Come on Reserve Bank, grow some....
I think most Kiwi's who have skin in the game when it comes to property will be well aware what LVR stands for and the role they play. 'Loan to Value Ratios' were introduced in 2013 to curb high risk lending by banks and assist the Reserve Bank of New Zealand in achieving one of their mandates - to ensure financial stability across the economy.
Before Covid-19 forced the Reserve Banks hand in May 2020, LVR's had been no more than 70% lending for an existing investment property and 80% for a new build investment property or owner occupied property. There were some exceptions to the rule such as a bank could exceed these limits on a certain proportion of their total lending.
In May 2020, in response to the Covid-19 pandemic and potential economic fallout, the RBNZ dropped the LVRs to promote banks to lend and get cash out into the economy.
Some have attributed this, along with record low interest rates, with causing the current heated market New Zealand is experiencing.
Opinions on what LVRs should be set at will differ along many lines - investor vs first-buyer lines, yield investor vs growth investor lines or even political allegiance lines.
The line I sit on is fairly straight and it is simply this - old stock vs new stock and how to achieve more of the latter.
New Zealand needs a radical new plan to bring price rises to a more sustainable level as well as home the almost 20,000 people on the public housing waitlist.
For first-home buyers, it is simply going to be too tough to enter the market when the 'House Price to Income' gap is constantly growing. In the last three months alone it has grown from X7.15 to X7.65.
We need to build homes in Auckland, Waikato, Bay of Plenty and Wellington as according to Infometrics there is undersupply in those areas ranging up to 30,000 homes in Auckland.
How do we entice investors & owner occupiers to focus heavily on new build homes?
= Lower the deposit required on any new property scenario to 10% (90% LVR).
How do we pull investors away from old stock, homes that are simply changing hands time & time again?
= Raise the deposit required on any second hand property for investors to 40%.
How do you keep owner-occupiers (including first-home buyers) sustained in the market who are not interested in building a new home?
= Leave the deposit requirements unchanged (ranging from the 5% - 10% deposit Welcome Home Loan scheme, up to to the 20% range, depending on individual circumstances).
There will be those who sigh at reading the idea of dropping the deposit requirement for a new build from the current 20% to 10% for investors - why should we help those who are already well established in the market?
Because we have a housing shortage problem and a home owner/investor with their own home plus any extra property have the ability to grow equity quicker and therefore build a subsequent property quicker to provide to someone who does not have a home. Putting people in motels is not a long term solution with the burden of cost that places on the NZ taxpayer.
What is worse, someone living on the street and the average investor building their retirement fund with one rental property (80% of NZ investors, over 100,000 people, own just one rental property!)
everyone in NZ having a warm, dry, healthy four walls around them with adequate space for their family and the average investor owning two rental properties?
Don't think the plan to build more homes in NZ will achieve more stable prices?
Simply look to Christchurch following the earthquakes where over half their property stock was damaged or destroyed and they set about rebuilding the city. Aspects of the RMA (Resource Management Act) were circumnavigated and building took off.
Since January 2013 the following has been observed:
New homes are safer, warmer with better insulation, healthier for tenants with new standards in the Residential Tenancies Act and posses better technology & building methods.
The RMA can be repealed & replaced but that takes time as the levers government of do their usual turtle crawl.
The LVR's present an opportunity to this country that should be used better to achieve what the Labour government promised in 2017 - to build thousands of new homes.
It is up to the Reserve Bank of New Zealand to take a leap of faith and not shy away from a little bit more risk for a high chance of success and stabilising a property market that is growing more & more difficult for new generations of Kiwi's.