New LVR rules for property investors are specifically designed to cool off the Auckland’s housing market. Some supporters celebrate but others think that is not good enough, why?
New LVR Rules for Investors to cool off
Auckland’s Housing Market
Dream, reality and political leadership
True, lots of willing home buyers feel to be disadvantaged competing with investors and foreign buyers for residential properties which are in short supply. To be more accurate the dream owning a home collides with the reality of the unbalance between supply and demand. The result is a high auction price when many bidders compete with each other.
It is obvious—when a business runs into problems, the management has to combine all resources to fix or lose a business. Political leadership works different. It would be ridiculous to believe that the elected leaders don’t get it. Their principle is “divide and conquer”, finger pointing, please the majority of voters and be prepared for the next election. And breaking up larger concentrations of power into smaller groups, sure a culprit will be found.
A culprit has been found – problem solved?
Picking a target group (borrowers who want to invest in “existing” housing) - how can that resolve the shortage of housing? We talk about existing homes on sale, houses looking for new owners, how will the new LVR rules solve the lack of housing stock (rentals and homebuyers dream homes)?
Remember the changes in taxation rules in 2010 triggered the housing shortage, when investors left the market. Read the housing stats from the rest of the country very carefully that is not Auckland and Christchurch, lots of areas still haven’t recovered yet. For instance why not use taxpayer’s money to make other cities attractive to live in? Certainly that would take the pressure off the Auckland property market and redirect renters’, homebuyers’ and immigrants’ focus. Why would somebody want to live in a crowded city if life could be attractive somewhere else?
Doomsayer’s favourite – what goes up must come down
In these days we talk about mortgage terms of 25-30 years because of the Dollar amounts involved. Who knows what the economy will look like over the next 30 years. Highly leveraged borrowers might not be able to pay rising interest rates or people head offshore adding stress to the economy... Obviously markets are driven by consumers and housing is a necessity for everyone. Through how many property crashes went the housing market e.g. in UK already? First time I visited the UK in the 80s but I can’t see any improvements since. And despite stamp duty and CGT in AU you can see similar problems, right?
Investors, foreign buyers or what?
Property investors only tend to buy at a price that meet their buying rules to avoid (minimise) loss. On the opposite homebuyers buy at a price they are willing (able) to pay. So - the price drivers of the property market are desperate people who look for rent or buy a place. Does that make sense?
The second group just found the solution by saying—just lock out foreign buyers, the domestic housing market belongs to Kiwis. Really, I would like to see what brand of big flat TV, car, smartphone, washing machine etc these groups of people own. Let me assume “made in (guess!)”. Kiwis spend their money on imports and when that money comes back to NZ – those consumers are concerned!
I further assume that the houses sold (purchased by a foreigner or Kiwi) are occupied by people who live in Auckland. Why then would cutting out certain groups of buyers resolve the unbalance between many buyers competing for few houses?
Correct me, if I have got this wrong – trying to increase the success rate for selective buyers by introducing obstacles or quotas, is that what you want?
Investors can wait, do wait or walk away if the climate is not right, but what is with people who can’t find a place to rent or buy and nobody is willing to build/invest in new housing?
What about these Kiwis who are renting by choice but wanting to buy a property investment as their first house? They are also penalized as investor with the new policy – how good is that?
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Two mainstream supporters for changes in the housing market
In general Kiwis welcome any decisions with the objective to reduce the rate of increase in Auckland’s house prices. If you look closer, and that is not new, you will identify two mainstreams of discussions.
The first one is quite satisfied with changes to the banking industry targeting only property investors, which have been an easy target since 2007.
The second group has not been satisfied yet as their focus is to stop foreign buyers.
Let us stop property prices going up
A new tidal wave of heated discussions about how to stop Auckland’s property price hike peaked with the Reserve Bank governor’s announcement. The news — for investment properties in Auckland will be required 30% deposit from the 1st October 2015 . This LVR (loan to value ratio) rule and few bank internal lending criteria are specifically designed to cool off the Auckland housing market. The investors opposed fraction and CGT supporter celebrate, but another mainstream of Kiwis think—that is not good enough, why?