Property investor Olly Newland says if LVR speed limits 'bite' then house rents could rise anywhere between 20% and 50% in the next 12 to 18 months

The impact of new Reserve Bank limits on bank lending could force house rents in some areas up by as much as 50% in the next 12 to 18 months, according to property investor Olly Newland.

Newland, who's also an Authorised Financial Adviser and author, told interest.co.nz it was still too early to know what the effect of the so-called speed limits put on high loan-to-value lending (LVRs) by the RBNZ on October 1 would be.

It was possible the LVR limits "may well end up being a damp squib – nothing happens, business as usual".

If they bite...

"But if they do bite there will be quite serious repercussions and distortions…"

This could include rents, which have been relatively stagnant for many years while house prices have increased substantially, "bubbling up" as more people, unable to get into their own houses were forced to rent property.

"We may see headlines in 12 months from now that rents are too high," Newland said.

"If the LVR restrictions bite as we suggested, then I would think from now in the next 12 to 18 months rents could rise anywhere from 20% to 50% depending on what area you are talking about and of course depending on how deep the pockets are of the tenants - which of course means they can’t save as much to buy the house they are trying to buy."

First home buyers

Much of the focus of the impact of LVR limits is on how it may affect would-be first home buyers.

Asked what first home buyers should do and whether first-time buyers would miss out if they didn't buy know, Newland said: "You will miss out if you wait because prices generally over a period of time go up.

"There’s an old cartoon of a very old man bent over a stick with a caption saying this is the man who’s waiting for prices to come down."

Newland said he expected most young buyers would either borrow through second mortgages or get "mum and dad" to give them loans.

Unitary Plan

The Auckland Council this week formally notified the Auckland Unitary Plan, the new rulebook for the Auckland region that will decide what people can do with their land.

Newland said the new plan would provide opportunities.

"In essence the unitary plan allows for denser housing in a given area. So, again it will help investors, mums and dads too I guess, because property prices will tend to go up a lot in areas which have been rezoned for higher density.

Buy on main roads

"So if I was an investor and wanted to take advantage of the unitary plan I would be buying on the main roads for instance where there is transport and shops and schools and so forth and I think all the main road areas, or very close to the main road areas will, if they get the right zoning, will shoot up in value.

"Obviously, if one house on a section is worth x dollars, if you can suddenly put eight houses on that same section that’s going to be worth much, much more. So, I think it will have a big effect on property prices in certain areas."

Price rises continue

In terms of what might happen to house price in general over the next 12 to 18 months, Newland said if there was no outside event that affected house prices and the economy in general then house prices would continue to rise.

"Perhaps they will slow down a little bit but as a percentage of the whole it will still be a lot of money. Every few percent adds many many thousands and I suspect the rise will continue over the next 12 or 18 months perhaps at a slower rate but still a substantial amount of money involved.

"...And there will be a point reached when it is just too expensive and they’ll start to flatten down. And its probably a good thing.

...But not through the roof

"We don’t really want prices to go through the roof. It’s bad all around. We want gentle inflation and prices - 3% or 4% or 5% a year. That’s the way the capitalist system works.

"We don’t want a huge drop in prices because half of New Zealand would be in the street at that point being upside down with their mortgages.

"So that’s where I think things will go. But of course this LVR thing and anything else that comes along – perhaps a capital gains tax, who knows -  will have another effect on the market."