Rents will go up if property investors nationwide are forced to stump-up a 40 per cent deposit, an investors' lobby group says.
Reserve Bank Governor Graeme Wheeler has outlined the new rules today, and told banks they will be expected to act immediately.
Restrictions to lending limits on residential properties are also being extended nationwide.
New rules - to begin September 1:
• Restrictions for investor lending extended from nationwide from Auckland only
• Banks will be forced to require a 40 per cent deposit - up from 30 per cent - for at least 95 per cent of the loans they make in this area.
• Restrictions for owner-occupier lending extended from Auckland to nationwide.
• Required deposit level remains at 20 per cent for at least 90 per cent of bank lending.
The exemption allowed under the current LVR policy will continue to operate, including for construction lending and major non-routine repairs of dwellings.
The move to target investors was welcomed by Prime Minister John Key, as well as Labour and the Green Party.
However, Andrew King, executive officer of the NZ Property Investors' Federation, said it appeared the purpose of the changes was to allow the Reserve Bank to lower interest rates, and stimulate the economy to keep inflation between 1 and 3 per cent.
"Record levels of migration, not seen in a century, means there is enormous demand for housing ... the high demand for rental property in Auckland is not going to be made easier under this policy. Rental prices will continue on an upward trend," King said this afternoon.
Speaking from Indonesia, Key said the Reserve Bank had made the "right decision", and the moves were one small part of solving the housing issue.
Today's proposals would likely help young people currently locked out of the housing market, Key said.
"In theory it helps a little bit because what it essentially does is it make it a little bit more difficult, and a little less economic for an investor to buy a property, so by definition that leaves that property more available to a first home-buyer."
Balancing that was a need not to completely remove investor activity, otherwise there would be a shortage of rentals, Key said.
"[The Reserve Bank] has a fine line to walk here, and I think it is walking that about right."
Key said the level of investor activity had been "relatively static" over time and had nudged higher in recent data.