RSS Feed

No Silver Bullet: LVR Restrictions and the Role of the Reserve Bank in the Auckland Housing Crisis

Wednesday, October 16, 2013

In his address to the Property Council Of New Zealand yesterday, Deputy Reserve Bank Governor Grant Spencer gave a broad-view digest into the current housing supply pressure faced by New Zealanders, in particular, Aucklanders and Cantabrians.  

The Reserve Bank is under no disillusionment that LVR Restrictions are the silver bullet to the current market challenges, nor had it ever expected them to be.    In that respect, Mr Spencer was unequivocal from the off.  The central bank's mandate relates to financial stability, not social equity.  It is watching house prices with keen interest because of the extent this debt-fuelled market can impact (negatively) the New Zealand economy as a whole.  As such, the Reserve Bank is taking preemptive steps to mitigate price growth rather than to enable mass homeownership.

First home buyers are to be forgiven for being unsettled by this sentiment.  Bearing the heritage of a settler's society, New Zealanders hold landownership (and homeownership) as sacrosanct.  This innate cultural disposition has not faltered despite challenges relating to supply, population influx, and now, LVR Restrictions.  Although auction rooms are significantly quieter since 1st October, the law of unintended consequence has a sneaky way of distorting even the best laid plans.  Property commentators who had been through a similar period of restrictions in the 70s are predicting a reemergence of second-tier financiers.  Making life harder for borrowers in the mainstream banks drive their determination to obtain finance elsewhere.  It is only a matter of time before first home buyers are able to circumvent the current restrictions and re-enter the market.  

Undeterred by the naysayers, the Reserve Bank was bold in its estimated prediction that by 1st October 2014, 
  1. Mortgage credit growth will be 1-3% points lower; 
  2. Home sales will be 3-8% lower; and
  3. House price inflation will be 1-4% lower.
Mr Spencer was quick to point out that the current pressure on homeownership is the direct result of a chronically undersupplied market.  The LVR Restrictions are holding first home buyers at bay, for now.  The central bank hopes to buy enough time for other policy makers to come to the party.  The supply side of the equation can only be resolved by freeing up more land, speeding up consenting processes, and encouraging profitability in the building industry, none of these come under Graeme Wheeler's purview.  Mr Spencer is confident that 'provided the "red tape" costs and delays are reduced, there will remain a strong incentive to expand the housing stock, particularly in Auckland and Christchurch.'  

Changes are already underway.  Both the Auckland Housing Accord and Unitary Plan are preceded by pro-development overtures.  Housing is quickly shaping up to be the election issue of 2014.  Every politician worth his/her own weight will be expected to have a solution to what the media has conveniently dubbed The Great Kiwi Housing Crisis.  The question remains however, will first home buyers have enough patience and confidence in the Reserve Bank to keep their anxiety in check and hold fire before flocking back into the auction rooms?   

Recent Posts


smoke alarm income anz yield first home buying Editor's Choice tenancy issues LIM Q&A short-term rental Case study HHGA property value DTI cash-flow letting fee cat CoreLogic boarding house Landlording government bad tenant Property (Relationships) Act cgt bond letting management fixed-term tenancy CCC gluckman report covid-19 house prices landlord productivity business sale and purchas debt enforcement property watercare tenant interest rates shower dome rental wof election 2017 Must knows extractor fan Holler inspection ocr p lab Jeff Bezos market subdivision minor dwelling twg report parry v inglis structure insurance property cycle clnz rta reform termination rent increase Sponsored post Investor story Investment tip mortgage wealth creation personal growth asbestos equity relationship trust finance warren buffett unitary plan rent housing affordability buyer's agent renovation privacy investor speculator return property maintenance education advice banking Gluckman principal and interest holiday house legal Must know bond form television winz market rent wins meth tenancy tribunal HHS TCIT rent arrears financial advisers act maintenance Question and answer trademe off the plan tax heater capital gain auckland council building Guest blog tenancy services worksafe trespass buying initio data security property management Kris Pedersen Mortgages and Insurance RBNZ sublease recycling equity negotiation water bill partners beginner investor Level 4 sale and purchase development RTAA 2019 damage positive cash flow mindset rta auckland buying rules skill shortage reserve bank Standards New Zealand rental market ventilation ask an expert khh How to lvr scotney williams robert kiyosaki interest only ird HSWA nzpif insulation housing bubble investment strategy ring-fencing airbnb Market report Tribunal case study meth contamination heating warm up new zealand


Introducing Our Partners
Principal Sponsor - Kris Pedersen Mortgages & Insurance logo Gold Sponsor - Barfoot & Thompson logo Gold Sponsor - CoreLogic logo Property Apprentice logo Keith Hay Homes logo The Insulation Warehouse logo The Renovation Team logo The New Zealand Property Investors' Federation logo
09 360 2376

The Tenancy Practice Service and TPS Credit Control work closely with the Auckland Property Investors' Association. Our vision of bringing helpful resources, documents and high quality services to Auckland Property Investors and Property Managers is shared by APIA, so its a partnership that works well. 

The Auckland Property Investors' Association is a great organisation for those who want access to advice and information from a range of industry experts and partners. 

Mathieu Holt- Managing Director, The Tenancy Practice Service & TPS Credit Control
Through the Association I found the channels and methods to fund the purchase of property I never dreamed about. Grant Brown

All round it has been one of those things Neil and I felt was really worthwhile belonging to. We have learned so much it has just built our confidence in what we are doing.

Janice Bieleski
I read two articles in the monthly magazine that saved me over $5,000. That is my membership fee for the next 26 years and I am sure I will learn a whole lot more! John Duncan
Fantastic organisation. The networking opportunities are brilliant and provide us with information and opportunities that cannot be obtained anywhere else. We learn something new at every meeting and we've been in this game for nearly 20 years. Pauline and Gyanen Kumar

I find the information obtained from various APIA meetings very useful in guiding my own property investment and rental management.  I also enjoy the networking opportunities with like-minded investors.  I am inspired by other investors’ success and find the more experiences and knowledge that I share with others, the more confident I become.  

Thanks to all APIA event organizers and administrators for your brilliant work. 

Stella Shao

I like talking to people and learning from their experience because it gives me the confidence to invest well. I think it is a knowledge thing. I now know I am doing things the right way.

Stephen Weatherall

My APIA membership has become a total success.

Every time I attend a monthly or regional meeting I come away with so many useful and positive tips that have added value to my property investments and management.

Not only that, the website is a great place for practical advice and useful information. It has now evolved into an important resource for my business.

Talk about value for money! The discounts I have been getting at Bunnings when I present my APIA membership card have more than paid for my annual subscription!

Tim Duffett, Plan A Investments Limited