September Property Report: banks vs first home buyers, Reserve Bank vs Parliament, and supply vs demand

Cover pic 230913

One of our favourite houses from the past month, this quirky 311m2 Christchurch property is up for auction in a couple weeks. Check it out here.

 

The US Government may have shut down, but at Open2view we’re working hard through the always busy spring. With the warmer weather always comes an increase in houses to photograph, video, the works.

The big real estate news this month though has been the new lending restrictions for those with less than 20% saved. Has this put a dampener on the property market? Let’s find out.

 

The stats

According to realestate.co.nz’s NZ Property Report, the nationwide mean asking price is up 0.7% to a record $466,526. While Auckland prices dropped 0.8% the other regions picked up the slack, with Canterbury prices up by 3.2%, Waikato 3.9%, and Marlborough jumping a massive 18.6%.

It may be that buyers were getting in early to avoid the lending restrictions. If so, October’s figures could be much different.

Meanwhile, 11,000 new listings last month represents 2.7% more than August, a 1.4% drop on last September, and a 12-month total just 0.2% above the previous 12-month period. Still, then, a seller’s market.

 

Speaking of housing supply

Another problem with loan to value ratio restrictions:

The Master Builders Association Chief Executive, Warwick Quinn, told Bernard Hickey that builders are seeing big drop offs in new home orders in light of the new lending rules.

The MBA estimates about 15% of new homes are built for first home owners; the Reserve Bank reckons the figure is closer to 10%. Either way, if this drop off continues, that’s a lot of new homes that won’t be built.

Exemptions are often awful things to have in public policy; it’s amazing how many people can crawl through even the smallest of loopholes. But, should the Reserve Bank ever look to tweak things, they could do worse than exempting buyers who are adding to the supply of houses.

 

Speaking of the LVR changes

How are you all coping with the changes so far? Have you been affected, be it by this or ASB’s cancelling of low equity preapprovals?

Borrowers have every right to be mad at ASB’s announcement. Their lending has been very heavily to the under 20% bracket, so they were always going to be affected most by the new lending restrictions. Still,

It’s.

Not.

Like.

They.

Weren’t.

Warned.

Still, not all is lost for first home buyers. If lending restrictions keep interest rates and prices down for longer, that’s good news for buyers of all kinds.

 

Speaking of first home buyers

And it seems the Government has something up its sleeve: a plan to sell around 400 former state houses to lower-income earners in the provinces. And buyers will be subsidised up to $20,000 for the privilege.

Says the Minister:

“FirstHome will help modest income earners in provincial New Zealand buy their first home by gifting them a 10 per cent deposit and giving them priority to purchase surplus vacant state houses no longer needed by Housing New Zealand,” Dr Smith says.

“They’ll face strict conditions, including earning no more than the average income and have to own and live in the house for at least three years.

If you earn under $53,000 (or $80,600 for two or more people), this could be the deal for you. You’ll also be eligible for other assistance through KiwiSaver and the Welcome Home Loan.

The timing of the announcement is not coincidental. The Government has been public about their desire to have first home buyers excluded from the LVR changes but didn’t get their way; this policy will soften the blow for some.

 

Think you can tell the Reserve Bank what to do?

Some politicians have been promising to boss the Reserve Bank around on housing should they get into power.

Of course, it isn’t that simple. The Reserve Bank Act 1989 gave the Bank one goal – price stability. Governments and Governors can set targets, such as a range of acceptable inflation, but other than that how these targets are achieved is entirely up to the Reserve Bank.

There is one clause that could perhaps be used to override this by future governments. If we may sound academic for a moment… Graham and Smith (2012) pointed out that section 12 enables the government to substitute one policy objective (i.e. price stability) for another for up to 12 months. This is, they explain, “designed to allow the temporary imposition of a new objective, but to otherwise keep the same relationship between the Governor and the Minister with respect to the implementation of policy as in more normal times.”

David Cunliffe made a possible allusion to this – the “oi, look at this” clause as he described it – on Firstline this morning. So can it be used to exempt first home buyers from lending restrictions? Possibly. Will it? We may find out sometime.

 

Your thoughts

Is FirstHome the ideal way around lending restrictions? Does the Reserve Bank have too much power for your liking? What will become of house prices in the next year or two? Have your say below or on our Facebook page.

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