Despite Key’s barnstorming 2007 speech on the housing affordability crisis, National these days prefer to deny that it exists. Apparently fed up with waiting for the government to take action, banks are moving to reduce their risk and limit foreign buyers.
The Reserve Bank yesterday:
RBNZ considers property investor crackdown
Life is about to get tougher for property investors as the Reserve Bank considers clamping down further on their access to credit to buy houses.
Auckland’s housing market has refused to buckle under Reserve Bank pressure aimed at reining in house price growth, which is starting to accelerate again. And it’s not the only region where house prices are gathering pace.
Reserve Bank governor Graeme Wheeler openly concedes that puts the health of the financial system at risk.
Read that last sentence again.
“In Auckland, investors account for 46 percent of the transactions, for the rest of the country it’s around 40 [percent] or a bit more, so it’s very significant,” Mr Wheeler said.
Other announcements yesterday:
Westpac, ANZ Bank shut out foreign buyers
Westpac and ANZ will no longer lend to overseas-based buyers of New Zealand property – with other banks expected to follow the move to shut the door on foreign investors. The restrictions follow moves by Australian banks to stop lending to foreign buyers of property.
The restrictions will not affect New Zealand passport holders living abroad and purchasing property funded by overseas income. A Westpac spokeswoman said the restrictions “reduces risk”.
An ANZ spokesman said the changes were made to ensure the bank was “appropriately positioned in the current housing environment, taking into account supply pressure in certain areas”.
Labour’s Finance spokesperson Grant Robertson said the restrictions showed the banks acknowledged both that the housing market was “out of control”, and that overseas-buyers were playing a big role in that. “It’s the goal of a bank to make money from mortgage lending. If they are pulling back from lending on New Zealand housing, then there really is a crisis in the market.” …
This is what the banks are afraid of:
Nation of debt – ready, set, crash
New Zealand has half a trillion dollars in debt. If anything can bring it all down it is housing. Liam Dann talks bubbles and booms with those who know what a crash looks like.
“We’ve almost got the perfect storm,” says veteran fund manager Brian Gaynor as he reels off the many reasons New Zealand house prices and debt levels are soaring to precipitous heights.
There are many ingredients. But right now, New Zealand seems to have them all: not enough building, restrictions on development, surging migration, baby boomer savings, low interest rates and banks that are all too happy to lend for property investment.
“When you get the perfect storm like we did in the 1980s with the sharemarket, you see things just go up and up. People start to believe they will never fall,” he says.
The big problem, says economist Shamubeel Eaqub, is that we have a banking system designed to view lending for property as less risky than other kinds of lending.
“Our banking regulation allows us to feed on the property market,” he says.
“Of all the debt that is created in New Zealand, more and more is going towards mortgages because mortgages are less risky according to our rules and regulations.”
As house prices soar, the size of mortgages has to grow with it. There is no easy way out of the cycle. If house prices fall, then highly leveraged investors and many home buyers will be left exposed. “When it happens it will be nasty,” says Eaqub.
“There is no other way to describe it. What we have built up is ugly.” …
And what has the government been up to this year? Losing a flag referendum wasn’t it?
— Patrick Gower (@patrickgowernz) June 9, 2016