There had been high expectations that the bank would announce plans to ease or remove the restrictions when it released its Financial Stability Report today.
Wheeler said house price inflation and housing credit growth had cooled since the introduction of LVRs and subsequent hikes in the official cash rate. National house price inflation dropped from 9.4% in September 2013 to 5% in September this year (on a three-month moving average) while housing credit growth also slowed year-on-year.
However he felt that there was a risk of a house-price inflationary rebound. “We have always indicated that the LVR restrictions are a temporary measure. However, there remains a risk of a resurgence in house price inflation, particularly in light of strong immigration flows. Consequently, we do not consider it appropriate to ease the LVR speed limit at this time.”
Shamubeel Eaquab principal economist at the New Zealand Institute of Economic Research said, “It is not surprising to see the LVR restrictions being left in place. While I do not think they have had much impact on the housing market, there is also little urgency to change this until housing supply in Auckland ramps up.”
The report notes that the housing market has slowed, which together with an increase in building consents has eased pressures on the housing market but the Reserve Bank expects the “significant gap” between the projected housing demand available supply to persist for sometime.
It also says the LVR restrictions are judged to have had a substantial impact on housing demand, with house sales about 12% lower, but concludes that: “With net immigration at high levels and mortgage rates still historically low, there remains a risk of resurgence in housing market pressures.”
First-home buyers have been slightly squeezed. Their share of sales dropped from 21% in September 2013 to 17%, but the peak of 21% in September includes a spike in purchases just ahead of the introduction of restrictions. Sales to entrants into the home buyer market is just below its average since 2005 said the report.
Residential property investor sales have remained constant, but with the drop in house sales this has resulted in them buying a larger portion of the market at 40%, up from 35% a year ago, according to the report.
“The LVR restrictions changed who and how New Zealanders borrowed. Given much of the activity in the housing market is by investors, it is unlikely that the LVR restriction are fit for purpose to cool the overall housing market. Other policies around capital requirements and sectoral risk weights would have more impact,” said Eaquab.
The central bank had earlier indicated that the lending restrictions would be in place until the end of the year and that the limits were likely to be phased out gradually, but gave no further indication as to when this might happen.
