Bank narrows focus to hot Auckland housing market while relaxing rules regionally.

The Reserve Bank has abandoned its one-size-fits-all approach to loan-to-value ratio curbs with an approach that recognises that runaway house price inflation is an Auckland problem and that property investors are a significant part of it.

But while it hopes this latest intervention will have some effect on prices its own modelling suggests that impact will be modest - 2 to 4 per cent off house price inflation in the city compared with what it would otherwise be, when Auckland house prices climbed 9.5 per cent in just the last three months.

Landlords are the target because they are the marginal buyers, who set the price, in large tracts of the market. They are buyers who don't have to be there and the prices they are prepared to pay are the prices home seekers have to outbid.

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Those prices are inflated by low interest rates (which are likely to fall further), by tax distortions (which politicians are too craven to address) and by expectations of juicy capital gains - 12 per cent a year over the next five years according to one survey.

Under new rules to come into effect in October, but which the Reserve Bank expects the banks to honour immediately, property investors buying in the Auckland Council's territory will need a deposit of at least 30 per cent. Currently only half meet that test.

For owner occupiers in the city the existing loan-to-value ratio (LVR) rules remain unchanged.

But, in a politically shrewd move, the LVR rules are being relaxed outside Auckland, allowing 15 per cent of new mortgage lending (up from 10 per cent now) to be at LVRs of 80 per cent or more.

Inevitably whenever regulators intervene like this there are boundary issues. A setback to one is an opportunity for another.

The new rules apply to investors seeking loans from New Zealand banks. They do not apply to cash buyers, foreign or domestic, who are estimated to represent about a fifth of the market.

Will it be local owner-occupiers who benefit from less competition at the auctions, or will it be "foreign speculators", asks Labour's finance spokesman Grant Robertson.

BNZ economist Craig Ebert points out the new rules don't apply to non-bank lenders, nor will they prevent people from bidding for Auckland properties with funds raised abroad.

How often can you rent out a bach before it counts as an investment property? And so on.

The response to such criticisms is: What is the alternative? For the regulator to stand back, arms folded, doing nothing while the Auckland market gets more and more overheated would be hard to reconcile with the Reserve Bank's statutory obligations as the guardian of financial stability.

It cannot do anything about the supply side, or about migration, or the tax treatment of property.

And it would be absurd to raise interest rates in the current environment. What that leaves is the kind of macro-prudential policy response we see now.

Loan restrictions

• New rules mean Auckland property investors will need a deposit of at least 30%.

• Reserve Bank estimates the restrictions could reduce Auckland's house price growth by 2 to 4%.

• Existing "speed limit" for high LVR borrowing outside Auckland will lift from 10% to 15% of new lending.