Anne Gibson

Property editor of the NZ Herald

Builders welcome Reserve Bank loan backdown

Home builders lobbying appears to have paid off - loans to build new homes won't be covered by new Reserve Bank restrictions on low deposit lending. Photo / Mark Mitchell
Home builders lobbying appears to have paid off - loans to build new homes won't be covered by new Reserve Bank restrictions on low deposit lending. Photo / Mark Mitchell

The house-building sector has welcomed Reserve Bank loan-to-value new house lending relaxation but one economist has warned of dangers, saying watering down the policy would remove its effectiveness.

Grant Porteous, managing director of Deacon Holdings, the master franchise holder for the 27 G.J. Gardner building franchises, was delighted about the changes but Shamubeel Eaqub of the NZIER said the policy had just been weakened.

Reserve Bank buckles - new homes exempt from loan rules

Porteous said he had not anticipated the turnaround but knew of building industry representatives meeting Finance Minister Bill English to hammer out issues.

"They said they were looking for a solution. It's fantastic. It will allow new houses to be built, which will help with the whole demand curve," said Porteous whose franchisees will build more than 950 houses in the March year.

Eaqub said the bank was tinkering around the edges of its LVR policy by caving in to the house building sector.

"The more the exemptions, the less effective the policy will be," Eaqub said - warning that new houses tended to be more expensive so people with less equity would be encouraged to build.

"So [the Reserve Bank] may just be directing high LVR lending to new builds. But without solving the issues of land supply and planning constraints, the new rules will do little to fundamentally change affordability of housing," Eaqub said.

Porteous expressed surprise at the turnaround and said banks were already calling G.J. Gardner builders.

"My desktop was full of emails from my team after banks had excitedly advised them," Porteous said.

Warwick Quinn, Registered Master Builders Federation chief executive, said he had no doubt it was the new BRANZ research out late last month which influenced the policy change. That showed 5000 new houses, not the previously estimated 3000, could be jeopardised by LVRs applying to new house construction.

"The information the banks keep on how much lending they do on new house construction is not great," Quinn said.

New-house inquiries plummeted 27 per cent in the last two months post-LVRs but now around 22,000 new houses could be built in the year to December 2014, Quinn said, praising the bank but rejecting any suggestion that it was dangerous to encourage those with the least equity to build.

Reserve Bank Deputy Governor Grant Spencer announced this morning that new residential construction loans would now be exempt from the loan-to-value (LVR) restrictions introduced in October.

Spencer said the bank had recently consulted with the building industry and banks on the impact of LVR restrictions on residential construction activity.

See a Reserve Bank question and answer page on the topic here.

Richard Carver, Jennian Homes director, said new homes should have always been exempted from LVRs.

"Without today's action, up to 30 per cent of new building inquiry was being negatively impacted by the new restrictions. This equates to thousands of new houses on current consent forecasts. The actions from the Reserve Bank go a long way to reversing the inability for young New Zealanders to realise the great kiwi dream of owning their own home," Carver said.

Ian Webb, who started Albany-based new house financier NewBuild in 1999, said the Reserve Bank had resolved issues for the construction sector and acted in the country's interests because the policy would increase the supply of new houses.

Asked if the market would be skewed by those with low deposits building, Webb said: "We certainly hope so because the Reserve Bank has done what it was trying to do.... increase the supply side by saying 'hey - you have the opportunity to jump into the market by building rather than buying an existing home'."

Grant Florence, chief executive of Certified Builders Association, said the bank had listened to industry feedback and had responded.

"The decision to exempt new residential construction from the LVR restrictions will have a positive effect on house supply in Auckland and will help build confidence in the regions," he said.

- APNZ

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