A further blow for landlords and their tenants

“The rental property industry almost got through a week without a new regulation making it harder to provide tenants with homes”, said Andrew King, Executive Officer of the NZ Property Investors’ Federation. “However at ten to five on Friday afternoon, the start of a long weekend holiday, the Reserve Bank chose to announce proposals to increase the cost of borrowing for non-owner occupied residential properties.”

The Reserve Bank believes that rental property loans are a higher risk than loans for owner occupied homes and is forcing banks to increase their risk weightings on rental property loans. This could make rental property loans more expensive and in turn will push up the cost of providing rental properties.

The Reserve Bank’s summary of submissions to their proposal found that a majority of submitters disagreed with the Reserve Bank’s premise that rental property loans were a higher risk. The summary clearly details these submitters’ valid arguments, but the Reserve Bank simply states that they do not agree with these arguments.

Results from the Reserve Bank's own stress testing of the NZ banking system, released late in 2014, showed that trading banks could withstand a 50% house price fall in Auckland and 13% unemployment without breaching capital requirements.

"Rather than correcting weakness in our financial system, the move appears to be an attempt to reduce demand for rental property in the hope that it will suppress property price growth" said King. "This is unlikely to work. Recent reports show that investment property buyers account for 33% of all property buyers. As rental properties are about 35% of all existing properties, this is about right. Historically high levels of net migration and low levels of house building are the prime cause of house price increases."

“It is clear that our banking system is sound and that the announced measures are not required. The main effect they will have is to increase the cost of providing homes to tenants which will put more pressure on rental prices.”

"This is a time when we need more rental properties, and some tenants are already struggling with rental costs. I just don't see how these new Reserve Bank proposals can benefit renters, especially those trying to save for a home deposit".

ENDS

Note to editors. The Reserve Bank report on the stress testing of the NZ banking system can be found at http://www.rbnz.govt.nz/financial_stability/financial_stability_report/fsr_nov14_boxa.pdf

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