RBNZ to tighten macroprudential screws

By Leith van Onselen

With the Auckland housing market surging to another record high, fueled by unprecedented investor participation, the Reserve Bank of New Zealand (RBNZ) has been forced to take action, tightening the macro-prudential screws yet again, effective from 1 September 2016. From Interest.co.nz:

The Reserve Bank has proposed a significant tightening of lending to rental property investors across the country from September 1, and will also reduce the speed limit for other borrowers with Loan to Value Ratios (LVR) of over 80%.

The Reserve Bank said a new LVR limit of 60% would be set for landlords across the country, essentially extending and lowering the current limit for Auckland investors of 70%.

The Reserve Bank announced in a statement shortly after 9 am it had released a consultation paper proposing changes to loan-to-value restrictions (LVRs) “to further mitigate risks to financial stability arising from the current boom in house prices.”

Under the changes, no more than 5% of bank lending to property investors would be permitted above an LVR of 60%. Moreover, no more than 10% of lending to owner-occupiers would be permitted at an LVR above 80%. However, loans that are exempt from the existing LVR restrictions, including loans to construct new dwellings, would continue to be exempt.

Echoing the recent speech by Deputy Governor Grant Spencer, which called-on policy makers for assistance on both the supply and demand sides –  including action on land supply, planning, tax policy, and immigration – RBNZ Governor Grant Wheeler redoubled calls for policy assistance from the NZ Government to mitigate housing risks:

Mr Wheeler said: “The drivers of the housing market strength are complex and action is required on many fronts that extend well beyond financial policy. Broad initiatives to reduce the underlying housing sector imbalances need to remain a top priority”.

“A sharp correction in house prices is a key risk to the financial system, and there are clear signs that this risk is increasing across the country. A severe fall in house prices could have major implications for the functioning of the banking system and cause long-lasting damage to households and the broader economy”.

The RBNZ continues to be open and transparent about the limited tools that it has at its disposal, and the need for broad-based assistance from policy makers.

In turn, the RBNZ continues to effectively use its high profile to shame policy makers into housing reform, ensuring they cannot continue to ignore these issues lest they suffer the wrath of voters.

This is precisely how a central bank/prudential regulator should be run.

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Unconventional Economist

Comments

  1. Time to rename Auckland to Aucklend.

    Sums up what it actually is and that’s how they pronounce it anyway. Onomatopoeia, is the term.

  2. This…..is finally starting to rattle a few cages. I’ve received a couple of “What does all this mean?” calls in the last hour…..

    • CHRISTCHURCH RESIDENTIAL RENTS FALLING … LIZ McDONALD … THE PRESS

      Week’s free rent to entice tenants as Christchurch rental rates fall | Stuff.co.nz

      http://www.stuff.co.nz/business/82099386/weeks-free-rent-to-entice-tenants-as-christchurch-rental-rates-fall

      Some Christchurch landlords are offering a week’s free rent to attract tenants as rental prices in the city reach their lowest point in three years.

      Tenants on average are paying nearly 10 per cent less rent than a year ago, with high levels of building and earthquake repairs boosting the city’s housing supply and forcing owners to absorb extra costs.

      According to government bond figures, the city’s median weekly rent is now $383. This is 12 per cent lower than the high of $436 reached early last year and comparable to 2013 levels. … read more via hyperlink above …

      • Absolutely nothing will change……except the banks will begin falsifying (even more than they already do) Loan Application Forms in order to make it appear to comply with LVR requirements.

        Please Sir, can I have some more ?
        More what?
        More fraud please.
        Why certainly, coming right up 🙂

      • … Just Another Christchurch Central Area Development Failure …

        Gerry Brownlee denies blame for failed Breathe residential project |Georgina Styliano | The Press – Stuff.co.nz

        http://www.stuff.co.nz/business/81984571/gerry-brownlee-denies-blame-for-failed-breathe-residential-project

        Mark T comments on thread …

        Perhaps, and what you say about “ecologically-friendly and sustainable solutions” is true – but we can blame him (Brownlee) for wanting to “preserve land prices in the CBD” (aka making things too expensive), combined with bureaucratic meddling in other areas meaning few projects are viable.

        If the government had adopted a more hands-off laissez faire approach, let prices drop to their natural market level, and let owners back early enough to redevelop without some grand monolithic central plan (the way that all real cities evolve) we would have been in a far superior position by now, without stripping property rights.

        Limitations on what you could build and bureaucratic hurdles should have been lowered post quake, not raised. But for all that I only partly blame him, I blame more the general public, because this is what they were generally calling for 5 years ago with all this talk of “we only have one chance to get the rebuild right”.

        The public don’t like the results mind you (now the chickens have come home to roost), but they got the inevitable result of what they were asking for.

        The above echoed by Finance Minister Bill English mid last year … this The Press report needs to be read closely …

        The Government’s estimated contribution to the Christchurch rebuild jumps $1.1b in a year | Stuff.co.nz

        http://www.stuff.co.nz/the-press/business/68786324/the-governments-estimated-contribution-to-the-christchurch-rebuild-jumps-11b-in-a-year

        It is a cultural problem …

        Christchurch Failure – The Long History | Hugh Pavletich | Scoop News

        http://www.scoop.co.nz/stories/HL1404/S00200/christchurch-failure-the-long-history-hugh-pavletich.htm

  3. Tracy Watkins: Housing solutions out of reach | Stuff – Fairfax New Zealand

    http://www.stuff.co.nz/national/politics/opinion/82146247/housing-solutions-out-of-reach

    New Zealand’s homes top an ‘obscene’ $900 billion combined value | Stuff.co.nz

    http://www.stuff.co.nz/business/82025712/New-Zealands-homes-top-an-obscene-900-billion-combined-value

    The runaway property boom has driven the combined value of all homes to over $900 billion for the first time, according to Reserve Bank figures.

    At the end of December, the Reserve banks figures indicated New Zealand homes were worth a combined $873 billion.

    But property data company CoreLogic said the total at the end of March would rise to $905 billion. Corelogic provides the figure to the Reserve Bank for its July update.

    The rise has incensed affordable housing campaigner Hugh Pavletich, who called it “obscene and dangerous” that houses and apartments were worth about four times the country’s gross domestic product (GDP).

    “It’s just ridiculous,” Pavletich said. “Obscene and dangerous is the only way to describe it.”

    In 2014 Pavletich compared the ratios in different countries of housing stock value to GDP. He found New Zealand’s was 3.2 times GDP, behind only Australia, but ahead of the United Kingdom, Canada and the United States.

    “The housing stock should not be worth more than 1.2 times GDP to 1.5 times, tops, but nowhere near this 3.6 getting close to four times GDP,” Pavletich said. … read more via hyperlink above …

    …Correction … Auckland (not national) house prices now 10 times household incomes … adjust current Demographia Survey (data 3rd Qtr 2015) … http://www.demographia.com/dhi.pdf

    At the time of the 2008 election, Auckland housing was 6.4 times household incomes; 6.7 times when Nick Smith was appointed Housing Minister January 2013; 10.2 times now … and likely in excess of 12.0 times at the General Election late 2017

    • Through utter incompetence and inaction, the New Zealand Key Government has backed itself into a corner from which it cannot escape. By forcing the RBNZ to act in its stead, The Government dare not do what needs to be done now – enact structural change – for fear of collapsing the whole market. It will ‘stand back’ even more, paralyzed with electoral fear – until it panics. And that, will be at the worst of all possible times – when offshore events predicate the next financial downturn.
      Expect comforting words from our beloved leader along the lines of “Well I told the RBNZ to act and they have listened to me” from Key, and little else. The last thing John wants is to be (rightly) blamed for what’s coming…..

      • Key’s has a plan to make Auckland a financial Switzerland. He see’s that as NZ’s future. Everything else is secondary. This housing bubble crash may even eclipse his gay marriage act – or the flag… don’t forget the flag!

        He is no real politician, he is an investment banker, thinking politics is all about marketing. And to be honest, often it is. But now and then we get leaders who actually do things, who realise their place in history. One was PM Hawke, who was a leader big enough to allow Button and Keating to totally transform Australian industry and float the dollar, and hurt their own elected constituents for the greater-good. Another was an equally diminutive (although slightly taller than Hawke!) bushy browed spectacled man, who sacrificed his whole back bench to put in something that he knew we didn’t like, but needed (among many other things).

        Keys has done absolutely nothing… he hasn’t even told his big plan to his populace. Just platitudes, and buying for time, and innovative lemonade stands! So f*^*(ing cliche…

        He is not shamed, he doesn’t even care. Tell the bloody truth about the man and what he is really up to!!!

        This MP BS is just the sign of desperation from the Central Bank – nothing else… and it will have no effect on house prices, just smash the local populace!

        Get with the programme UE, and write some truth. Because the above is just appeasement. From which I can no longer see any retreat from. Its gone way too far…

      • FRAN O’SULLIVAN: RICH LISTER (STEPHEN JENNINGS) SENDS MESSAGE TO KEY … NEW ZEALAND HERALD

        http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11675391

        (also on TVNZ Q&A

        http://tvnz.co.nz/q-and-a-news/ta-tvnz-index-group-2556429 )

        … extract …

        … … Jonathan Coleman and Paul Goldsmith are part of National’s future. They are intelligent. They are incisive. They are in for the long haul.

        But it takes bottle to confront Key’s “kitchen Cabinet” – Bill English, Steven Joyce, Gerry Brownlee and Paula Bennett – and tell them that when it comes to the housing crisis, many in business are coming to the view that their emperor has no clothes.

        Several guests were disappointed no one from Key’s inner circle was present. “Are they going to take the message back to the big guys?” one asked me.

        “Jesus Christ, what are your grandkids going to do?” said another, predicting it would not be long before young New Zealanders head off overseas again because they could not get a toehold here.

        The question I have for both ministers is what will they say when the Cabinet convenes on Monday? Both looked slightly ill at ease when I teased them on Thursday evening by suggesting they present a brief.

        A one-page brief that slices through the issues, confronts the problems directly and stops the endless spin machine might just do the trick. But they are politicians.

        Jennings did not let business off the hook either.

        As a society, New Zealand needed to debate these crucial issues so they are raised to the level where politicians are forced to respond. … read more via hyperlink above …

    • Its not really that funny Bro., my favourite aunty, who left Auckland when prices got silly, was saying that even prices in outer suburbs of Dunedin (English = Edinburgh) are now climbing quickly.

      Its tough if you are retired and on the pension…

      • There is a correlation between increased levels of fraud and an impending crash. Would love to get accurate numbers of Loan Application Form manipulation as a ‘bell weather’.

        Sadly the market can stay irrational longer than I can stay solvent.

      • She spent much of her life working overseas establishing schools in developing countries (e.g. Bhutan, Pacific Islands) – in very, very primitive conditions. Thats why she is poor… she is a good woman. Don’t you disrespect her!

  4. Property Investors Will Need A 40% Deposit … Kiwiblog

    http://www.kiwiblog.co.nz/2016/07/property_investors_will_need_a_40_deposit.html

    Pavletich comment on thread …

    Hugh Pavletich (1,351 comments) says:
    July 19th, 2016 at 1:21 pm

    Manolo … Blame ‘Can Kicker’ Key … who has been playing games with these serious issues since the 08 election … when housing in Auckland was 6.4 times household incomes. Now its 10.2 times.

    Note my comments on the MacroBusiness Australia thread above.

    Sadly … it appears the Auckland Housing Bubble will prove to be John Key’s Political Waterloo.

    Around 200 years ago Napoleon Bonaparte was sent in to exile way down the Atlantic at St Helena’s.

    Do you think Mr Key may be sent to Maui Island in Hawaii ‘for the rest of his natural life’ when the Auckland bubble bursts !

    Do read closely what Tracy Watkins and Fran O’Sullivan had to say about him recently.

  5. Auckland housing crisis leads to shortage of teachers, nurses and police officers say Greens … NZ Herald

    http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11677339

    Auckland could be facing a shortage of teachers, nurses and police officers if the city’s house prices continue to rise beyond their means.

    Today, the Green Party has warned the city’s essential services could be impacted by the heated property market.

    This follows the June survey, released by the Auckland Principals Association to Radio New Zealand, which found that of the 168 schools needing new staff in term three, 65 per cent had only received five or fewer applicants. … read more via hyperlink above …

  6. The NZ Property Institute loses the plot … panics … (big deposit requirements mean less work for Valuers from Banks etc) …

    Property Institute suggests political interference in the Reserve Bank’s plans to introduce new LVR restrictions for property investors … Interest Co NZ

    http://www.interest.co.nz/property/82664/property-institute-suggests-political-interference-reserve-banks-plans-introduce-new

    The organisation that represents property valuers has accused the Reserve Bank of caving in to pressure from the Prime Minister over its plans to introduce tougher loan to valuation ratio (LVRs) restrictions for residential property investors. … read more via hyperlink above …