.

    This current Government should have got on to these issues out of the 2008 election as promised … and as I explained late 2012 with HOUSING: MR KEY – GET ON THE PROGRAMME …

    The unnecessary housing bubble risks to the economy are truly massive.

    We have a $700+ billion housing market with about $400 billion of bubble value incorporating about $100 billion of bubble mortgages and the Banks capital base at just $29 billion … as I explained recently with NEW ZEALAND’S BUBBLE ECONOMY IS VULNERABLE …

    A local television news has just reported there is a major housing announcement by the Government next week. Let’s hope it deals with affordable land supply and proper infrastructure financing … the two core structural problems.

    Hugh Pavletich

  10. Rally and March in Melbourne on Sunday August 31 @ 1pm, State Library of Victoria. March to Parliament.

    Design and wording for Placards are now completed. Thanks to those people who made wording suggestions. They were very helpful.
    There are 12 documents available with the Negative Gearing and Housing Affordability theme. These are available to download now in Word Online or PDF form by clicking on the links below. Documents are in A4 size. You can copy them on to a disk or USB stick, take it to Officeworks where they can print them out to any size. I would suggest A2 size, (420 x 594). A1 would be even better but the printing on the blow up would be faded a bit, although this could be darkened up with a black marker pen. You can then stick or tape them on to a stiff backing / placard.
    For anyone who is not able to make their own Placard, we can supply them. Just contact us by email below. You could also print up lots of A4 copies and distribute them as flyers.
    I would urge as many people as possible to get involved. Even downloading these documents and sending them on to friends or whoever will be helpful. Someone may print and distribute a heap of them.

    The type of people at these marches have many different grievances. Probably not many of them know what Negative Gearing is, or how it takes money out of their pockets. We need to convey to them, one major subject at a time, starting with Negative Gearing, and how it is affecting Housing Affordability. By carrying these Placards and distributing these flyers through the marching crowd and the spectators, a lot of them will come away with more knowledge about Negative Gearing. In the next march or rally a lot of them may put down their save the whale, or whatever placards, and pick up Negative Gearing placards.
    We also intend to write a 1 page flyer to explain what Negative Gearing actually is (in as simple terms and hard hitting form as possible) and have this available for distribution.

    Click here for Word Online, which is easier to view.!3640&authkey=!AOC3kMgHMQUtA-s&ithint=folder%2c

    Click below for PDF.!3638&authkey=!AIxJiO7oNjwdTHs&ithint=folder%2c

    [email protected]

    • When are deadbeat politicians and bureaucrats going to wake up ? …

      Plan to fast-track housing development – Bay of Plenty Times – Bay of Plenty Times News

      The Bay is facing a housing affordability crisis if councils do not remove an “artificial handbrake” on development, developers say.

      And they are pushing for the council to consider allowing the private sector to deliver core infrastructure, such as sewerage, water and roading, in a bid to speed up housing development and make homes more affordable.

      “The council use that (lack of funds) as an artificial handbrake on opening up additional land for development. You can’t even start talking about affordable housing when you have those kind of restraints keeping prices up.”

      It also threatened the Government’s recently announced housing accord, which would see 1175 sections fast-tracked for new homes over the next two years.

      Accord means more houses – Bay of Plenty Times – Bay of Plenty Times News

      The accord aimed to improve affordability in the region, with a projected population growth of over 64,000 people over the next 20 years that would require an additional 1300 homes per year.

      Mr Adams said developers needed to be able to put in core infrastructure themselves.

      “If you can’t afford this work yourself, don’t let bureaucrats get in the way of a free market.

      “There are smarter ways of dealing with infrastructure than we have at the moment … that could increase supply and affordability.”


      When are the deadbeat politicians and bureaucrats going to wake up ?

  11. Hugh PavletichMEMBER


    The first home buyers grants announced by Prime Minister John Key at the launch of the National Party Campaaign should properly be regarded as a Land Speculators Welfare Scheme … paid for unnecessarily out of young first home buyers savings and by excessively taxed taxpayers.

    This is a cynical attempt by the National Party to buy votes at others expense.

    It only fuels housing inflation.

    It is likely the Reserve Bank will need to respond by lifting deposit requirements further and increasing interest rates.

    This will in turn lift the $NZ dollar, damaging the export sector further.

    So far this year, the dairy sector has taken a 40% hit in prices … the logging sector a 50% hit.

    New Zealand economy is extremely vulnerable (refer … New Zealand’s Bubble Economy Is Vulnerable and China: Big Bubble Trouble ) .

    With this cynical approach to the housing issue, Mr Key is punishing our exporters as well, by not allowing the $NZ to adjust to these dramatic price falls.

    This will cost jobs … and risk putting vulnerable exporters to the wall … unnecessarily.

    The National led Government is well aware the housing problems are impediments to affordable new supply.

    Deputy Prime Minister Bill English made clear at the major October 2012 Government Housing Announcement, that the focus must be on …

    *land supply
    *infrastructure financing
    *construction costs

    This was followed up with the Housing Accords legislation … and weak Accords entered in to with a number of Local Authorities by Housing Minister Dr Nick Smith.

    All talk and no action.

    The National led Government promised some 6 years ago in the lead up to the 2008 election campaign that it would deal with the impediments to affordable new housing supply.

    Soon after, then Housing Minister Phil Heatley made this clear at the time of the release of the Demographia Survey early in 2009. ( refer … Bringing better balance to the housing market ) .

    Prime Minister “can kicker” John Key has always been “flaky” on housing (refer Housing: Mr Key – Get on the Programme ).

    Mr Key is more interested in looking after the interests of Land Speculators and engaging in Crony Capitalism (refer … refer YouTube Video … CRONY CHRONICLES: I WANT TO BE A CRONY … ).

    The problem for Mr Key, is that the public can see through his cynical Crony Capitalism.