By Bernard Hickey
Prime Minister John Key has downplayed warnings from the Registered Master Builders Federation (RMBF) that the Reserve Bank's limit on high Loan to Value Ratio (LVR) mortgages would restrict new housing supply in the key market of Auckland.
"I can't for the life of me see why it would affect home building," Key told his Monday post-cabinet news conference when asked if he would ask the Reserve Bank to exempt new home builds from the high LVR speed limit.
"If the Master Builders think that will have an impact they should definitely go and have a talk to the Reserve Bank," he said.
The RMBF said on Friday it was seeing early signs of a slump in orders for new homes from high LVR borrowers. RMBF CEO Warwick Quinn said he had already had an initial meeting with the central bank and would formally survey members for better information on the impact over the next three to four weeks. Quinn has called for high LVR mortgages for home builds to be exempted from the rules. See more here in my Sunday comment piece.
Asked later in the news conference if the high LVR speed limit would restrict the government's strategy of building 39,000 houses in Auckland over the next three years, he said he did not agree it would.
Elsewhere, he criticised Labour Leader David Cunliffe's appeals to first home buyers by saying such buyers would be hit by Labour's plans for a Capital Gains Tax on second properties and by higher interest rates.
Earlier on Monday Cunliffe arranged a media conference with 23 year old Auckland man, Kanik Mongia, outside the ASB building in Auckland. Mongia told media he wanted to borrow more than 80% to buy a home in Auckland, either to live in or as investment property, but was blocked under the high LVR speed limit.
Cunliffe said a Labour government would exempt first home buyers from the high LVR limit and look to exempt home buyers in regions where house prices had not risen. See more here in Gareth Vaughan's article.
Key said Mongia would be paying NZ$20,000 a year less on interest costs under National than under a Labour government and he would also have to pay Capital Gains Tax if he bought a house as an investment property.
"That person is looking at a NZ$500,000 house. They're wanting to borrow NZ$450,000, not the NZ$400,000 the Reserve Bank would want them to borrow. Under National they would be paying NZ$20,000 less in interest than they otherwise would have done under Labour."
Key defended the Reserve Bank measure as a move to reduce demand while the government moved to increase housing supply through its Housing Accord with the Auckland Council and reforms to the Resource Management Act.
"I just don't see the logic on why it (the speed limit) would reduce the number of houses built," he said.
Regional exemptions?
Key also downplayed Labour's proposal for a regional exemption.
"It's a little bit complex for the Reserve Bank to administer because it would put a lot of pressure on the banks to break down their lending by region. The other point is that in a lot of other parts of the country housing is effectively cheaper so it might be easier to build up a 20% deposit in a provincial part of New Zealand rather than Auckland," he said.
Key said the Reserve Bank policy also meant that interest rates would rise less rapidly than would otherwise be the case. He said the Reserve Bank had advised him that the speed limit reduced some of the upward pressure on interest rates. "I asked them directly the question: If you don't do this, what would be the impact on interest rates and the argument was they would go up by 50 basis points in the same period of time faster than they otherwise would be," Key said.
"Yes they are in slightly uncharted terrritory, but I do think we need to give it a run and see what happens," he said.
'Very much like children'
Key said banks can still write high LVR loans, just less of them. He said banks were likely to prioritse first home buyers "because it's very much like getting children signed up to a banking account because people stay with their bank for a very long time if they do that."
"There's still likely to be a bit of rationing, but it's likely to be rationing in favour of first home buyers."
(Updated with more details, quotes)
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