Price rises are not welcomed by buyers, but the current level of price increases is not excessive given the extraordinary high level of migration, says Andrew King. Photo / NZ Herald
Price rises are not welcomed by buyers, but the current level of price increases is not excessive given the extraordinary high level of migration, says Andrew King. Photo / NZ Herald
Labour leader Andrew Little says a speech from the deputy Reserve Bank governor was effectively saying there was a housing crisis - something Prime Minister John Key had refused to accept.
Deputy governor Grant Spencer said in a speech to the Rotorua Chamber of Commerce that housing market imbalances "are presenting an increasing risk to financial and economic stability" in New Zealand, one of the few advanced economies that hasn't had a major house price correction in the past 45 years.
He said there was "considerable scope" to streamline approval processes for residential developments and a need for a more integrated approach to planning and funding of new infrastructure, some of which may be delivered via amendments to the Resource Management Act.
"The proposed RMA reforms have the potential to significantly improve the planning and resource consenting processes," he said.
Mr Little said the Reserve Bank was "still gamely trying to stem the flow of the problems in the housing market by looking at options to make it riskier for banks to lend to investors than the average family looking to buy a home".
But he said the banks was rightly wary of weighing in because as with the loan to value mortgage restrictions, which resulted in higher deposits being needed, Reserve Bank tools could be "too blunt" and hurt first time home buyers and the regions.
The Green Party housing spokesman, Kevin Hague, said a capital gains tax was needed to stem the demand created by tax-free gain property investment.
"It's time for the Government to do what's right and stop putting the interests of landlords and property speculators over the young people who have been priced out of the housing market."
The government and Auckland Council could also focus on increasing designated areas for high-density housing, because building more apartments was "the best prospect for substantially increasing the supply of dwellings over the next one or two years," Spencer said.
Annual house price inflation in Auckland reached almost 17 per cent last month and the central bank has estimated the city faces a shortfall of between 15,000 and 20,000 properties to meet population growth as the country experiences record migration. Spencer said today there were "practical difficulties" in attempting to use migration policy to mitigate Auckland's overheated housing market and with inflation so tame, there was little scope for monetary policy to provide assistance. However, there were measures that could counter the growth in investor and credit based demand for housing, he said.
The Reserve Bank would like to see fresh consideration of possible policy measures to address the tax-preferred status of housing, especially housing investment
"The Reserve Bank would like to see fresh consideration of possible policy measures to address the tax-preferred status of housing, especially housing investment," he said. "Investors are often setting the marginal market prices that are then applied to the full housing stock within a regional market. Indicators point to an increasing presence of investors in the Auckland market and this trend is no doubt being reinforced by the expectation of high rates of return based on un-taxed capital gains."
The central bank imposed restrictions on high loan-to-value home loans in October 2013, which had helped to moderate housing pressures and they had improved the resilience of lenders' balance sheets.
Still, market pressures began to re-emerge in the fourth quarter last year. With the current overheated housing market in Auckland, it would not make sense to remove these restrictions in the near term. To do so would invite a further surge in credit-based demand for housing. The LVR policy would be "removed or modified as market conditions allow," he said, without giving details.
The Reserve Bank deputy governor has made a speech asking the Government to address the 'tax preferred status' of housing. Photo / NZ Herald
The bank is also consulting on a new asset class for residential investment mortgages that will attract a higher risk weighting than owner-occupier mortgages, which Spencer said was "consistent with the international evidence showing larger loan losses for investor loans than for loans to owner occupiers during periods of housing market stress."
"A new asset class will see a greater consistency of treatment for investor mortgages across the banks and ensure that investor loans have capital backing consistent with their higher risk," he said. "A well-defined asset class would also facilitate the introduction of macro-prudential policy and the bank is currently reviewing some options."
Spencer said macro-prudential tools alone wouldn't be enough to alleviate Auckland's housing market constraints.
"Such tools are not a panacea - their impact is inevitably smaller than the main drivers of the current housing market imbalance," he said.
