Reserve Bank may take more action on housing
The Reserve Bank has focused on the housing market and ‘‘increased risktaking’’ as key threats to the stability of the financial system in the wake of Covid, warning that it may need to take more action on housing.
Deputy governor Geoff Bascand said the house price situation was ‘‘not a flashing red alert but it is a concern and what we are expressing is a desire to see some stabilisation’’.
The drivers of house inflation were probably softening due to slower population growth, more house building, and tax changes announced by the Government, he said.
But he indicated that even without an expectation of further strong price rises, the bank believed there was ‘‘a greater risk of correction than in a number of years prior’’.
The economy had so far come through the Covid pandemic better than initially feared, governor Adrian Orr said in the central bank’s latest sixmonthly financial stability report.
‘‘Successful public health measures, along with substantial monetary and fiscal policy support, helped to prevent many business failures and a larger rise in unemployment,’’ he said. ‘‘Key New Zealand export prices have also been resilient, with dairy prices highest level in several years.’’
But Orr said border restrictions, supply chain disruptions and social distancing meant some businesses remained vulnerable.
‘‘We are also seeing the impact of low global interest rates resulting in increased risk-taking and higher asset prices,’’ he said. ‘‘This is an international phenomenon, with the New Zealand impact most visible in higher house prices.’’
Bascand reiterated concern that a high proportion of new bank lending had high debt-to-income and loan-tovalue at their ratios (LVRs). ‘‘This makes recent borrowers more vulnerable to a rise in mortgage rates, and exposes households and the financial system to a decline in house prices.’’
The recent tightening of LVR requirements, particularly for investor lending, would help to mitigate some of the risks and ‘‘support more sustainable house prices’’, he said. ‘‘We will be watching how market conditions respond to the Government’s recent policy changes.’’ But, if required, the bank was prepared to ‘‘further tighten lending conditions for housing using LVR requirements or additional tools’’.
A strong housing market and a reduction in provision for bad loans has helped ANZ boost its half-year profit to $930 million for the six months to March 31. Its cash profit was up 42 per cent from a year earlier to $962m. It follows Westpac’s announcement of a 98 per cent year-on-year increase in half-year profit, and KPMG data showing banks had been too pessimistic about the effect of Covid-19. ANZ’s expenses dropped 8 per cent, due to lower personnel costs and the sale of UDC. Customer deposits and lending were up 1.6 per cent and 3.5 per cent respectively, compared to the previous quarter.