Builders Welcome LVR Backdown12/12/2013 After a lot of lobbying from the building industry, Reserve Bank Deputy Governor Grant Spencer made the exemption in a move that has been described as everything from a relaxation to a back-flip. "While high LVR [loan-to-value ratio] construction lending is only around 1 per cent of total residential lending, it finances around about 12 per cent of residential building activity," said Spencer, adding "This exemption means that low-deposit lending will fall outside the 10 per cent speed limit if it is financing the construction of a new house or apartment."
Unsurprisingly, the building industry are delighted by the changes, with the Registered Master Builders Federation previously saying the central bank's policy could jeopardise the construction of up to 5000 homes a year. According to the Federation, some previously planned new builds had already been cancelled due to the policy, with a number of future projects also on shaky ground.
Master Builders Federation chief executive Warwick Quinn praised the Reserve Bank for addressing the issue in a timely manner, saying "The Reserve Bank was very professional in its approach and willing to listen all the way through... I think the way they've approached it and their open-mindedness to the information that we were providing they should be applauded."
Not everyone is in favour of the new changes, however, including Shamubeel Eaqub from the New Zealand Institute of Economic Research (NZIER). "The more the exemptions, the less effective the policy will be," said Eaqub, adding "[the Reserve Bank] may just be directing high LVR lending to new builds. But without solving the issues of land supply and planning constraints, the new rules will do little to fundamentally change affordability of housing."
The move to relax restrictions comes on the back of renewed efforts to deal with the housing shortage problem in Auckland. High demand and low supply throughout the city continue to drive prices higher, with new construction projects necessary for pressure to ease. While LVR restrictions have been designed to address rising prices and improve stability by limiting demand, the back-down on new builds goes to show just how important supply levels are for any long term solution.
According to New Zealand Bankers' Association chief executive Kirk Hope, "We've said all along that supply has always been the issue in parts of the housing market, not the availability of cheap credit... We agree that this move will help to support the supply of new housing and reduce pressure on demand in the New Zealand housing market. We support any moves to address the supply issue."