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Dwelling consents, bank lending and net migration were three of the main factors determining house prices, Milford portfolio manager Brian Gaynor said yesterday.
Supply in the form of dwelling consents, dropped off sharply in 2009 in response to the global financial crisis and the collapse of New Zealand's finance company sector. The latter was a major supplier of credit for house builders and property developers, he said.
In the four years to 2012, an average of only 14,850 consents a year were issued compared with an average of 26,218 consents in the four years to 2008.
"Consents have picked up dramatically and it will not be long before the annual consents number exceeds 30,000.''
Annual consents in excess of 30,000 had only been achieved five times since records began in 1966. The record high was 39,636 consents in 1974, Mr Gaynor said.
The huge increase in net migration, to 68,432 for the May 2016 year, had a major impact on demand. It represented a net turnaround of 72,085 since the net outflow of 3653 in the May 2012 year.
However, the massive increase in lending to home purchases had also fuelled the housing markets.
There much talk about loan-to-value limits but the lending statistics illustrated the regulation had not been effective, he said.
"The gap between the value of new loans and the value of new dwelling consents has widened dramatically in the past year.''
The housing market took off a few years ago because of the very low build rate after the collapse of the finance company sector, Mr Gaynor said.
Supply was now increasing and any reduction in immigration and/or banking lending was likely to have a dramatic impact on house prices. Housing bulls should keep a close eye on the rising supply figures, he said.
Westpac's New Zealand unit is cutting interest-only lending terms to a maximum of five years, in a market where investors are the driving force.
Interest-only loans were often used by property investors who met the interest repayments and left the principal untouched on the expectation they could pocket a capital gain on a house sale.
Westpac had previously allowed terms of up to 15 years but had cut that by two-thirds in the latest response to a build-up of property investor activity, which now accounted for about 40% of all new lending.
Simon Power, general manager of consumer bank and wealth at Westpac NZ, said there were two elements to the move - making sure the bank's lending and risk profile reflected market activity, and giving borrowers a chance to check their repayment plans.
"There's a risk lens, but there's also a customer obligation lens in making sure people are comfortable with their own capacity,'' Mr Power said.
"We're looking to make sure the settings are right.''
Property investors had come under scrutiny in recent months as the primary drivers of accelerating house prices, taking advantage of historically low interest rates. While that was initially concentrated in Auckland, it had since spilled into other regions.
The Reserve Bank last week said it could roll out its existing restriction on highly leveraged lending on Auckland residential property investors across the country by the end of the year, something the Bankers Association has said would be reasonably simple given banks already have the systems in place.
Westpac was one of several banks which stopped lending to non-resident borrowers with overseas income last month, and Bankers Association chief Karen Scott-Howman said lenders were responding to signals in the market and from the Reserve Bank.
Reserve Bank figures showed interest-only mortgages accounted for about 41% of all new lending in May, up from 38% in January when it first started collecting the data. Of existing home loans, interest-only mortgages totalled $60.82billion as at March 31, or 28% of total loans.
Mr Power said the residential lending market was still very competitive, and while it was not showing signs of a deterioration, the bank had to be prudent.
- additional reporting by BusinessDesk