New LVR restrictions won’t address Auckland’s housing issues

New LVR restrictions won’t address Auckland’s housing issues

Thursday 14 May 2015

New Zealand’s largest real estate company, Harcourts believes that the new LVR restrictions will do little to solve housing issues in Auckland but that the changes should provide some benefit to the rest of the country.

Harcourts CEO Hayden Duncan says that the Loan to Value Ratio (LVR) restrictions announced by the Reserve Bank yesterday will not address the fundamental problem with Auckland’s housing market.

“Ultimately, Auckland is suffering from a lack in supply of housing. The demand and supply imbalance is so great that even if some property investors are removed from the equation, or choose to purchase outside Auckland, there will be plenty of buyers to fill their place,” says Mr Duncan.

“We have a growing population in Auckland that needs both rental accommodation and property to buy. Penalising property investors who are providing the rental accommodation that’s needed by first home buyers and new arrivals to the city, will not solve Auckland's supply shortage."

“The only real solution is to build more housing and that’s something that Auckland Council and government need to work together on.”

The new LVR restrictions that will take effect from 1 October will:

Require residential property investors in the Auckland Council area using bank loans to have a deposit of at least 30 percent.

Increase the existing speed limit for high LVR borrowing outside of Auckland from 10 to 15 percent, to reflect the more subdued housing market conditions outside of Auckland.

Retain the existing 10 percent speed limit for loans to owner-occupiers in Auckland at LVRs of greater than 80 percent.

In a Reserve Bank announcement on 13 May, Reserve Bank Deputy Governor Grant Spencer said that following a lengthy consultation process, they have decided that a residential property investor loan will be defined as any retail mortgage secured on a residential property that is not owner-occupied.

Additional clarification on this will be released by the Reserve Bank in the coming weeks.

Mr Duncan says that the silver lining to this announcement is the easing of the LVR restrictions outside of Auckland.

“The amendment to the LVR restrictions outside will open the door for more first home buyers to enter the property market outside Auckland. The change is more conservative than we would like to see, but every little bit helps.”

Property investors purchasing property outside Auckland will still be able to do so with a 20 percent deposit.

Mr Duncan says that the change will likely encourage more investors to buy outside of Auckland providing further stimulus to places like Wellington, Hamilton and the Western Bay of Plenty.

ends

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