While the debate about house prices is stuck in a holding pattern in Australia (with governments too scared to do anything too radical for fear of upsetting homeowners, and regulators averse to dealing with a problem that’s political in origin), the Kiwis just get on with it.
In a statement from the Reserve Bank of New Zealand (RBNZ) yesterday, the Kiwi central bank added debt-to-income levels (DTI) to its macro-prudential “toolkit” with the agreement of the minister of finance.
DTI levels are the ratio of a borrower’s total debt compared to their total income. Placing a limit on DTI levels can prevent borrowers from taking on debt beyond what they’re able to repay — rather than just leaving it to the judgment of the lending institution, like we do here.
Investors and wealthy owner-occupiers are more likely to be affected by a limit, because they tend to borrow more as a proportion of their incomes than first homebuyers. That’s exactly the area of housing demand NZ authorities want to curb.
Back in February, the RBNZ and the government agreed it would add house price sustainability to its list of considerations when making financial stability decisions. It’s important to note that that’s separate from the RBNZ’s monetary policy decision-making, and reflects that the RBNZ has a wider remit than our Reserve Bank, incorporating some of the roles of our prudential regulator APRA.
“Our analysis detailed that debt serviceability restrictions, such as a debt-to-income limit, are likely to be the most effective additional tool that could be deployed by the Reserve Bank to support financial stability and house price sustainability,” the RBNZ said in its statement. “The analysis also demonstrated that any such restrictions would impact investors most powerfully while having limited impact on first homebuyers.
“In our advice we also noted that we consider that a DTI limit would be a complementary tool to mortgage loan-to-value ratio (LVR) restrictions as they address different dimensions of housing-related risk; DTIs reduce the likelihood of mortgage defaults while LVRs largely reduce losses to banks if borrowers default.”
LVRs were tightened this year in New Zealand in response to soaring house prices. The implementation of the DTI limit would be designed to avoid hurting first homebuyers, it added.
“Although we do not have a remit to target house prices directly, our financial policy tools can help to ensure prices do not deviate too far from sustainable levels,” Reserve Bank Governor Adrian Orr said in the statement.
In Australia a similar scheme would have to come from APRA, after discussions with the rest of the Council of Financial Regulators (CFR) — ASIC, the RBA and Treasury. But mostly it’s just talk here. The CFR met last Friday and discussed, inter alia, “housing market risks”, noting that investors were now re-entering the housing market after a period of dominance by owner-occupiers: “There have been signs of some increased risk-taking recently, but overall lending standards in Australia remain sound. APRA has written to the largest authorised deposit-taking institutions (ADIs) to seek assurances that they are proactively managing risks within their housing loan portfolios, and will maintain a strong focus on lending standards and lenders’ risk appetites.”
You can be sure the big banks will reply that yes, they’re proactively managing risks and maintaining a strong focus on lending standards, like they always do. Meanwhile, investors and self-managed super funds will keep crowding into the market, subsidised by taxpayers.
The fact that it’s left to the financial regulators to do some hand-wringing about house price risks again illustrates the lack of political will to tackle housing in Australia. Macro-prudential tools have their place — especially when backed by a government-central bank agreement, as in New Zealand. But they’re only for treating the symptoms of the problem, not its structural causes. The Ardern government isn’t just relying on the RBNZ — it moved to abolish negative gearing (which enables investors to compete with owner-occupiers with taxpayer subsidies), treating the symptoms and the disease at the same time.
Here we still have buffoons peddling the idea of inflating housing demand still further by throwing superannuation into the mix, and calls for the RBA to be in charge of house prices. It’s a political failure of will that will cost new homebuyers for decades to come.
What do you think? Have the Kiwis got a better handle on their housing issues? Write to letters@crikey.com.au, and don’t forget to include your full name if you’d like to be considered for publication in Your Say.
Not failure of will.
The government are doing exactly what they’ve always done: prioritising their aging, affluent constituency.
Meanwhile the ALP are chasing their tail trying to win back their own “heartland”.
That would be blue collar workers-AKA coal miners on 150000 per year.
Sweet Jesus.
Get me outta here.
You forgot the tunnel diggers in their bright blue designer work clothes on 300,000 a year
Debt-to-income indicators were used in the eighties and early 90’s. I was in the banking game then. But when the CBA was privatised and banks amalgamated creating the “Big 4” the whole game gradually changed. You only have to look at the Banking RC that showed how standards have changed.
Brokers are also an issue as they want their commission and have been found wanting in their standards at times as well. Mind you not all brokers do this, but like everything a few bad apples.
NZ are on the right track and we urgently need to do something about negative gearing or future generations will not ever get into the housing market.
Hard to tell if NZ is doing any better than Oz as the changes mentioned are new and their effect TBD.
NZ did ban foreign speculators a while ago, even before Covid. But there are likely easy ways to get around the intent. Even so kiwi housing has the same rocket under it as Oz housing.
My understanding is Auckland is as or more expensive than Sydney!! Crazy land!!
The only real difference is the LNP are totally behind screwing first home buyers – and Labor are terrified of frightening the horses after Shortens shock defeat.
So full marks to Ardern for trying – whether it makes any difference is TBD.
A land of haves and never-will-haves. The latter being doubly cursed.
In a society of such self-diagnosed “egalitarianism” there is a barely submerged vein of selfishness – and we have just the government to tap that vein, to feed off it, in return for feeding it intravenously.
When this government-fueled and -blessed, over-heated market (that discriminates against and disenfranchises the less well off) eventually vents there’ll be kismet slime from one end of the country to the other.
…. Or if interest rates rise….
The homeless crisis will just grow and grow. Given the lack of resolve to address the clear failures in the social and affordable housing sectors by our state governments and the Federal LNP government’s insistance on the primacy of private negatively geared nvestors, what hope is there. Why cant we change tack and provide 100% tax relief for mortgage interest payments for owner-occupied dwellings valued under $1M and as long as they held no other interests in real estate. If we can assist negative hearers and dividend holders, why not the family abode for low income owners?