Housing Finance and Infrastructure
Keith Rankin, 14 April 2015
The Reserve Bank acted yesterday to limit the folly of our banks in lending too much to Auckland property 'investors'. The Reserve Bank is not concerned about housing as such. Its concern is "financial stability" with particular reference to the security of our banks. So it doesn't really care about foreign money coming into our housing market directly, unmediated by our banks. That's an issue for the Government, not the Reserve Bank.
The Reserve Bank has made one huge mistake however. It defines 'investor loans' for the purpose of its new loan value ratio restrictions (LVRs) as "any retail mortgage secured on a residential property that is not owner-occupied". This means that it will be more difficult for people who wish to take the sensible step of buying an affordable rental property for financial security (and possibly with view to it being a retirement home) while renting for their own families a larger home closer to their current places of work. These people – intended owners of just one modest property – will be classed as 'investors' when clearly they are no more investors than most owner-occupiers.
Today's NZ Herald article Loan curbs will 'raise rents and hit buyers' cites the example of an Auckland couple with child who sold their Ellerslie house because they were over-extended, and sensibly planned "to buy another property in a lower-price bracket and rent it out so they are still in the market for when they retire". This is precisely the strategy that the government should be actively promoting.
The Reserve Bank should change its definition of 'investor loan' to "any retail mortgage secured on a second or subsequent residential property".
I might also note that, around 2005, the last Auckland property boom became a nationwide property boom. The signs are that this will repeat. The biggest capital gains from now may be outside of Auckland. And, as after 2008, the biggest capital losses after 2018 may also be outside of Auckland.
My final thought relates to Simon Bridges' opaque interview on The Nation (TV3) last weekend. Bridges' call for better infrastructure "alignment" was nothing less than an attempt to commandeer Auckland's future by requiring the Auckland Council to prioritise servicing the government's special housing areas (SHAs) that represent a government policy for Auckland of extensive growth. The Council has a much better policy that emphasises intensive growth, which means building quality apartments around existing transport hubs.
Auckland is a world city that must stop being forced to behave as if it's an overgrown country town.