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Investors may see biggest impact of Reserve Bank's lending limits (www.rnz.co.nz)

submitted 5 months ago by [email protected] to c/[email protected]

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The Reserve Bank says that from 1 July, banks will only be able to lend about 20 percent of their new lending to owner-occupier borrowers with a debt-to-income ratio of more than six. That means, if your household earns a combined $100,000, your loan will be limited to $600,000.

Banks will only be able to lend 20 percent of lending to investors with a DTI of more than seven.

The rules won't apply to Kainga Ora loans, new builds or refinances.

At the same time, the bank will loosen the loan-to-value ratio (LVR) restrictions so that banks can lend 20 percent of their lending to owner-occupiers with deposits of less than 20 percent, from 15 percent at the moment, and 5 percent of lending can be done to property investors with equity or deposits of less than 30 percent, compared to 35 percent at present,

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[–] [email protected] 2 points 5 months ago* (last edited 5 months ago) (1 children)

Interesting question that I have been thinking about for a while. There is a lot of hate directed at investors, but they provide an important function in the housing market, so what do you think the appropriate level of rentals / non-owner occupier properties is in the market.

I am not making a distinction between govt landlord or private landlord, since they SHOULD be held to the same standards.

From my personal perspective, when I went to uni at Massey, I went flatting, I didn't want to buy a house nor could I afford one at that time. I was happy that rentals were available.
Even if I could have afforded a house when I was that age, I'm sure that I would not have wanted that much money tied up in a house in Palmy.

[–] [email protected] 3 points 5 months ago (1 children)

Houses cost as much as they do because of supply and demand. If we could increase supply (e.g. state housing), then land values would be much lower and then you could buy a house for a lot less. You could afford a house more easily, but investors wouldn't be able to make much on capital gains because houses would only go up with inflation.

This leads to a world where rentals need to cover their costs instead of relying on capital gains. But those costs are a lot lower due to lower house prices. And you need less rentals because more people are buying.

Plus if you have ample supply, then competition between rentals keeps rents down to just above costs.

I think that boosting the housing supply is the best answer without going full socialism. If you wanted to go further, nonprofits or the government could run rentals and charge just enough to cover their costs.

[–] [email protected] 2 points 5 months ago (1 children)

I think we have too many rentals now, and building costs are sky high. But you are right, the rental market is not competitive.

Increased supply of houses would solve a bunch of issues, but there is a big hurdle to getting that supply. If LL's had to compete to keep tenants I think the market would be hugely different.

[–] [email protected] 3 points 5 months ago

I agree about too many rentals. Every man and his dog were buying them up when they were cheap. I have worked with various people buying rentals because everyone else was, now they have properties that can't get enough rent to cover their costs because they paid too much for the house and didn't have a business plan before buying - they just bought the house then worked out later what they would be able to rent it for and what the costs would be.

building costs are sky high

They are, but if nothing else changed, house prices could be a lot lower if there was ample supply, because most of the cost is imagined value. I believe there is plenty of opportunity for prices to reduce while still being profitable to build houses. Developers currently pay say $700k-$1m to buy an old house and section to build three medium density new houses on. If they were paying $350k-$500k, the houses could be $100k-$200k cheaper and they'd still make the same profit.

Hopefully the recent changes to allow us to import more building products easier from comparable countries should help the actual building costs as well.

Increased supply of houses would solve a bunch of issues, but there is a big hurdle to getting that supply.

Definitely. Especially when the government is gutting Kāinga Ora instead of doubling their funding.