Making investors stump up a deposit of nearly $400,000 for the average Auckland home is expected to dampen house price inflation by up to 5 per cent.
Tenants have been warned by a property investors' lobby group that rents will increase under the tough new lending restrictions outlined by the Reserve Bank yesterday.
But the move to target investors was welcomed by Prime Minister John Key, as well as Labour and the Green Party.
Key said the proposals - which banks are expected to enact immediately - were only a part of the housing solution, but were likely to benefit first-home buyers.
"In theory it helps a little bit because what it essentially does is it makes it a little bit more difficult, and a little less economic for an investor to buy a property."
The Reserve Bank expects the LVR proposals to dampen house price inflation by about 2 to 5 per cent in the first year.
The average Auckland house price is $975,087, the latest June QV figures show - a 16.1 per cent increase since June last year. If house price inflation had been dampened to 11.1 per cent, the average price would have risen to just over $933,000. Andrew King, executive officer of the NZ Property Investors' Federation, said it appeared the purpose of the LVR hike 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, mean there is enormous demand for housing ... the high demand for rental property in Auckland is not going to be made easier under this policy."
Green Party finance spokeswoman Julie Anne Genter said the Government needed to "remove the tax advantages of property speculation".