Investors driving up risk in Auckland housing, RBNZ says
Investors driving up risk in Auckland housing but no room to raise interest rates, Spencer says
Aug. 24 (BusinessDesk) - The growing presence of investors in Auckland's property market is increasing the risks, and is likely to both amplify the housing cycle and worsen the potential damage from a downturn both to the financial system and the broader economy, said Reserve Bank deputy governor Grant Spencer.
In a speech to the Northern
Club in Auckland, titled "Investors adding to Auckland
Housing Market risk", Spencer said housing supply in the
city is growing "nowhere near fast enough to make a dent in
the existing housing shortage."
"In the meantime, net
migration is at record levels, and investors continue to
expand their influence in the Auckland market,” he said.
In May, the Reserve Bank announced a tightening of its restrictions on the number of new home loans banks can make at high loan-to-value ratios for Auckland while easing the restrictions for the rest of the country. The changes come into effect in November. Today Spencer reiterated the Reserve Bank's call for more progress in developing new housing in the city, while welcoming tax changes imposed by the government, including a non-resident withholding tax, a two-year bright-line test and a requirement for tax numbers to be provided by house purchasers.
Spencer said that
the Reserve Bank recognises that low interest rates are
contributing to housing demand pressures, but that "the
current weakness in export prices, economic activity and CPI
inflation means that interest rate increases are likely to
be off the table for some time.”
“A sharp fall in house prices has the potential to accentuate weakness in the macro-economy, particularly if banks tighten lending conditions excessively, leading to greater declines in asset markets and larger loan losses for the banks," Spencer said. "A key goal of macro-prudential policy is to ensure that the banking system maintains sufficient prudential buffers to avoid this sort of contractionary behaviour in a downturn."
Investors now account for 41 percent of
Auckland house purchases, up 8 percentage points since late
2013, he said. The most notable gain had been "purchases by
smaller investors and investors reliant on credit," he said.
"Half of the new lending to investors is being written at
loan-to-value ratios of over 70 percent."
The 24
percent jump in Auckland house prices in the past year,
compared to 3 percent for the rest of the country, "has
stretched the price-to-income ratio for the Auckland region
to 9, double the ratio for the rest of New Zealand, and
places Auckland among the world’s most expensive cities."
(BusinessDesk)