The Reserve Bank has exempted new homes from its LVR
regulation. Photo from NZ Herald.
Pressure from the building industry has persuaded the
Reserve Bank to exempt the construction of new homes from its
contentious loan-to-value (LVR) regulation.
While welcoming the exemption, the Labour Party criticised
Westpac bank's decision yesterday to charge higher interest
rates for low-deposit borrowers, claiming the Government had
created a ''two-tier home lending market''.
Reserve Bank deputy governor Grant Spencer announced
yesterday that the central bank, having consulted the
building industry and other banks, would exempt new
residential construction loans from the LVR restrictions,
which were introduced on October 1.
The LVR sought to keep overall bank mortgage lending to
people who had less than a 20% deposit, at 10% of banks'
lending portfolios, putting first-home buyers at a further
''While high LVR construction lending is only around 1% of
total residential lending, it finances around 12% of
residential building activity,'' Mr Spencer said in a
''This exemption means that low deposit lending will fall
outside the 10% speed limit if it is financing the
construction of a new house or apartment.''
Labour's Housing spokesman Phil Twyford said recent evidence
from the Registered Master Builders Federation, that the LVR
was putting thousands of new builds at risk, ''blew a hole''
in the Government's policy of trying to increase housing
Warwick Quinn, chief executive of the Registered Master
Builders Federation, said he had no doubt it was research
from independent consulting company for the building
industry, Branz, released late last month, which influenced
the policy change.
It showed 5000 new houses, not the previously estimated 3000,
could be jeopardised by applying LVRs to new house
''The information the banks keep on how much lending they do
on new house construction is not great,'' Mr Quinn said.
Mr Twyford said the Government did not consider the LVR's
effect on new builds, the fact it would lock first-home
buyers out of the market, nor that it would depress already
stagnant house prices in many parts of regional New Zealand.
However, economist Shamubeel Eaqub, of the New Zealand
Institute of Economic Research, cautioned that the LVR policy
had been weakened and the Reserve Bank was tinkering around
the edges of the policy by caving in to the house building
''The more the exemptions, the less effective the policy will
be,'' Mr Eaqub said, warning that new houses tended to be
more expensive, so people with less equity would be
encouraged to build, The New Zealand Herald reported.
Mr Twyford also rounded on Westpac's announcement yesterday
of higher interest rates for low-deposit borrowers, which
''confirms the existence of a two-tier home lending market''.
''The easy [cheaper] money goes to the well-off, and property
speculators, both foreign and domestic, while first-home
buyers, who struggle to get a 20% deposit together, now have
to cop higher interest rates,'' Mr Twyford said in a
He said Westpac's home loan repayment calculator showed
average Auckland home buyers on the low deposit loans would
have to pay more than $200 extra per month than those who
could afford a larger deposit.
Jennian Homes director Richard Carver, who has been vocal
about the impact on LVR on new builds since its inception,
has estimated up to 30% of new building inquiries were
affected by the LVR restrictions, amounting to ''thousands''
of homes annually.
''We strongly welcome the Reserve Bank's swift action to
exempt new house construction from the LVR regulations, as
this will increase the supply of new houses that are
desperately needed,'' Mr Carver said.
He said Auckland's housing shortage, alongside Canterbury's
rebuild, had given ''a false impression of a blanket
improvement'' in new housing consents across the country.
''This has not been the case, with many provincial regions
still showing a lag in new consents.
''Removing the LVR restrictions goes a long way to making
building new a very attractive proposition and should have a
positive flow-on effect for these areas,'' Mr Carver said.
Green Party Co-leader Dr Russel Norman said that since LVR
was introduced statistics had indicated there had been a
sharp drop in planning for new house building.
''A more flexible and smarter approach to LVRs will help to
dampen the housing bubble without choking off new home
building,'' Dr Norman said in a statement.
However, the LVR exemption was not a full solution and the
Greens wanted to see a government-led programme of affordable
house-building and progressive ownership, to give families a
pathway to owning their own home.
''The Green Party also want to see more flexibility for
first-home buyers. The evidence so far is that LVRs are
locking young families out of the housing market but having
little effect on wealthier investors - the opposite of what's
needed,'' Dr Norman said.
''LVRs can work, but they need more to be more sophisticated
than the Reserve Bank's initial `one-size-fits-all'
approach,'' he said.