New lending restrictions could see house sales drop by about 5 per cent with 4000 fewer homes expected to be sold in the next year.
The Reserve Bank has also admitted that an "unintended consequence" of its clampdown on low deposit loans loans could be an impact on the number of new homes built.
From October 1, new "loan to value ratios" restrict the amount of money banks can lend to low equity borrowers, a move that is expected to hit first buyers with less than 20 per cent deposit hardest.
In a report out yesterday gauging the effect of new limits on lending to people with less than 20 per cent deposit, the Reserve Bank admits there could be flow-on effects - including a fall in the number of building consents issued, by as much as 40 to 80 a month.
It also suggests there could be "multiplier effect" from the policy, where "a whole chain of housing transactions does not take place as a result of a high-LVR borrower being unable to finance a purchase".
According to the report, new mortgage lending was worth about $50 billion a year before the restrictions, with lower equity lending accounting for about 30 per cent, or $15b of that.
With the restrictions in place, banks would be forced to reduce that amount by about $8b.
Allowing for a number of factors, including the likelihood that some first home buyers will be able to access funding from elsewhere, the Reserve Bank estimates around 5 per cent - or 4000 - fewer houses will be sold.
But first home buyers won't be the only ones affected - home owners used to topping up the mortgage to pay for renovations or new purchases may also be curbed by the new restrictions if they do not have enough equity.
The Reserve Bank's analytical paper "Estimating the impacts of restrictions on high LVR lending lending" also points out that house price inflation will cool by up to 4 percentage points in the same time period.
The LVR restrictions were implemented at the beginning of the month in an effort to reduce the risk that rapid house price inflation posed to the economy as prices skyrocketed in Auckland and Christchurch particularly.
The authors admitted that even with hindsight it will be difficult assess the impact of the policy "because we don't know exactly what would have happened without the policy".
"The Reserve Bank will be closely monitoring developments in housing and credit markets over the coming months to judge how much of an effect the LVR policy is having."
Labour leader David Cunliffe said the Reserve Bank's own figures showed home owners in regional New Zealand would be hammered by the Government's "one size fits all" solution for the runaway Auckland housing market.
In Wellington the effect would have been an average $4100 drop in house values and in Invercargill $7500.
"Large parts of regional New Zealand already have static house prices and some have deflation," he said.
Examples included Wellington, Marlborough, Kaikoura, West Otago, Central Otago Lakes and Southland.
Prime Minister John Key defended the Goverment's actions and said LVRs were only one "very small part of the puzzle".
House prices were rising rapidly because there was too much demand for too little supply, so the Government was fixing the supply issues, he said.
"I think you can overstate how big the impact of LVRS would be, but if you didn't apply LVR restrictions the Government has made it quite clear you would have increased interest rates - either would have some dampening effect on the housing market."
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