Long-term solution needed for overheated Auckland property market

The Reserve Bank, The Terrace, Wellington. Photo / Mark Mitchell

Housing specialists warm to Reserve Bank proposals but warn of potential loopholes.

Targeting property investors with stricter lending rules is tentatively backed by experts, who say it would help dampen an overheated housing market.

But tax and mortgage specialists also say any moves by the Reserve Bank to curb property speculation might only be a short-term solution and could have a number of loopholes. The Reserve Bank appears to be moving closer to tightening lending rules for residential property investors, who are seen as more likely to default on mortgages and partly responsible for Auckland's skyrocketing house prices.

The bank's proposals were backed by Labour leader Andrew Little yesterday, who said property speculators were shutting families and young people out of the market. He said speculators should be required to pay a larger deposit for each new property they purchased.

Prime Minister John Key said Labour's comments were "somewhat amusing" because the party had "bagged" the Reserve Bank for introducing lending restrictions in 2013, and were now calling for them to be expanded.

Massey University banking expert David Tripe said targeting investors was likely to be straightforward. He suggested that they could be identified by any rental income they were making on properties. But he said limiting the restrictions to Auckland - as Mr Little wanted - would be more difficult.

Associate Professor Tripe said investors would eventually get around any restrictions by shuffling their properties into family trusts or other ownership structures.

Mortgage specialist Bruce Patten, of LoanMarket, said extending lending restrictions to investors appeared to be a "natural progression" from the loan-to-value ratios imposed by the Reserve Bank in 2013. But he said any potential measures would take at least a year to introduce because banks did not have up-to-date information on whether their customers were owner-occupiers or investors.

Victoria University's chair in public finance Norman Gemmell said the policy was good in principle, but could be difficult in practice.

In a consultation paper last month, the Reserve Bank suggested that investors could be identified by the number of houses they owned or by the amount of rental income they were earning from a property.

Q&A: Bank moves

What is being proposed?
The Reserve Bank is considering making it harder for residential property investors to get a loan.
Why?
House sales to investors are increasing in Auckland, and they are believed to be contributing to higher house prices.
Do the proposals have support?
The Government says it would not veto moves by the Reserve Bank to curb lending to investors. Labour wants a crackdown on speculators, but only in Auckland.