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 sharp price rise in the past year 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, he said.
Reserve Bank Deputy Governor Grant Spencer said CoreLogic data showed that investors accounted for 41% of all Auckland market sales in June 2015.
The hot housing market in New Zealand’s biggest city is a worry and has raised the risk to the country’s financial system and economy, the central bank’s deputy head said on Monday, but he added there won’t be rate rises any time soon.
“That is particularly so when we consider that over half of investor lending is now being written at high LVRs (loan to value ratios) of over 70 per cent”, Spencer said.
He said the RBNZ recognised low interest rates had been a factor in boosting the housing market, but it couldn’t use that tool to cool the Auckland market.
Over the past year, net migration has increased by almost 60,000, with many of migrants settling in Auckland.
“Our current forecasts, which are consistent with the Accord being met, suggest an annual construction rate of 8700 in 2015, increasing to 11,000 by 2017”.
To achieve this, more needs to be done about the limited supply of land ready for building; restrictive planning processes, and the lack of coordinated planning in infrastructure development.
“Special Housing Area building activity has remained very slow to date, with around 800 dwellings consented”, Mr Spencer said.
Hitting investors to try and kerb demand is unlikely to yield the result the Reserve Bank wants.
Revenue Minister Todd McClay said in a statement that the two- year “bright line” would make it clear that all property buyers, including overseas buyers, who bought and sold a residential property within two years, would be taxed on their gains.
Key said the banking sector appeared to be at little risk from a downturn, with the Reserve Bank’s own 2014 stress tests showing the banks could cope if unemployment shot to 13 per cent and Auckland houses prices dropped 40 per cent.
But Spencer said investor demand can contribute significantly to house price pressures. “However, macro-prudential policy is one of many factors aimed at reducing the imbalances in the Auckland housing market”.
Much more rapid progress in producing new housing is needed in order to get on top of the issue, Spencer added.
“The poor old Reserve Bank once again has to carry the can for National’s failure to get a grip on the Auckland housing crisis”.
Labour’s housing spokesman Phil Twyford says Mr Spencer has delivered a “scathing criticism of the Government’s inaction” on the housing shortage.
There’s speculation the bank may link maximum lending to a borrower’s income as another way to calm the market.
“When something keeps you awake at night, it is good to do something about it”, Mr Spencer said in a speech published on the Reserve Bank’s website Monday.