By Bernard Hickey
Finance Minister Bill English has pointed to ongoing discussions between the Reserve Bank and new home builders about whether high Loan to Value Ratio (LVR) loans for new buildings should be exempted.
Asked ahead of a National Party caucus meeting if he thought the Reserve Bank should exempt new builds from its 10% speed limit on mortgages with an LVR over 80%, English said it was up to the Reserve Bank, and he understood it was discussing the issue.
"That's up to them. I understand they're in some kind of discussions. That's been mentioned publicly. It's up to them about what rules they make about that. We're focusing on what will have a bigger influence in the long term -- and that's getting more houses on the ground faster," English said.
The Registered Master Builders Federation (RMBF) said last month it was seeing early signs the high LVR speed limit was reducing orders for new homes and said it was in discussions with the Reserve Bank about exempting new builds.
The Reserve Bank and the RMBF were not immediately available for comment. The RMBF has estimated around 15% of new builds are financed by high LVR loans and the policy could reduce new home builds by around 3,000 per year.
The Reserve Bank itself projected in a research note published this month the high LVR limit could reduce new home builds by as much as 5% or 80 consents a month, although it said the effect could be smaller given the policy doesn't apply to property developers borrowing from non-banks and because banks were reluctant anyway to lend high LVR loans to home buyers building homes.
Reserve Bank Deputy Governor Grant Spencer also downplayed the speed limit's impact on new supply in a speech delivered to the Property Council in Auckland earlier today.
Spencer said the high LVR limit may reduce inflation, but New Zealand's house price metrics of prices relative to incomes and rents would remain high.
"In this sense it is hard to see how these restrictions will materially reduce the existing incentives to develop new residential property. Provided the “red tape” costs and delays are reduced, there will remain a strong price incentive to expand the housing stock, particularly in Auckland and Christchurch," Spencer said.
English agreed there may be a short term impact on new home building from the policy.
"You could get some transitional effects. We do know overall supply needs to increase and that's why we've started announcing the special housing areas and why we need to do that at scale," he said.
A Reserve Bank spokesman later declined comment.
"The Reserve Bank meets with and discusses LVR-speed limits with a range of parties," a spokesman said via email. "The content of the discussions and the parties that we meet are not a matter we wish to comment upon in the news media," he said.
RMBF CEO Warwick Quinn said the survey results were due back late next week and it had not had further discussions with the Reserve Bank, although it had some talks with Treasury.
'Don't do silly things'
"Internationally, overpriced housing markets and fast growing housing markets are recognised as one of the biggest risks to financial stability. The worst thing we can do for first home buyers is take risks as a country that pump up our debt when there's a lot of indications that global financial markets could go wrong, and if they go wrong they'll punish us for that and that'll leave everyone worse off," English said.
English has just returned from meetings with the IMF, the World Bank and ratings agencies in Washington and New York. He said leaders in other countries also dealing with asset bubbles were curious about New Zealand's approach, which was relatively unique in being a speed limit on high LVR loans rather than a simple ban.
He warned again about the risks New Zealand faced because of its relatively high foreign debts held on behalf of households through its banking system.
"There's still risks. We don't want to become victims of our success where we think everything's fixed and we can go off and do silly things," English said.
(Updated with RBNZ and RMBF comment)
26 Comments
I smell BS on this one. Someone/somewhere is just trouble making. How many new houses going up near where you live - me none. We only two weeks after the lvr date - there are no real statistics, and all of a sudden builders are going out of work..... bullocks, there up the road doing reno's and flicking them as fast as they can.
English has just returned from meetings with the IMF, the World Bank and ratings agencies in Washington and New York. He said leaders in other countries also dealing with asset bubbles were curious about New Zealand's approach, which was relatively unique in being a speed limit on high LVR loans rather than a simple ban.
He warned again about the risks New Zealand faced because of its relatively high foreign debts held on behalf of households through its banking system.
The risks other than local theft of depositors funding to re-capitalise NZ banks in the event of default with no recourse to foreign wholesale lenders, are best encapuslated by George Monbiot in a recent article.
Allied to the old abuses is a newer kind of superversion: the attempts by billionaires and their lieutenants to destroy the functions of the state. Note the current shutdown – and the debt-ceiling confrontation scheduled for Thursday – in the United States. The Republicans, propelled by a Tea Party movement created by the Koch brothers and financed by a gruesome collection of multimillionaires, have engineered what in other circumstances would be called a general strike. The difference is that the withdrawal of their labour has been imposed on the workers.
The narrow purpose of the strike is to prevent the distribution of wealth to poorer people, through the Affordable Care Act. The wider purpose (aside from a refusal to accept the legitimacy of a black president) is to topple the state as an effective instrument of taxation, regulation and social protection. The Koch shock troops in the Republican party seem prepared to inflict almost any damage in pursuit of this insurgency, including – if they hold out on Thursday – a US government default, which could trigger a new global financial crisis.
They do so on behalf of a class which has, in effect, seceded. It floats free of tax and the usual bonds of citizenship, jetting from one jurisdiction to another as it seeks the most favourable havens for its wealth. It removes itself so thoroughly from the life of the nation that it scarcely uses even the roads. Yet, through privatisation and outsourcing, it is capturing the public services on which the rest of us depend.
Using an unreformed political funding system to devastating effect, this superversive class demands that the state stop regulating, stop protecting, stop intervening. When this abandonment causes financial crisis, the remaining taxpayers are forced to bail out the authors of the disaster, who then stash their bonuses offshore.
Excellent link, thanks. The remainder of the article suggests even more reasons to be wary of the Trans Pacific Partnership Trade deal; at least until its details are made clear. There seems a reasonable chance the TPP is being manipulated by the same billionaire forces at play in the US.
When you keep flogging the misnomer that the OBR is theft, when in fact it protects tax payers like myself from those trying on moral hazard, yes sure its worth my time pointing out that un-truth.
I have a life, and I fail to see why I should spend some of it paying off a debt/loss due to you and not me, especially when its avoidable.
regards
I agree with Stephen Hulme.... The OBR can be viewed as theft... or a tax..
I doesn't protect taxpayers.... It is highly probable that if it came to the crunch ... The Govt might well have to step in and save the Banking system.
The irony is that it is the Reserve Banks job to make sure we never have a systemic Banking crisis.
The OBR does nothing in that regard..... In fact one of the unintended consequences with the OBR is that will amplify the likelyhood of Bank runs.
At the first whisper ... I'll be withdrawing all my money.... as will many others...
Rather than the OBR .. the Reserve Bank require Banks to hold more Capital ???
For me... The OBR smells bad..
Not sure of the context here....still happily married, thanks.
Let me not to the marriage of true minds Admit impediments. Love is not love Which alters when it alteration finds, Or bends with the remover to remove:
O no! it is an ever-fixed mark That looks on tempests and is never shaken; It is the star to every wand'ring bark, Whose worth's unknown, although his height be taken.
Love's not Time's fool, though rosy lips and cheeks Within his bending sickle's compass come; Love alters not with his brief hours and weeks, But bears it out even to the edge of doom:
If this be error and upon me proved, I never writ, nor no man ever loved.
regards
Yup Stevo...I think ,...ill gotten gains...was over the top to say the least, and a faily uncalled for remark, from where I sit OBR is a repugnant concept, perhaps you feel a little more protected from socialised losses , but don't forget the Australian investors gain some protection at the expense of the N.Z. investors during liquidity meltdowns.
It is in fact robbing peter to pay paul think of Aus depositors as paul.
Then you'd be wrong.
They are within 1% of each other in real terms, and the current Greens aren't far behind.
Where Labour and the Greens are ultimately ahead - and it is ahead - of National, is that they are closer to altruism. The only way for our species to avoid collapse (via habitat destruction which includes - but is not limited to - degradation, depletion, chemical alteration) is to adopt altruism. Market forces and individual greed, unchecked, ensure total destruction.
Just listening to the Insurance Council chappie - they have to face reality - talking about the need for resilience (Morning Report). Watch the media ignore that, and worry about what Brown was doing with his willie.
[Re-]insurance is going to be trickly and one to watch......almost a black swan event.
Going to be interesting wathching/listening to the right wingers who deny AGW explain why ppls insurance is being put up by a business sector who accepts its AGW and are looking to unload the un-quantifyable risks, or not re-insure.
We may be lucky to continue with getting insurance....now that would be very disruptive overnight, houses un-insurable...
regards
Nope.....
No better, argubly worse as they want to dump the RMA and any pretense of caring for the environment or its longevity....effectively that means stealing off future generations, can kicking.
Now will Labour be as bad when things start to look increasingly pear shaped? thats a harder Q....odds are not good.
regards
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