First home buyers remain "a priority" for the government and "all tools have to be considered" in balancing their needs with the Reserve Bank's likely imposition of restrictions on home lending for buyers with small deposits, says Prime Minister John Key.
Speaking to the Local Government New Zealand conference in Hamilton, Key appeared to accept the central bank was unlikely to heed his earlier call to exempt first home buyers from any restrictions on high loan to value ratio lending.
But he stopped short of explicitly endorsing suggestions over the weekend by Housing Minister Nick Smith that one way to assist first home buyers would be to give them greater access to funds in their KiwiSaver accounts.
Key backed the Reserve Bank's concern about the emerging housing bubble and its desire not to react to that by raising interest rates unnecessarily.
"Absent of any other alternative, then rapidly increasing house prices may see the Reserve Bank raising interest rates, which will affect everyone - all mortgage holders and businesses, wherever they are in the country, as well as the Government," said Key. ""That is certainly not in the best interests of first home buyers.
"And higher interest rates would put upwards pressure on the Kiwi dollar, which would hurt exporters.
"Even with LVRs introduced, interest rates may ultimately rise anyway, but the intention with these loan to value ratios is to provide the Reserve Bank with other tools to dampen demand," Key said.
The international evidence, such as the housing value destruction caused when the US sub-prime mortgage bubble burst, showed how an unchecked housing bubble could leave some borrowers "substantially overexposed in an overvalued market."
"And we all know what happens if those values start to fall."
"So, this issue is of serious concern. I remain of the view that all tools have to be considered. Demand-side issues are largely the purview of the RBNZ, which is independent, and they will in the end have to make a decision.
The Government is keen to see all New Zealanders have the opportunity to buy a house."
He pointed specifically to the government's Housing Accords model, which intends to see a large increase in the number of houses built in Auckland, where a lack of supply is pushing prices, and reforms to the Resource Management Act to speed up the resource consents process.