NZ Property Investor Magazine – RBNZ Wrong to Target Investors

Read David Whitburn’s comments in the NZ Property Investor Magazine where he states the the Reserve Bank targeting property investors is unnecessary, and the issue is a supply side one. He expands to state that the Watercare Infrastructure Growth Charge and Development Contributions that Auckland Council charge harm affordability.

Property Investor Magazine – Reserve Bank Wrong to Target Investors

Frenzied speculation over the potential for a capital gains tax was the main outcome of the Reserve Bank’s latest foray into the arena of Auckland’s booming property market.

Reserve Bank deputy governor. Grant Spencer said, in a speech last month. Residential property investment was an area that should be targeted to deal with the economic risks posed by housing market imbalances, particularly in Auckland.

The RBNZ is concerned about the impact a correction in the housing market would have on the country’s banking system as 60% of lending is in residential mortgages.

Spencer said measures should be considered to counter the growth in investor and credit-based demand for housing including a capital gains tax and further macro-prudential tools aimed at investors.

Spencer also said while policies to ease the supply constraints, particularly in Auckland, should be the main priority, they are unlikely to yield quick results.

Property Institute chief executive, Ashley Church said the RBNZ was wrong to target investors.

“The Deputy governor fell back into the same old cliches about investors, Tightening up the regulatory framework [via the creation of a new asset class for investment loans] makes an assumption that the problem is investors.

Church said investors were part of the solution.

“Investors tend to either buy properties that then become part of the rental pool, or they buy off-the-plan – or even develop property property themselves – which adds to the supply stock. If you put rules in place to hinder that then you are going to exacerbate the supply issue.”

In Church’s view, the idea of a capital gains tax is a non-starter.

“The Government is clearly not going to do it and Labour Leader Andrew Little has said he won’t either. Plus it hasn’t worked in other countries that have it. Australia has capital gains tax and it has done nothing to stop the hot Sydney market.”

Church said one interesting aspect of the deputy governor’s speech was that it marked the first time that the RBNZ has acknowledged there is a supply issue in Auckland.

Auckland property investor David Whitburn said supply problems, not investors, were what needed to be focused on.

He said demand was hard to control as people wanted to live in Auckland.

“Strong migration brings tremendous benefits, therefore the focus should be on the supply side of the issue and this may mean measures like removing the costs, rates, delays and uncertainty of property development ”

Whitburn suggested the development contribution (DC) and Watercare Infrastructure Growth Charge (IGC) should be removed or not funded by developer, or that there could be exemptions to DC’s and IGC’s for affordable housing projects.

BNZ chief economist Tony Alexander said the speech effectively gave the green light to more investors jumping into the Auckland housing market – rather than scaring some away.

“How? By noting that essentially there is nothing that can be done in the next two years to alter the supply shortage in Auckland.”

It would not be unusual for people to pay no attention to warnings from the RBNZ, he added.

“Home buyers have, to date, ignored all previous warnings from the RBNZ, regarding Auckland house prices and kept on buying.”