Any attempt by Treasury to introduce mortgage lending restrictions with a new ''loan-to-income'' limit on buyers could make the Auckland housing crisis even worse, the Property Institute of New Zealand says.
First home buyers would again be hardest hit if there was a move towards ''loan-to-income'' restrictions, as they already struggle to meet 20% deposits amid rising house prices.
Institute chief executive Ashley Church is questioning the Treasury proposal which would further restrict mortgage lending by banks; reiterating his warning from earlier this year about ''unintended consequences''.
He said Treasury papers, released under the Official Information Act, suggested that debt-to-income limits could offer an additional way ''of managing financial system vulnerability by targeting the likelihood of default''.
As an example, he cited similar rules recently introduced in the UK where most home buyers could only borrow 4.5 times their annual income.
''The effect of such a policy would be to limit a typical Auckland family to a mortgage of less than $400,000 if New Zealand followed similar rules,'' he said.
Median Auckland prices have struck more than $700,000 in recent months, with several suburbs having struck more than $1million medians during the same period.
Labour's Housing spokesman Phil Twyford said the Government had to rule out that it was considering the proposed ''loan to income'' restriction.
''Such measures in England and Ireland have curbed skyrocketing house prices but they have come at a price: they've locked first home buyers further and further out of the market,'' he said in a statement.
He said with Auckland's latest median house price at $771,000, nearly the equivalent of 10 times the median household income, few people would be able to buy into the market.
''The Government needs to embark on a massive state-backed building programme to flood Auckland with affordable houses and crack down on foreign speculators,'' Mr Twyford said.
Mr Church said: ''The only sustainable way to fix the Auckland housing crisis is to build more homes as quickly as possible.''
Mr Church said the Reserve Bank had previously confirmed
it was collecting loan-to-income data from the banking sector but would not be drawn on whether the central bank was considering new income-related lending limits.
While banks have existing loan to value (LVR) restrictions on the percentage of high debt lending on their books, Auckland LVR's are to rise November 1, which means larger deposits are required, while new tax obligations (already in place) will penalise second home owners if the property is sold within two years of purchase.
The restrictions are intended to curb speculation in Auckland, which has led to rampant prices.
Mr Church said any ''loan to income'' policy would have ''serious and unintended consequences'' for the Auckland property market and would ''almost certainly make the Auckland housing crisis even worse''.
Some of the probable consequences of such a policy would include fuelling an artificial boom in apartment construction, because they would be the most affordable home for many, and creating more barriers for first home buyers.
Real estate listings could plummet when home owners chose not to sell rather than accept much lower prices, he said.
A policy change could kill off infill development, and possiblylarger housing development, with developers caught by the mortgage restrictions, Mr Church said.
''Doing anything which reduces the construction of new dwellings is a hollow solution because it will only delay an even bigger problem down the track,'' he said.
