LVRs nearly halved pressures on house prices – Reserve Bank

A 2.7% decrease in Auckland house prices was seen from the third round of restrictions. (Photo: Jerry Yelich-O'Connor)

A Reserve Bank paper on the impact of its loan-to-valuation restrictions on bank lending on mortgages estimates the three rounds of restrictions collectively reduced house price pressures by almost 50%.

“However, the effect of LVR policy is highly non-linear” but “LVR policy can be very effective in curbing housing prices,” the paper concludes.

It defines the purpose of the LVR restrictions as enhancing the resilience of the financial system and of moderating asset price and credit cycles.

The central bank is charged with ensuring the soundness of the financial system.

The first round of restrictions, limiting bank lending to all those with less than a 20% deposit to no more than 10% of net new lending, came into effect in October 2013 and the paper estimates this had a 3% moderating effect on house prices.

“This moderating effect is broadly similar across both Auckland and the rest of New Zealand,” the paper by Reserve Bank staff Jed Armstrong, Fang Yao and Hayden Skilling (who has since left the bank) says.

“Interestingly, our estimates show that LVR2 (which tightened restrictions on Auckland properties and loosened restrictions elsewhere) did not significantly stop Auckland house prices from rising.”

The second round took effect from November 2015 and required Auckland investors to have at least a 30% deposit and capped bank lending that didn’t meet that criterion at just 5% of net new lending.

In practical terms, that meant almost no lending to Auckland investors with less than a 30% deposit.

But the cap on net new lending in the rest of the country to all those with less than a 20% deposit was relaxed to no more than 15%.

“House prices in the rest of New Zealand increased by 3% due to the relative loosening of the LVR restriction,” the paper says.

The third round of restrictions was introduced in October 2016 and required investors throughout the country to have at least a 40% deposit.

“The moderating effect of LVR3 was clearly seen in Auckland, with a 2.7% reduction in house prices. This LVR3 effect is both statistically and economically significant as during the same period the average house price increased by 5.8%,” the paper says.


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9 Comments & Questions

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This just shows you how many people are 'dealing in houses.' A market with little or no tax and indeed, even with tax advantages and whoosh. The UK figures are similar although they have taxes in dealing. I don't agree with much this government is doing but we have to embrace a capital gains/land tax for those with multiple properties.

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The bright line test is undoubtably a capital gains tax.

And even better from a political point of view it is not called a capital gains tax....

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'We' don't have to do anything of the sort. Under New Zealand's already existing capital gains taxes, and yes we do have capital gain taxes in New Zealand, 100s of millions of dollars of CGT has already been collected from property speculators.

Made a blind bit of difference to house prices did it? And you want more of this failed tax to do what exactly? Reduce house prices even more from the zero effect it's already had? You should start writing for Monty Python, mate.

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Great idea bringing in a CGT to broaden the tax base. But there must be compensating tax cuts and concessions to encourage investments and job growth - not another tax grab to expand the state.

Sadly, NZ should know better with the track record of a Labour government - the expansion of the welfare state is already underway and will gather real momentum in a second term when all that lovely CG tax receipts start rolling in.

Enjoy, welfare state and bureaucracy beneficiaries - your glorious of days are ahead.

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If you haven't noticed, house prices were largely inflated by foreign capital which out priced local first home buyers.

With China now shutting the door to capital exports, prices were going to fall anyway. The banks, rather than the government, had already tweeked lending prior to the Reserve bank acting.

You must be living in cuckoo land if a small country has a say in the running of the banking system, which is largely overseas owned. Course the direction the National Government took was driven by Jonkey; largely as quick debt fuelled sugar fix where his overseas bankster mates benefited.

You can thank Roger Douglas (the failed pig farmer) for allowing the wholesale export of our banking to overseas interests. My be time to bring back bartering. Joe Bloggs where are you when we need you?

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if people are ‘dealing’ in houses as their form of income i.e. investors they pay tax anyway like profits from a normal business so wouldn’t go as far as to say there is little or no tax

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On the subject of tax,that provisional tax is a absolute rort,that should be done away with asap, and bring in a far better system.

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Capital gains tax also has no effect in Sydney or Melbourne as house prices skyrocket far more expensive relative to Auckland.

Australia also has an expensive upfront stamp duty and government tax on purchase but this had no effect on skyricketing house prices.

New Zealand a very small number mortgagee sales.so there is no housing crisis !

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House prices here will sky rocket because they are being held down artificially and the housing stock prices are climbing.
Building materials are climbing in cost and will do so even more now Fletcher are in trouble.
So that in turn will push existing housing up even higher.
That is unless the economy takes a rather heavy knock and that is far more likely with the existing government......un-elected as they are

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