House price growth to slow over coming years - RBNZ

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The Reserve Bank expects house prices will rise at a slower pace in coming years as increased construction helps ease supply constraints, and measures to curb property investors take some of the heat out of the Auckland property market.

The bank anticipates lending restrictions on property investment loans and more rigorous taxation of speculative investment will suppress house price inflation in the first year of their implementation. It also believes the recent appreciation in house prices will encourage construction to help fill the supply gap.

Governor Graeme Wheeler cited Auckland's housing market as the biggest risk to the financial system last month. Cheap money, high net migration and a shortfall of supply after successive years of under-investment created tight competition and drove-up prices. Wheeler took steps to cool the housing market in 2013 when he first introduced loan-to-value ratio lending restrictions on residential mortgages.

"House prices in Auckland continue to increase rapidly, and increased supply is needed to address this," Wheeler says in today's monetary policy statement. "The proposed LVR measures and the government's tax initiatives planned for October 1 should ease the impact of investor activity."

The property market has been a thorn in the side of Wheeler since his appointment, forcing him to juggle the competing tensions of trying to bring down a strong currency that has been kept imported inflation at bay, while refraining from cutting interest rates too low for fear of pouring fuel on to the Auckland housing market.

Borrowers are moving away from floating rate mortgages, with about 26% on variable rates in April, the bank says. One-year and two-year fixed rates are still the most popular among borrowers.

The bank's monetary policy statement says New Zealand's housing market continues to strengthen with employment growth, rising consumer confidence and lower mortgage rates, though the rise in house prices is seen as providing an incentive for firms to expand supply.

(BusinessDesk)

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