Labours centenary celebrations kicked off last night in Wellington with an unexpected boost from the Reserve Bank.

A speech by the Bank’s Deputy Governor, Grant Spencer, which the Government clearly thought would come to its rescue over the Auckland housing situation, delivered only promises to possibly do something by the end of the year.

That leaves the canvas clean for Labour to launch two major housing policies over the weekend.

And it still appears that part of that policy launch may be exactly what the Government was hoping the Bank might have announced last night.

Earlier in the week Prime Minister John Key said “I think there is a responsibility for the Reserve Bank to have a look at the question around investors. We’ve had those discussions with the Reserve Bank. They can control that part of the market, and I don’t know exactly what he’ll say on Thursday, but certainly the Government’s perspective has been that having a look at that might make some sense.”

But last night all Mr Spencer would say was that the Bank was considering three options:

  • Tighter loan to value ratios to counter the growing influence of investor demand in Auckland and other regions, and to further bolster bank balance sheets against a housing market downturn.
  • A new debt-to-income (DTI) speed limit
  • Changing the amount of regulatory capital New Zealand’s banks are required to hold for their investment property  lending portfolios.

But the nearest Mr Spencer got to a deadline was to say that tighter loan to value rations could be introduced by the end of the year.

Instead — -as it has done before – the Bank returned the housing ball across Bowen Street to the Beehive with some advice on how to increase housing supply.

On the demand side, it concedes that the current low-interest rates are one factor in increasing demand for housing.

But Mr Spencer also said consideration might be given to further reducing the tax advantage of investing in residential housing.


Everyone in Wellington knows there is no enthusiasm in the Beehive to tax property investment so that proposal is unlikely to fly.

Perhaps more controversially, and for the first time, the Bank has questioned the current migration policy.

Mr Spencer said: “We cannot ignore that the 160,000 net inflow of permanent and long-term migrants over the last three years has generated an unprecedented increase in the population and a significant boost to housing demand.

“Given the strong influence of departing and returning New Zealanders in the total numbers, it will never be possible to fine-tune the overall level of migration or smooth out the migration cycle.

“However, there may be merit in reviewing whether migration policy is securing the number and composition of skills intended.

“Any adjustments would operate at the margin; they could over time help to moderate the housing market imbalance.”

This contrasts with a presentation from Immigration Minister Michael Woodhouse to the National Party conference over the weekend where he argued that the bald immigration figures gave a distorted picture of immigration patterns.

“When you look at the people coming, yes there will be Kiwis coming back here and wanting to get houses in Auckland,” he said.

“There is no doubt that is putting pressure on housing supply in Auckland.

“But the students are not tending to buy into that market, and the working holiday makers and the people helping with Christchurch rebuild are certainly not adding to that pressure.”

The Government would agree with Mr Spencer though on his other point which was that the supply of housing in Auckland would be heavily influenced by the final Auckland Unitary Plan due next month.

“The causes of the imbalances are complex with some important drivers on both the demand and supply side,” he said.

“Addressing these imbalances will require policy action by a variety of agencies on some fronts.

“The underlying housing shortage needs to be urgently addressed, particularly in Auckland where population growth continues to outstrip housing construction.

“ A step up in supply is required, and finalisation of the Auckland Unitary Plan will be a key opportunity to facilitate such a step. “

Mr Spencer’s speech does pave the way for Labour to include tougher loan to value rations for investment properties in its housing policies to be announced over the weekend.

But the pressure that property investors are applying to the Auckland market is evident in figures released this week by QV.

The figures show that investors now account for 46% of al activity in Auckland up from 37% four years ago.

However, QV suggests that the surge in investor demand may have been driven by the well-flagged intention of the Bank to clamp down on property investment.

Clearly last night’s announcement will have done nothing to stop that.

“Investors appear to be heeding the recent warning by the Reserve Bank that further policy measures may be introduced later this year to curb investor activity in the housing market.”

“This appears to have led to a surge in investor activity with many seeking to acquire as many properties as possible under the current rules before any further restrictions are introduced.”

“This is particularly evident in the more affordable areas of West and South Auckland.”

“Based on past market behaviour, we anticipate this surge in activity to continue until any announcement or strengthening of LVR’s is released by the Reserve Bank.”

The Reserve Bank is not alone.

The Bank of England is currently consulting on loan to value ratios for investment property.

Though the bank has not set a minimum deposit value in the proposal, it estimates that it could reduce the amount of investment property mortgages by 10 – 20%.

A reduction of that order would bring the Auckland property market nearer to where it was in 2012.

That would please the Government, but it will now have to wait till it finds out whether the Bank is prepared to act.

Labour’s Grant Robertson said It is extraordinary that the Reserve Bank has said, ‘housing risks require a broad policy response’. In the diplomatic wording of the Bank that is a shot across the bow to a Government that isn’t doing anything tangible.

“The Government has repeatedly said the Reserve Bank needs to tackle demand. Now the Bank is pushing back and saying National needs to play its part. “

But Mr Robertson can afford to smile because the Bank has let Labour have the housing policy field to itself.