This week the Reserve Bank released the sort of data on mortgage lending that we have not previously seen. It revealed banks have made three times as many loans to investors as they did to first-home buyers in the past year, and the average amount lent to investors was larger. The figures may not have surprised anyone who has attended house auctions in Auckland but they are hard evidence of what has undoubtedly been happening for a long time.
Nobody should listen any longer to the suggestion that all would be fine if Auckland's house building matched its population growth. Certainly the city needs to increase its rate of new house building but when three houses out of four are being bought by investors in rental properties, it is going to take more than the country's capacity to boost supply if New Zealand is again to give all young people a chance to own a home.
The Prime Minister's persistent claim to the contrary is belied by his own actions. The Government is about to introduce a "bright line" rule that houses sold within two years of purchase will be liable for capital gains tax at the sellers' top personal tax rate unless they were owner-occupied. It will also require non-residents buyers to have a New Zealand IRD number and John Key has now opened the possibility of stamp duty on foreign buyers.
If home affordability in Auckland was simply a problem of supply, none of those devices to reduce house price inflation would be necessary. The Reserve Bank has been aware of this for somewhat longer than the Government and the bank is preparing to impose a higher deposit ratio on loans for investment houses in Auckland.
The new loan-to-value ratio and the bright line test for capital gains tax will come into force in October. Both were announced in May and many investors appear to be making the most of their portfolios in the meantime. June is said to have been the busiest month for mortgage processing that banks have seen. The Reserve Bank's figures show investors took out more than three times as many loans as first-home seekers in the first half of this year.
If the flurry of activity means investors are turning over as much stock as they can ahead of the tax and the lending restrictions, it also suggested these devices are going to have the desired effect from October, slowing the rate of house price inflation. That would enable the Reserve Bank to lower interest rates further if the economy requires.
But governor Graeme Wheeler had expected trading banks to adjust their lending ratios after his announcement, not wait until October, and he has twice lowered the official cash rate since May. The figures released on Monday suggest banks have not cut bank lending to investors. They have responded instead to the lower cash rate, cutting their own lending rates to a 60-year low and sending Auckland house prices to new heights.
Young people hoping for a house of their own ought to wait until this transitional turbulence is over and hope that from October, penalties on rental investment give them a fair go.
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