Auckland property developers fear that a sudden tightening of bank lending may "throttle" new housing projects despite the city's desperate housing shortage.
Several developers have told the Weekend Herald that the country's big four Australian-owned banks - ANZ, ASB, BNZ and Westpac - have tightened lending to developers because of worries that house prices are peaking and because of Australian regulatory requirements to reduce their exposure to New Zealand borrowers.
Their move comes as Prime Minister John Key yesterdaytold Auckland first home buyers that they should look to buy apartments as in Australia.
"I tell you where their first house is - it's an apartment ... that is the reality of a first home for a young couple in Australia," he said.
Property Council chief executive Connal Townsend said it was ironic that the banks were tightening just when the city was "celebrating" the looser planning rules in the new Unitary Plan designed to allow an extra 400,000 homes.
"We want to make sure they don't throttle it off too much," he said.
The independent hearings panel on the Unitary Plan said last month that the region had a shortfall of 40,000 homes because house-building has lagged well behind recent population growth.
New homes built in the region plunged from 12,700 in 2004 to just 3200 during the global financial crisis in 2009, and have only partially recovered to 9622 in the latest year to July 31.
The hearings panel said the city would need 13,000 new homes a year to yield the 400,000 extra dwellings required for population growth over the next 30 years.
But ANZ Bank NZ chief executive David Hisco warned in July that the banks could not "keep lending at the current huge volumes".
"Salaries and wages have hardly changed whilst house prices have risen - this can't continue so it's a matter of when, not if, the market adjusts," he said.
Tony Abraham of Pearlfisher Capital, a financing broker and lender to developers, said all the banks had tightened up in the past two or three months.
"Their criteria are becoming a little tougher so they might lend less than they would have before, they might require more presales than they might have before," he said.
He said the banks had lent heavily on some major projects and wanted their money back from them before they could lend more.
"This is a short-term situation for the next year or two years, or six months to a year," he said.
Another property consultant John Dare said developers were finding the banks were "far more cautious".
"They are all saying that the banks are tightening up on lending," he said.
Glen Innes developer Murdoch Dryden, who has just secured funding for a $50 million 70-unit apartment block in Meadowbank Rd, said there was "a flight to quality" as banks stopped funding projects that might be vulnerable when the doubling of Auckland property prices over the past seven years ran out of steam.
Remuera breast surgeon John Harman, who is developing an apartment block in St Marks Rd, said the banks "have kind of lost their appetite for funding developments".
"The ANZ Bank has even stopped lending. It's not lending for development of new homes," he said.
Another apartment developer said: "BNZ and ANZ have stopped lending completely. Westpac and ASB are being very selective about who they lend to."
Both banks denied that they had stopped lending. ANZ said: "We continue to lend for the development of city and suburban apartments subject to our lending criteria. We consider all applications on a case-by-case basis and encourage customers to talk to us about their individual situation and needs."
BNZ said: "BNZ has not stopped lending on new apartment projects and we are supporting high quality developments with an emphasis on working with our existing customers. Like all banks we constantly review our approval standards to reflect current market conditions and to ensure that we are meeting all our regulatory requirements."
Westpac said it "continues to support quality developers with feasible projects and have not made changes to our lending criteria for new housing developments".
However the banks' quarterly disclosure statements show that the Australian Prudential Regulation Authority has required all the Australian banks to reduce their non-equity exposures to their NZ operations to below 5 per cent of their Level 1 Tier 1 capital by December 2020.
ANZ said the ruling meant its NZ branch would have to repay NZ$7.5 billion to its Australian parent over the five years from December 2015 - 11.4 per cent of its NZ housing loans worth $65.6 billion as at June this year.
By June, it had already repaid $900 million, with $6.6 billion to go.
Westpac said it had to repay "approximately $1 billion" from last December, an amount reduced to "approximately $0.8 billion" by June.
ASB has not disclosed how much it needs to repay to its parent Commonwealth Bank of Australia, and BNZ said it did not need to repay anything to its parent National Australia Bank.
Townsend said tighter bank lending could ensure a "soft landing" when house prices eventually turn down.
"But it's not a very rosy outcome because we've got an awful lot of catchup to do," he said.
Salvation Army housing researcher Alan Johnson said the banks' pullback showed that the market could not achieve the 13,000 extra homes Auckland needed each year without Government intervention.