Reserve Bank restrictions on low deposit lending were supposed to be a temporary feature of our housing market when they were introduced in October, but nine months on their authors appear reluctant to let go of one of their few monetary tools to control soaring house prices.
Central bankers are convinced their limits on lending to those with less than 20 per cent deposits have helped slice between 2.5 and 3.3 per cent off house price inflation figures across the country.
While some economists are less certain the LVRs are working, the central bankers will be pleased they have achieved this without pushing the already-high value of the New Zealand dollar.
The bankers insist the restriction on banks lending to low-deposit home buyers are temporary but they will now remain in place at least until the end of the year. Even then the current 10 per cent limit on bank lending to those with less than 20 per cent deposits are merely likely to be eased rather than scrapped.
The success or otherwise of the LVR regime is being watched with interest by central bankers across the western world, especially in capital cities where house price rises are also causing anguish.
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In Wellington the Reserve Bank not only wanted to avoid high risk lending by the banks, and therefore avoid distressed selling by home buyers unable to fund higher mortgage lending rates, they also wanted to strengthen our banking system against damaging effects of any potential future international financial calamity.
The bank resisted barely disguised political discomfort about the controls, from politicians worried about first-home buyers being unfairly locked out of the housing market, particularly during the run-up to a general election.
The bank also rejected politicians' suggestions that the regime should be regionally based, targeting run-away housing markets in Auckland and Christchurch, while exempting the rest of the country where house prices have been more subdued.
Nine months into the regime, it is clear the Reserve Bank may have under-estimated the initial impact of its dramatic intervention into the marketplace.
The bank initially estimated the loan to value ratio restrictions would lower house sales by between 3 and 8 per cent, house price inflation by 1 to 4 percentage points, and housing credit growth by 1 to 3 percentage points, over the first year they were in place.
But during the first six months bank lending to those with low deposits fell to 3.6 per cent of total lending, even though the bank decided to exempt new builds.
The bank says national house sales fell 11 per cent between October and the end of March this year, with the drop in sales volumes evenly spread across all regions of the country.
The reduction in house sales has been concentrated in lower value sales, with a 23 per cent fall in houses sold in the under $400,000 value bracket, compared with an 11 per cent drop across the board.
Quoting housing data specialists CoreLogic, the Reserve Bank says the first home share of the market fell to 17 per cent in February, from an average of 20 per cent over the previous two years.
"The Reserve Bank estimates that, in the absence of LVR restrictions, annual house price inflation could have been around 2.5 percentage points higher in the year to March," the bank says in its latest Financial Stability Report.
While there have been suggestions within the industry that first-home buyers are finding ways around the restrictions (for example, by obtaining higher-priced loans from third-party non-banks, or borrowing from family) the Reserve Bank says there are few signs this is happening on any scale.
Further research within the bank has suggested the restrictions have lowered house price inflation by 3.3 percentage points, and household credit growth was 0.9 percentage points lower in March than it would have been had the LVR restrictions not been introduced.
Reserve Bank Deputy Governor Grant Spencer says the restrictions are moderating house price pressures and reducing the risk of a severe market correction.
"House sales and mortgage credit growth have reduced and we estimate that house price inflation could have been 2.5 per cent higher in the absence of the restrictions," he said.
The bank expects the speed limits to remain in place "until the housing market comes into better balance".
The bank says a combination of higher interest rates and an increasing supply of new houses, particularly in Auckland, will help bring about the balance.
"However, we will need to be confident that immigration pressures will not cause a resurgence of house price inflation," says Spencer. "We consider that the earliest date for beginning to remove the LVR restrictions is likely to be late in the year."
With immigration continuing to surge, and Auckland being the destination of around half of all new migrants, this target date may be optimistic.
As fewer New Zealanders decide to migrate to Australia, and the numbers of new migrants entering the country continues at historically high levels, the pressure on the Auckland housing market seems likely to continue, at least for the remainder of this year.
Statistics Department figures suggest the flow is increasing and shows no signs of levelling off. For example, the net 4240 non-New Zealand new migrants during March was the highest March figure since 1978. This large number was followed in April by 4480 non-Kiwi migrants, the highest monthly total since February 2003.
The Treasury has warned the Government that the annual net inflow of migrants is forecast to peak at around 38,000 in the second half of this year, compared with a forecast of around 26,000.
"If the migration cycle is larger than forecast it would put additional pressure on the housing market and add further impetus to domestic demand," the department said in its budget economic and fiscal update last month.
Meanwhile, Government and Auckland Council efforts to boost the number of completed new homes will start reaching the market only towards the end of the year.
All of which suggests the Reserve Bank will have little option but to hold onto as many economic tools as it can to try to restrain house prices, including the LVRs.
Rather than lifting the restrictions completely, the bank is likely to progressively lift them.