Changes may help Auckland

Photo / Brett Phibbs

We have just seen two changes announced that could potentially change the direction of the housing market. The first is the latest round of lending restrictions announced by the Reserve Bank, and the second is the Proposed Auckland Unitary Plan (PAUP).

The Reserve Bank has tightened the existing "LVR speed limits", meaning that the banks are limited to only 10 per cent of their lending going to owner occupiers with less than a 20 per cent deposit. This reverses a change made last November that loosened the limits outside Auckland.

They also significantly tightened lending rules for property investors nationwide, who now require a 40 per cent deposit in most cases. Previously, Auckland investors needed a 30 per cent deposit.

Previous lending restrictions when put in place by the Reserve Bank have had a slight and short-term impact on sales volumes and values.

It's own analysis expects these measures to slow property value growth by 2 per cent to 5 per cent less than would have otherwise been the case. So if values in an area were going to increase 15 per cent they would now rise by 10 per cent. The bank doesn't expect prices to crash.

These tighter lending rules are likely to hurt some first-home buyers outside Auckland, who will now struggle to get a loan using their 20 per cent deposit. Property investors will also have to rethink their strategy.

Investor groups I have spoken to are not talking about pulling out, instead they are looking at how to get around the lending limits. This includes splitting their portfolio across different lenders, including non-bank lenders who, at this stage, are not subject to the Reserve Bank restrictions.

The unitary plan has the potential to substantially increase the supply of housing in Auckland, which is badly needed.

It now has to be considered by the Auckland Council, which will have to weigh up Auckland's future needs against the continued resistance from some resident groups. I suspect that if the council rejects the unitary plan, central Government will be deeply unimpressed.

Although the unitary plan allows for much more high-density housing and extends the limits of Auckland, the constraint will be how quickly these houses can be built. We are already seeing building activity unable to keep up with demand and this plan would see the number of houses to be built escalate significantly.

The announcement of which properties can now be developed for high density could either dramatically increase their value as developers swoop in, or the sheer number now available could mean their price drops. I suspect the former but time will tell.