New tool kit won't stop rampant Auckland housing market

The Reserve Bank's prospective new tool kit to iron out asset bubbles will not be able to stop a rampant Auckland housing market when it comes into play later this year and would have a smaller impact than a rate hike.

Deputy governor Grant Spencer told parliament's finance and expenditure committee the macro-prudential tools currently being consulted on would not stop Auckland's housing market "dead". Rather, they will slow the bubble down and will need to work with a natural downturn in the market.

The capital overlay and core funding ratio tools will affect lenders' cost of funding by between 10 basis points and 20 basis points, less than a hike in the official cash rate, he said. Imposing a loan to value ratio would be more likely to have a significant impact as it affects quantity of credit.

"You're still requiring for house prices to turn eventually as a result of more fundamental cyclical factors." 

The central bank is expected to sign a memorandum with Finance Minister Bill English and Treasury in the middle of the year governing how it would use the tools.

Increasing pressure

The bank has come under increasing pressure to roll out the new tools, with Auckland's property market bubbling away amid a lack of listings and growing demand.

Local property prices rose 7.6 percent last month on increasing sales numbers, according to Real Estate Institute figures. Gains have been driven by a lack of supply in Auckland and as the Canterbury rebuild gets underway.

The RBNZ estimates house prices increased in real terms at an annual pace of 6 percent last year and will rise 6.2 percent and 3.6 percent, respectively, this year and next.

In recent months, banks have been writing bigger mortgages as a ratio to the value of property and about 20 percent of the nation's $180 billion in residential mortgages were written at loan-to-value ratio of more than 80 percent, and 10 percent above 90 percent.

Governor Graeme Wheeler told politicians the last thing the country needs is a property bubble that gets out of control, and that is why he has moved quickly with the new tool kit.


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Said it once, will repeat it again. Anything any fool politician or Reserve Bank governor does to make it harder for Kiwis to buy houses will simply make it easier for cash-rich immigrants to buy more of them. Then there will be even more bleating that houses are unaffordable.

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The numbers dont stack up on your argument. The "cash rich" immigrants you speak of are a figment of your fevered imagination, and make up less than 10% of property sales. It is the tax incentives that turn every mom and pop into a money grubbing speculative investor that is killing their own children's dreams.

To alleviate house prices:
- Bring in capital gains tax - a small one at first, getting bigger
- Free up land supply in LARGE amounts
- Provide tax incentives for companies to move their HQs to cheaper places - what about tax-free or alleviated) zones in Napier, the Tron, etc?
- Put incentives in for the market to police itself regarding housing compliance - require insurance to be taken out on every new house built by developers. And then smash the resource consent and compliance fees charged by councils.

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We need to stop overseas investors buying our land if they are not going to be owner occupied. Allow long term leases and leasehold buys, as long as the land remains in possession of NZers.

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