Such restrictions could cap the amount someone borrowed to a percentage of their income.
Meanwhile, the Weekend Herald revealed yesterday that several major banks are set to drop deposit thresholds for owner-occupier apartment buyers, making it easier for first home hunters to get a foot on Auckland's rampant property market.
The banks are reviewing their apartment lending polices and considering dropping the minimum deposit required to purchase an apartment from 20 per cent to 15 per cent.
However, Mr Church warned today that the combination of these initiatives would almost certainly trigger an 'apartment bubble' - particularly if the Reserve Bank followed the example of England and restricted mortgage loans to 4.5 per cent of income.
"The median Auckland household income is $76,500 - so if we followed the Brits we'd be restricting the average Auckland household to a mortgage of not more than $344,250. That will make apartments look very attractive - particularly if the banks also require a lower deposit to buy these."
Mr Church outlined a likely sequence of events that could lead to an apartment bubble and lower quality apartment developments as developers focused on the lower end to appeal to a wider pool of potential buyers.
He added that a focus on 'intensification' through building more apartments was consistent with Auckland Council's proposed Unitary Plan changes, but was strongly opposed by many Aucklanders and shouldn't be forced on the city by the Reserve Bank.
"The drive for intensification is based on a political ideology and is rejected by a large number of Aucklanders. It should only happen if Aucklanders want it."
He admitted the exact outcome could be different from his proposed sequence of events if the Reserve Bank imposed a significantly higher loan-to-income cap but said a greater focus on apartment buying was still an inevitable outcome if any such cap was introduced.
"There's no rocket science in this - if you close one door and make going through another more attractive - the result is going to be pretty obvious."
Speaking on TV One's Q+A this morning, Building and Housing Minister Nick Smith said improving home ownership was a big part of his agenda along with increasing supply.
Auckland house prices had risen too quickly and were now about 35 per cent higher than when National came into power.
Asked if he would support income caps he said that was an independent decision for the Reserve Bank.
"There have been no indications to government from the Reserve Bank that they are going to take a step.
"I would be cautious of them because my key agenda as Building and Housing Minister is actually to reverse that very long-term decline in home ownership in New Zealand."
Property Institute's likely sequence of events:
1. The Reserve Bank restricts mortgage loans to a percentage of household income, effectively making the purchase of freestanding residential homes almost impossible to all but the very wealthy.
2. With median household incomes of just $76,500, home buyers flock to the apartment market to find properties which comply with the new rules.
3. Relaxed bank deposit rules allow buyers to borrow a little more if the apartment is new, and this combination fuels a new wave of apartment building and streamlined marketing programs designed to entice buyers.
4. Property investors - many of whom have also been caught by the new rules - also start buying apartments in large numbers.
5. The combined effect of this new wave of buyers quickly pushes up the price of apartments, fuelling an 'apartment bubble'.
6. Perversely - the quality of new apartments suffers as developers focus on the 'low-end' of the market so as to appeal to as wide a range of potential buyers, within the Reserve Bank rules, as possible.
7. Meanwhile, the cost of renting free-standing homes in Auckland also increases as demand outstrips supply due to the absence of traditional property investors buying these types of properties.
8. Within 7 to 10 years Auckland becomes a highly 'intensified' city with large numbers of low quality apartments dotting the landscape "and free-standing residential homes becoming the preserve of the well-off and wealthy renters".
