Adviser slams RBNZ's 'damaging correction' claim

by Maya Breen11 Nov 2015
Mortgage specialist Mike Whittaker and director of Mike Whittaker Mortgages has slammed the Reserve Bank's warning today on increased risk to the financial stability of New Zealand as a nothing more than a strategy to get people to stop buying houses. 

The Reserve Bank reported that a sharp downturn in the housing market could "challenge financial stability, given the large exposure of the banking system to the Auckland housing market."

But Whittaker told NZ Adviser such a downturn could be a few years away yet and the downturn will be slow and small.  

"I believe this latest report from the Reserve Bank is their strategy to get people to stop buying houses," says Whittaker. "Good luck with that."

Reserve Bank governor Graeme Wheeler said today when releasing the Bank’s November Financial Stability Report, “House price growth in Auckland has increased strongly with house price-to-income ratios in the region now comparable to those seen in some of the world’s most expensive cities. Rising investor activity has been an important driver of price developments, and international evidence suggests that investor loans have a higher tendency to default in the event of a major downturn in the housing market."

Whittaker says, "We are already seeing that the market has slowed down and prices are levelling out, but this is hardly a shock. This is the market naturally correcting itself and nothing to be alarmed about.

"If houses prices fall, they will fall slowly and not more than 20%, if that. We won’t see a drastic fall in prices as there is so much wealth in the 70+ age group and all this money is filtering down to their families, who typically choose to invest it in property."

The Reserve Bank report also mentioned the expected effects of the loan-to-value ratio (LVR) policy of no more than 70% for Auckland investors that came into play on the 1 November.

"New rules requiring most loans to property investors in the Auckland region to have a loan-to-value ratio (LVR) of no more than 70% came into force on 1 November, following consultation on the proposed measures. This policy, along with recently enacted tax changes and initiatives to increase housing supply, is expected to help moderate pressure on Auckland house prices," the report stated.

But Whittaker told NZ Adviser it won't have the impact the Reserve Bank is seeking.

"It will not slow house prices at all, it just widens the gap between people who already own property and people who are trying to get on the property ladder.

"It’s a matter of supply and demand. To stop house prices rising, we need to find ways to control how many people are moving to Auckland and build more houses. I am currently building a house and it has taken 14 months to start. There are not enough skilled people in the industry and this is a huge part of the problem.

"People who already own property are doing fine and their spending habits have not changed. It’s the lower-to-average income earners who are struggling. It’s a lot harder to get money and they can’t borrow enough to buy their first home due to the increase in personal expense requirements from the banks (and prices haven’t gone up for years).

Outside Auckland, the limit on the maximum share of lending at LVRs above 80 percent was increased from 10 percent to 15 percent from 1 November and the Reserve Bank stated it will keep monitoring develpments in the regional markets, particularly following "the recent lift in house sales and house price inflation in some upper North Island areas such as Hamilton and Tauranga".


  • by Dan 11/11/2015 4:21:31 p.m.

    "A Damaging Correction" will be the best possible result for the New Zealand economy, particularly the Auckland housing market. It is high time that New Zealanders' begin to invest more in activities that promote real economic growth and create real investment value as opposed to gambling that unrealistic price rises will continue onwards into the future.

    It is a very true statement that Auckland house prices are exceeding the income of it's residents by nine times. I have seen the affect of this over the last 3 years. Lets get real, the population of the Auckland region is just on 1.5 million people. Auckland could hardly be called an international business hub, or city of global trade. There is no good reason for housing prices to be as high as what they are, other than that New Zealanders' feel there is nothing else in the country worth investing in & immigration is at am all time high.

    I would argue how is the populace going to be able to afford to continue purchasing houses when the price is exceeding their incomes by 9 times, the reality is they cannot. Reality is if the market was to crash tomorrow, over exposed financial institutions would cut back lending for a period of time as they did in 2008-10. But after a return to normalisation of prices you would again see a return to the market of your typical $100,000 family income NZ family. This is where the Auckland property market should be based, on the average family.

    So I think the sooner "the bubble again bursts" , which it surely will.. All the better..

  • by Giles 11/11/2015 4:41:30 p.m.

    "But Whittaker told NZ Adviser such a downturn could be a few years away yet and the downturn will be slow and small. "

    Hmmmmm, let me see, the opinion of the Governor of the Reserve Bank of New Zealand against the opinion of a Mortgage Broker. Personally I think the Governor has a little more credence and anyone with half a brain realises the Auckland Property market is well beyond overheating. Mike Whittaker's statement above is based upon what exactly? I worked in the Mortgage Market in the UK in the 1980's where we used lending Multiples of 3.5 times a single income or 2.5 times a joint Income which are paltry in comparison with the expected multiples being used in Auckland. The UK residential property Market eventually crashed and some people lived with negative equity for nigh on a decade.

    Like Dan above, I believe the sooner this Bubble burst the better.

  • by Gopal 12/11/2015 9:24:07 a.m.

    The foundation is getting stronger. Rewind back to Oct 2013, when Wheller announced new rules for Auckland, the trading banks were giving 32% of the loans over LVR of 80%. Now currently it is hovering around 16% of the loans are over 80%. Moreover, the house prices in the last two years from Oct 13, have gone up by 35% in Auckland. If the above rule was put for a litmus test, it was effective for 8 to 9 months. The new rules, I suspect will also have a smaller impact. Even if there is recession in the horizon, people can withstand it. Rewind 2009, during recession, not many people sold their homes for lower prices.(Auckland median price: $460,000 in Nov 2007, went down to $420,000 and National median price: $352,000 in Dec 2007, went down to $320,000 before it picked up again)

    The problem is more houses to be built. Governor Wheller nor any of his colleagues never spoke about building houses in Auckland from
    Oct 13 to Nov 14. The damage is already done due to shortfall in housing. Government can release more land for housing. Unless and until a developer wants to build affordable homes, the housing problem will be there for the next 3 to 4 decades. Can anyone tell how many developers are building a home of 100 sq. meter in Auckland? The gross return on these homes are not that good and therefore no developers are building these kind of homes. For an entry level first home buyer, these sort of houses are required to get into property ladder.

    Unless and until the above problems are sorted, we will have issues of housing for the next 3 to 4 decades. People who own their homes are winners and whoever helps their children to get their first homes will move forward in the next 3 to 4 decades.

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