A group representing New Zealand's property valuers says introducing debt to income limits for mortgage lending would damage the Auckland housing market and New Zealand's economy.

The Reserve Bank of New Zealand wants the government to allow it to use a debt to income limit because it is concerned about the rising amount of lending being done by banks at five and six times a buyer's income.

The government has yet to agree to adding such a tool to the bank's toolkit and is still discussing the proposal.

But Ashley Church, chief executive of the Property Institute of New Zealand, believes introducing limits would have 'serious and unintended consequences' for the Auckland property market and would 'almost certainly make the Auckland housing crisis even worse'.

"These things often sound like good ideas until you start thinking through what would happen if they were actually implemented"

Church said the consequences of such a policy would be disastrous.

"The number of new homes being built - the very thing that Auckland needs most - would plunge as the number of people earning enough to buy them would dwindle to a trickle. So the policy could very well kill off the one thing that can fix the Auckland housing crisis - the construction of new homes".


A similar policy was introduced to the United Kingdom in July 2014 limiting buyers to a mortgage which does not exceed 4.5 times their annual earnings.

Church said if that rule was applied here it could limit a typical Auckland family to a mortgage of less than $400,000.

The Reserve Bank is worried that continued growth in high debt to income lending would threaten the resilience of New Zealand's banks if there is a down-turn.

In its financial stability report released yesterday the central bank said despite a slow-down in Auckland property price growth in the last six months vulnerabilities in the housing market had increased.

"Despite some recent softening, house price growth in Auckland remains high at 9.3 per cent in the year to October, and Auckland's house price-to-income ratio, at 9.6, is among the highest in the world."

While loan to value restrictions had reduced the share of risky loans on bank balance sheets and improved bank resilience to house price falls it said that could be undermined if the growth in high debt to income lending continued.

"High-DTI [debt-to-income] loans are at a higher risk of default in the event of an economic downturn, so an increasing concentration of this lending is of concern."

But Church said it understood the Reserve Bank wanted to protect the economy against the risk of financial shock.


"But doing anything which reduces the construction of new dwellings is a hollow solution because it will only delay an even bigger problem down the track".

"The only sustainable way to fix the Auckland housing crisis is to build more homes as quickly as possible".