Thursday's announcement by the Reserve Bank that it is considering imposing new restrictions on lending for residential property investment will lead to another burst of activity by investors that will push up prices even further, according to the Property Institute, which represents valuers.
And when the new measures are introduced they will probably be ineffective at bringing prices down, according to Property Institute chief executive Ashley Church.
Deputy Reserve Bank governor Grant Spencer said in a speech on Thursday that new lending restrictions such as higher loan-to-value ratio limits that could apply to residential property investments throughout the country could be introduced by the end of the year.
Church questioned the wisdom of the Reserve Bank signalling its intention so far ahead of introducing any changes, saying it would almost certainly lead to another frantic burst of buying activity which would further inflate house prices.
"It will lead to huge flurry of last minute buying which will push up prices as property investors rush to beat the end of year deadline," he said.
"Watch the house price inflation figures over the next few months.
"You'll see big price increases and a surge in activity as investors compete with each other, on price, to squeeze that last property out of their equity before the higher level restrictions kick in.
"What's worse is that it will all be to no purpose because the evidence of the last two years is that the loan-to-valuation restrictions have had virtually no impact on reducing house price inflation.
"So we'll get a sharp increase in prices with no economic payout at the end."
You can receive all of our property articles automatically by subscribing to our free email Property Newsletter. This will deliver all of our property-related articles, including auction results and interest rate updates, directly to your in-box 3-5 times a week. We don't share your details with third parties and you can unsubscribe at any time. To subscribe just click on this link, scroll down to "Property email newsletter"and enter your email address.
36 Comments
Do you think one or other of the reserve bank or this current government is/are inept?
Maybe they are corrupt though I find that hard to believe.
To me both groups seem to dither like chooks andrefuse to bring in wholesome and sensible measures to lance this boil that is the Auckland house market.
What the hell is the point of either of them when they will not act decisively.
Words are cheap. We will see 'when and what' once anything new is implemented. RBNZ also signalled that OCR will be steadily heading up not long ago - didn't they? Just don't hold your breath for anything said or you might turn purple and fall. Bottom line, rock and hard place for RBNZ.
I do agree with the analysis above. There will be a rush. (mass media and words are enough for that)
Fortunately for property owners and unfortunately for prospective buyers, I do not see prices going down in the foreseeable future.
Economic - Any bubble has to burst and correction has to happen. It is not a question of IF it will happen but WHEN it will happen and the earlier it happens-less the damage.
Am enjoying (High House price is in paper only) my property prices going up but am more concerned about the people who enters just when the bubble is to burst as will be worst affected and also about young generation so more than personal gain am worried and annoyed for I Know that it will end badly.
More irritation on the leaders elected by us as are blinded by greed and personal interest than the country.
Why would the government want to stop house inflation, the only inflation present in some countries, when the world over the battle against deflation rages?
The reserve bank, as any other private bank, has a duty to provide profit for it's shareholders; and everyone of it's shareholders holds property as an asset, as does everyone else the world over. Speculation is rampant! Negative interest rates are positive for house price inflation, and it factors into the "equivalent rent" component used to bolster CPI in many countries. New Zealand has joined the club as of late, why would they stop now?
We've not only put the fox in charge of the hen house, but we are still expecting our hens not to be eaten!
I remember in 1987 the desperation to buy shares, nobody thought they could go wrong, the fundamentals were sound etc!! can still see the vision of Roger Douglas clapping on TV as the sharemarket closed at another record high, smiles and cheers all round.. FOMO reigned.
Correct if have to act, should have acted and no need to create panic situation as this will and is adding to the housing crisis.
Funny how can RB does not know that or may be have some hidden agenda that we are not aware as now it is hard to trust anyone as is all politics and this mayhave something to do with RBNZ and National party politics.
God save innocent Kiwi, who are watching their dream been crushed every day.
Can RBNZ or Government answer this valid question
Property Institute questions the wisdom of the Reserve Bank signalling its intention to restrict loans to residential property investors so far ahead of introducing any changes.
May be something is on between the RBNZ and the government. Well politics is dirty and who cares about the country.
Maintain financial stability yes Yvil.... however you are forgetting that the recent GFC was due to excessive/loose lending by banks and House price bubbles much like we are seeing in Auckland
so controlling/trying to limit the impact of the housing cycle ups and downs by limiting credit
-> helps to maintain financial stability
and is therefore very much in their mandate...
Just need to join the dots
Why would investors rush to beat the new restrictions in Auckland? Surely house prices are beyond their peak some people may think. There is obviously a huge amount of confidence in the value of an Auckland house currently. Most people believe the market still has capacity to move up. If you truly believed it was going to go down significantly you would sell and rent but people aren't doing this. Selling your house in Auckland is riskier than keeping it if you wish to stay living in Auckland. And there is no real sign of that situation changing.
The link that Justice posted about Sweden is interesting reading:
Swedish housing shortage hits rich, poor
Some quotes:
With more than a million refugees arriving in Europe over the past year
In Stockholm, where a one bedroom "basement flat" with almost no natural light is on the market for 7.5 million crowns ($880,000) and black market rental contracts cost hundreds of thousands
Sweden, with a population of 10 million, needs to build nearly 500,000 homes by 2020.
In a globalised world where immigration is encouraged the situation only looks to get worse with these housing shortages.
Vast amounts of people want to leave Africa, Turkey, Middle East, India and Eastern Asia and live in the European style nations. A huge amount of wealth has suddenly appeared in the hands of many Asians and Indians. People from Asia and other places are so desperate they will send their children all alone to New Zealand to attend school so they can then go on to attend University. But what confidence that reveals.
It really is unprecedented. The most desirable locations in the world are just going to get more and more valuable. The rush to get into the super cities will make them ever more unaffordable for most.
Simple ZS. It's called greed.
Also, because the reserve bank places a huge emphasis on housing in assessing the financial stability of the banks. It's because of this, and the "too big to fail to fail menatality", by both investors, and the reserve bank that investors keep feeding the fire
Until the reserve bank does something to halt this frenzy, and introduces a "shock" to the market, prices will continue to rise.
I believe we are in for another global economic downturn next year and this combined with new measures by the Reserve bank will dip the markets. They may even correct quite sharply as recovery will be slower with the chains on all of the investors holding them down. If you are in it for the long term you can't go too wrong though.
I personally believe that Auckland and NZ will continue to be popular safe places to live and more people are going to migrate here in time.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.