The decision of two of the country's big four trading banks to stop lending to foreign buyers of houses here appears to have taken everyone by surprise. If the Reserve Bank had any warning, Governor Graeme Wheeler gave no hint of it in his monthly announcement of the official cash rate the same day.
Commentators had not raised the possibility and economists, even those employed by the banks, were unable to explain the decision yesterday. That suggests it was taken purely for the reasons the banks gave: they do not want higher exposure to the particular risk of loans to non-New Zealanders living and earning incomes outside this country.
The decision must come as a blow to the Government's credibility on foreign buyers. For years it has been insisting they were not a significant presence in the New Zealand residential property market.
Ministers strenuously maintained this view after the moves by Westpac and ANZ on Thursday, but the banks' actions simply speak louder than the Government's words. Trading banks are not known for restricting their business for the sake of public applause. If they are worried about the level of credit they have given to borrowers living overseas, the level must be substantial.
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The same decision had already been taken by their parent banks in Australia, when bank lending policies have been under much heavier public criticism than here, and the political climate across the Tasman has been heated by the election to be held four weeks from today. But even there, it is hard to believe the banks would act for a political purpose.
But whether they desire public applause or not, they deserve it. The stability of both the financial system and the housing market is well served by closing the door to further foreign lending. The fact that the banks regard incomes earned overseas as less reliable than those earned in this country is further evidence of the relative strength of the New Zealand economy and the continuing worry about the world outside. The United States economy, which appeared to be picking up since last year, delivered weak employment figures this week.
If [banks] are worried about the level of credit they have given to borrowers living overseas, the level must be substantial.
House prices should soon show the effects of the absence of new foreign buyers. If auctions become a little easier for bidders domiciled here, so much the better. And if the rate of house price inflation slows, the Reserve Bank will be relieved too.
The Governor was moved to issue another warning on Thursday that no market rises indefinitely. Nobody wants prices to fall when many have borrowed nearly all of their property's value. The bank counts its loan-to-value restrictions a success and says it is considering increasing the present restriction on lending on investment houses in Auckland. It should do so, having found investors accounted for 46 per cent of sales at the last count.
Too many houses are standing empty around Auckland at a time of acute public concern for the homeless sleeping rough or in cars, or crowding in with relatives where they can. Social Housing Minister Paula Bennett is clearly scrambling for emergency accommodation for these people, talking of paying for motels if necessary.
The Government has been too slow to admit there is any sort of crisis, bereft of ideas beyond the supply side of the market and now we are watching banks take the lead. It could be the turning point.