Property Institute questions timing of Reserve Bank statement

Property Institute of New Zealand Chief Executive, Ashley Church, has questioned the wisdom of the timing of this evenings Reserve Bank statement to the Wellington Branch of the Institute of Valuers - warning that it will almost certainly lead to another 'frantic burst' of Investor buying which will further inflate house prices.

In a speech, earlier this evening, deputy Reserve Bank Governor Grant Spencer said that growing imbalances in the housing market required action "on a number of fronts" and indicated that the Reserve Bank was now considering further tightening restrictions on loan-to-value ratios (LVRs) for investors. Under current LVR limits, banksmust demand 30 per cent deposits for a mortgage secured against an investment property in Auckland and 20 per cent across the rest of the country. Mr Spencer did not indicate what the new limits might be but suggested that they could be introduced "by the end of the year."

However, Mr Church has questioned the wisdom of signalling this intention to the market and says it will now lead to a huge flurry of last minute buying which will push prices up as Property Investors rush to beat the end-of-year deadline.

"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 past 2 years is that the Loan to Value restrictions have had virtually no impact on reducing house price inflation. So we'll get a sharp increase in prices with no economic payoff at the end".

Mr Church says that the other announcements made by Mr Spencer in the address were either already well signalled, or outside the ability of the Reserve Bank to influence.

"We already knew that debt-to-income limits were under investigation and that the Bank has some hurdles to get over if they're to introduce them - so there was nothing new in those comments".

Mr Church also said that Mr Spencers other suggestion - that immigration should be reduced to rein in housing demand - was outside the ability of the Reserve Bank to influence and was at odds with current Government policy.

"It's hard to see the Government getting too excited about that idea given that immigration is a big driver of our current economic growth".

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