In what some may consider an about-face, the Reserve Bank has announced that it will be exempting new builds from its new lending restrictions. The Press reports:
New builds will be exempted from new lending restrictions, the Reserve Bank has announced.
It comes after the building industry raised concerns the lending restrictions would affect the number of new houses being built, affecting Government efforts to increase the supply of new homes to help curb house price inflation.
The Registered Master Builders Federation had claimed the central bank policy could jeopardise the construction of up to 5000 new homes a year and they were seeing an increased number of planned new builds cancelled as a result.
Reserve Bank Deputy Governor Grant Spencer said they had decided on the exemption following consultation with the industry.
“While high LVR construction lending is only around 1 per cent of total residential lending, it finances around 12 per cent of residential building activity.
“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.
It did seem that an exemption for new builds would be inevitable. Further, it is a good move for housing affordability. The exemption now creates an incentive for first-home buyers who are short of a 20 per cent deposit to embark upon a new build, which will in turn create an increase in housing supply.
A recent report entitled, Priced Out: How New Zealand Lost its Housing Affordability by the New Zealand Initiative notes that despite a richer and larger population, our country’s rates of building since the 1980s have not reached the levels of the 1960s and 70s. As a result, our new house building is lagging with a shortfall of at least 10,000 new houses annually – a shortfall that is continuing to grow. Here’s hoping that this exemption will go some way in mitigating that shortfall – but we still have a long way to go yet!