ANZ Bank has stepped-up its attack on macro-prudential curbs on high risk mortgage lending, claiming that they have been a failure in New Zealand, forcing-up home prices at the lower end of the market. From The AFR:
The chief executive of New Zealand’s largest bank says limits on low-deposit home loans introduced by the country’s central bank a year ago have actually increased house prices at the lower end of the market and do not address the key driver of rising house prices – the lack of supply.
David Hisco, the chief executive of ANZ Banking Group in New Zealand, also says the impact of loan-to-valuation (LVR) restraints on house prices is difficult to assess given NZ interest rates have also been increased since the LVR policy was introduced…
Mr Hisco said the RBNZ’s policies had merely forced home buyers to reduce their aspirations and look for cheaper properties, which had forced up the prices of those properties.
The ANZ’s claims are contradicted by David Whitburn – a professional property investor – who last month produced solid evidence showing that the RBNZ’s loan-to-value ratio speed limits were working as expected, and have in fact hit the lower end of the market hardest:
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…
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:
Of course, we should not be surprised about these results given the proportion of high LVR lending plummeted after the new mortgage caps were implemented (see next chart),
And house price growth moderated as soon as the LVR controls were introduced last October (see next chart).
And this has come despite rampant immigration:
And the strongest income growth in decades:
Which are both usually bullish indicators for the housing market.
All of which suggests the ANZ’s claims on macro-prudential do not pass the evidence test.