The Reserve Bank of New Zealand (RBNZ) is treading where APRA, for the moment at least, will not.
In response to soaring house prices in Auckland, driven in part by increasing investor activity, the bank has introduced tighter macroprudential measures “to promote financial stability by reducing the rate of increase in Auckland house prices, and to improve the resilience of the banking system to a potential downturn in the Auckland housing market”.
Here the RBNZ governor Graeme Wheeler on recent developments in the Auckland housing market, the largest in New Zealand.
“Auckland’s median house price is 60 per cent above its 2008 level, and house prices in Auckland have been rising rapidly since late last year. This reflects ongoing supply constraints and increased demand, driven by record net immigration, low interest rates and increasing investor activity. Prices in the Auckland region have become very stretched, increasing the risk of financial instability from a sharp correction in prices.”
Sound familiar? It will for many in Australia at present, particularly in our largest housing market, Sydney.
As opposed to APRA’s ‘soft’ 10% annual cap on investor lending introduced in December 2014, something to date that has done little, if anything, to cool house price growth in Sydney, the RBNZ have acted decisively, upping loan-to-value ratio (LVR) deposit requirements for investors in Auckland while adding a new asset class for investor loans that will attract higher capital charges from lenders. Importantly, the restrictions will not be applied for residential construction lending.
Here are the changes the RBNZ announced this morning:
In response to the growing housing market risk in Auckland, the Reserve Bank is today announcing proposed changes to the loan-to-value ratio (LVR) policy. The policy changes, proposed to take effect from 1 October, will:
- Require residential property investors in the Auckland Council area using bank loans to have a deposit of at least 30 per cent.
- Increase the existing speed limit for high LVR borrowing outside of Auckland from 10 to 15 per cent, to reflect the more subdued housing market conditions outside of Auckland.
- Retain the existing 10 per cent speed limit for loans to owner-occupiers in Auckland at LVRs of greater than 80 per cent.
It’s a flexible response, if not a hard one. The RBNZ is looking to cool house price growth in Auckland while loosening restrictions, albeit modestly, elsewhere in the country.
While it’s unproven as yet – the changes won’t be implemented until October 1 – it does beg the question why the same measures can’t be implemented in Australia. Comparisons between the Auckland and Sydney property markets, and to a lesser degree Melbourne, are eerily similar at present. Supply constraints, foreign buyers, low interest rates and increased investor activity are all acting to drive house prices continually higher.
While developments in these markets are similar, the response from regulators to address growing financial stability risks are poles apart. One is proactive, one reactive.
With lending to Australian property investors continuing to soar the risks to financial stability, and the likelihood of similar measures to those announced by the RBNZ this morning, are growing equally as fast.