The good and bad on capital housing
OLIVIA WANNAN, ALEX FENSOME AND MICHAEL FOX
THE GOOD: Houses more affordable in capital
Days after first-home buyers were hit with tough new lending rules, there is finally some good news for budding property owners in the capital - it is actually getting easier to buy a home.
Massey University's latest home affordability report, released yesterday, shows houses in Wellington are increasingly affordable, although in Hawke's Bay the news is not so good.
The report shows house affordability in Wellington improved by 9.1 per cent in the 12 months to August. However, in Hawke's Bay, purchasing power declined by nearly 11 per cent.
Bob Hargreaves, who wrote the report, said Hawke's Bay had seen the biggest fall in the country because the average wage had slumped.
But in Wellington, the average wage was rising strongly and the city had avoided the rampant price hikes seen in Auckland.
Low interest rates were also tempting many people to trade up to a more expensive home but that was tempered by warnings from the Reserve Bank that rates will not remain low for long.
Wellington mortgage broker Sonya Reid said she believed the housing market was becoming more affordable.
"People are selling for below what they would like to receive, for sure," she said.
The main problem in Wellington was a shortage of listings.
Upper Hutt real estate agent Cameron MacNeil said the capital was not nearly so bad when compared to Auckland.
A "perfectly good big family home" in Upper Hutt was a modest $350,000 and there were still plenty of people in the capital earning good wages.
"Outside the absolute centre of the city, house prices are perfectly affordable."
The report assesses affordability through an index score based on a region's average wage, average house price and average monthly interest rates.
Auckland remains the least affordable region, with a score on Massey's index of 135 per cent of the national average.
Southland remains the cheapest place to buy. Its score on the index is just over half the national average.
The Massey figures do not allow for more recent house-price increases or the growing tendency for banks to charge higher interest rates for buyers with low equity.
THE BAD: House sales may drop by 5pc
New lending restrictions could lead to house sales dropping 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 could be an impact on the number of new houses built.
From October 1, new "loan to value ratios" restrict the amount of money banks can lend to low-equity borrowers, a move 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 of that.
With the restrictions in place, banks would be forced to reduce that amount by about $8b. Allowing for several factors, including the likelihood that some first-home buyers will be able to access funding from elsewhere, the Reserve Bank estimates 5 per cent - or 4000 - fewer houses will be sold.
But first-home buyers won't be the only ones affected - homeowners 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", 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 would be difficult to 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."
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