New investors, tenants likely to bear brunt of RBNZ move

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Following the Reserve Bank’s announcement that Auckland property investors will face LVRs of 30%, property investor representatives say it is tenants and new investors who will feel the impact of the policy.

Wednesday, May 13th 2015, 1:24PM 1 Comment

by Miriam Bell

NZPIF executive officer Andrew King

NZ Property Investors Federation executive officer Andrew King said that, while the RBNZ’s move had been signalled for some time, the policy decision had come earlier than expected.

He said that the new LVRs will stop a lot of people from buying new rental properties – which will impact negatively on the supply of rental accommodation, forcing rents up and making things harder for tenants.

“The RBNZ say they want house prices to go down but rental property owners are not causing the high demand. We have over half of New Zealand’s record migrant inflow settling in Auckland and that is the reason for the high demand.”

Further, property investors try not to buy at high price prices whereas first home buyers tend to buy according to their emotions, not by the numbers, which leads to higher prices, King said.

“Supply has always been the biggest problem. Auckland simply hasn’t been building enough houses for many years. It is happening now and it is starting to flow through. But people want fast action and that’s just not going to happen.”

In his view, the RBNZ doesn’t have a mandate to try and control house prices.

“Yet they have introduced a long term policy, which could have a serious effect on tenants, for something that could actually be a relatively short-term problem.”

Rents will go up, although not overnight, and tenants will suffer, Auckland Property Investors Association president Andrew Bruce agreed.

“When you start limiting supply, which this will do, there is always an impact.”

However, he also thought the policy would impact on newer investors, rather than established investors who have ridden out a property market cycle before.

This is because newer investors may struggle to generate deposits, whereas it tends to be serviceability not initial deposits that are an issue for established investors.

Bruce said the policy is likely to have unintended consequences and distort the market.

“For example: If you draw a line in the sand as to where the Auckland boundary is… And then say to an investor ‘right you can borrow 70% on this side or 90% on that side’, which side do you think they are going to borrow on?”

However, Property Institute chief executive Ashley Church said he didn’t think the RBNZ’s move would have much impact on either house price inflation or rental supply.

He was concerned that the RBNZ is using the potential for a sharp correction in the Auckland housing market to justify a major imposition on Auckland property investors, based on little real evidence.

“There is some good in the policy though,” Church said.

“The loosening up of the speed limits for bank lending outside of Auckland is great. It gives the rest of the country a bit of much-needed relief. We would prefer it if the LVRs were dropped outside of Auckland altogether, but this is the next best thing.”

Meanwhile, Auckland mayor Len Brown welcomed the RBNZ’s move, saying the initiative targeted one of the main sources of the issues facing the city’s housing market.

“It sends an important message while complimenting what Auckland Council and the government are working to achieve through the Auckland Housing Accord and other initiatives.”

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