New home builds will be exempt from new lending restrictions, the Reserve Bank says.
The building industry raised concerns the restrictions on low-deposit loans would hit the number of homes being built, affecting the Government's efforts to increase the supply of new homes to help curb house price inflation.
The Registered Master Builders Federation had said the central bank's policy could jeopardise the construction of up to 5000 homes a year and it was seeing an increased number of planned new builds cancelled as a result.
Reserve Bank Deputy Governor Grant Spencer said today the bank had decided on the exemption after consultation with the industry.
"While high LVR [loan-to-value ratio] construction lending is only around 1 per cent of total residential lending, it finances around about 12 per cent of residential building activity," he said.
"This exemption means that low-deposit lending will fall outside the 10 per cent speed limit if it is financing the construction of a new house or apartment."
Spencer said the new exemption would apply to all loan applications for new residential builds from October 1, when the ban was introduced.
"This exemption will help to support the supply of new housing and, in doing so, reduce some of the pressure arising from excess demand in the New Zealand housing market," he said.
While the Reserve Bank had previously acknowledged that reduced construction of new houses might be an "unintended consequence" of the policy, Governor Graeme Wheeler has said he did not see a strong case for exempting new builds.
Master Builders Federation chief executive Warwick Quinn praised the Reserve Bank for being open to addressing the issue.
"The Reserve Bank was very professional in its approach and willing to listen all the way through," he said.
"I think the way they've approached it and their open-mindedness to the information that we were providing they should be applauded."
Retail banks did not have quality data on how much lending was done for new builds, he said.
Through independent research the federation had been able to show the impact it could have, convincing the central bank it was significant.
"I think collectively it gave a much clearer picture than we otherwise had when they first started," Quinn said.
He said the exemption could see more people looking at building their first home than previously.
Labour's housing spokesman Phil Twyford said today that the bank had "bowed to the inevitable".
"The master builders' evidence that the lending limits were putting thousands of new builds at risk blew a hole in the Government's policy of trying to increase housing supply," he said.
"The mystery in all of this is why the Government didn't properly think through LVRs in the first place."
The Government had failed to consider the effect of the policy on new builds, the fact it would lock first home buyers out of the market, or that it would depress already stagnant house prices in many parts of regional New Zealand, he said.
BNZ chief economist Tony Alexander said the decision showed "lobbying works" but that it would not have much of an impact.
"The Master Builders Federation had the report out last week showing us what they considered to be a big impact, so the message to anybody else wanting an exemption from the rules is increase your research [and] step up your lobbying efforts, basically," Alexander said.
"Apart from that I really don't think it will make much difference at all."
He said a lack of capacity in the building sector over the next few years would have more of an impact on the market than the number of people looking to buy.
New Zealand Bankers' Association chief executive Kirk Hope said the exemption was a positive, because it showed the Reserve Bank was flexible and able to respond to industry concerns.
"We've said all along that supply has always been the issue in parts of the housing market, not the availability of cheap credit," he said.
"We agree that this move will help to support the supply of new housing and reduce pressure on demand in the New Zealand housing market. We support any moves to address the supply issue."
The move complemented the Government's efforts to address the housing supply issue in Auckland, he said.
ASB Bank said in a statement the exemption removed an unintended consequence of the LVR restrictions and might encourage construction growth at the margin in the near term.
"However, given the new supply of houses would likely be higher than otherwise with these exemptions, there is likely to be less pressure on the housing market over the medium term," it said.
- Fairfax Media