Claims that the absence of first-home buyers in the property market is due to rising prices are not correct, says the chief economist of the BNZ, Tony Alexander.
The Reserve Bank and Finance Minister Bill English have both said that buyers have been priced out of the market because affordability has become too stretched, not just excluded by the new loan-to-value restrictions.
For the past couple of months, banks have not been able to lend more than 10% of their new loans to borrowers with a deposit of less than 20%.
The most recent BNZ/REINZ survey of agents found that a net 78% were seeing fewer first-time buyers in the market.
Alexander said prices had not changed much over the past two months, but first-home buyers had dropped away since the introduction of the new rules.
And he said the survey showed that they had deserted the market even in areas where prices had barely moved. “Take Wellington for instance. A net 74% of agents this month noted that they are seeing fewer FHBs than last month. Yet over the past year on average Wellington house prices have risen by only 0.3%.”
Weekly home loan approvals are down almost 12% on a year earlier.
Alexander said: “In fact, one can argue that for the recent three-week period the number of loans has been about 10%+ less than would have been the case without the LVR rule. The LVR rules therefore are working in terms of reducing bank exposure to loss of equity on home loans should a large shock occur. The issue however is that the cost of improving financial strength is being paid by first-home buyers and the beneficiaries are all other buyers including investors and foreigners. The Reserve Bank’s actions, while based upon the best of intentions, have skewed New Zealand’s housing market toward a reduced rate of home ownership and increased ownership by investors.”