The RBNZ today exempted new home builds from high loan to value restrictions.
The reason for putting the policy in place is financial stability. That is to reduce the accumulation of high-risk debt in the banking system. By this test, and this should be the reasonable test, this is bad policy.
By this exemption the RBNZ is saying that it is less risky to borrow to build a new house than to buy an existing house. I disagree that new house prices move less than existing house prices. So, the RBNZ is now exercising a policy of exclusion – against those high LVR borrowers who want to buy existing homes.
The justification that we need to build more houses, surely is retorted with, is this the right policy to address that problem? It also raises the question of why was this not a consideration before the LVR policy was implemented? What did the RBNZ actually know about how high LVR loans were being used, by whom and where?
By increasing highly leveraged credit flow to new builds will not solve issues to slow land release and planning restrictions.
By seemingly bending to industry and political pressure, the RBNZ has tarnished its shield of independence. I am fearful of ongoing lobbying and political interference it invites heading into the 2014 election.