New lending restrictions aimed at reining in property investors could curb building and make homes even more unaffordable in Auckland, a leading economist says.
Banks ushered in the new loan to value ratios, or LVRs, within days of them being mooted by the Reserve Bank last month.
Property investors were starting to feel the pinch as banks introduced the new restrictions. But there were predictions any success in slowing house price growth could discourage new building projects at a time when new homes were what the city needed most.
Effectively it meant all property investors now needed a deposit of 40 percent to borrow from banks. Only 5 percent of all bank lending could go to property investors with less than that amount.
Infometrics chief economic forecaster Gareth Kiernan said the fundamental problem of not enough houses remained, especially in Auckland, and house prices would continue to climb unless many more homes were built - and the new restrictions could hamper that.
He believed sales outside Auckland could fall between 19 percent and 25 percent and prices drop by between 4 to 5 percent within 9 to 12 months.
But in Auckland he predicted only a muted and temporary response, much like what happened when the first restrictions were introduced in 2013.
Sales in Auckland could fall by between 8 percent and 14 percent, he estimated.
"Which is not insignificant, but if you translate that through to house prices in the region that's likely to be a 2 to 3 percent hit to house price inflation," he said.
If house prices started rising more slowly than building costs, developers could be put off from building new homes, he said.
"What you may see is a slight delaying in a pick up of building activity that we're getting because signals to builders won't be quite as strong to get out and build as many houses."
"In our view it's kicking the can a bit further down the road in terms of those supply issues and affordability problems," he said.
Investors were feeling the pinch, Property Investors Federation executive officer Andrew King said, with some finding it harder to get bank finance or buy additional properties.
But he warned rents would rise and tennants would suffer if investors could not borrow from banks to buy properties.
QV national spokesperson Andrea Rush said it was too early to say what the impact might be on the investor market just yet.
There was ancedotal evidence some investors were having to withdraw from offers on properties because of the new rules, she said.
"So we're already starting to see that may have some effect but if you're an experienced investor it won't be that hard to raise that 40 percent deposit against your existing equity," she said.
Loan Market mortgage advisor Bruce Patten said a number of investors were no longer eligible for bank finance at all, while others were racing to buy properties before pre-approvals granted under the old regime expired.
Some investors selling their properties were getting a nasty surprise, he said.
"If a client had borrowed $400,000 and bought an investment property five years ago and now sold it for $600,000 the bank may not let them have the $200,000 differential if their loan value position is greater than 60 percent on their remaining investments.
"We are seeing scenarios where the bank is taking all of the sale proceeds and putting it toward debt reduction," he said.