Any targeted 'macro-prudential' move against property investors could have a "noticeable impact" on the housing market, according to Westpac chief economist Dominick Stephens.
In the bank's latest Home Truths review of housing Stephens said in and of itself the regulatory changes proposed by the RBNZ for property investors would have only a modest impact on the interest rates that property investors actually face, and "therefore the impact on the housing market will be small".
However, Stephens cited the RBNZ's statement that the purpose of identifying property investors as a separate class of borrower “is partly to facilitate the introduction of a macro-prudential property investor policy, should that become necessary.”
"In other words," Stephens said, "the RBNZ’s next move might be to tighten the availability of mortgage lending to property investors, over and above the restrictions that already apply to all borrowers.
"If those restrictions are significant, there could well be a noticeable impact on the housing market."
Stephens said that Westpac economists considered property investors to be the "marginal buyer" at the lower end of the housing market – "meaning they are the most important drivers of the price".
Property investors enjoyed tax deductible mortgages, whereas first homebuyers did not – and the investors had "plenty" of access to capital.
"This means that property investors set a price-floor at auctions – if a first homebuyer wants to buy a particular house, they must pay more than that house is worth to a property investor, tax deductions included. (No wonder young people are opting to rent for longer!)"
Stephens said the Westpac economists remained "comfortable" with their forecast for a 7.5% increase in nationwide house prices this year.
"…Auckland will probably exceed that figure, while the rest of New Zealand is a little more subdued (including Christchurch)."
Stephens said the main driver of this year’s house price inflation was low fixed mortgage rates – "among the lowest mortgage rates New Zealanders have seen in a generation".
"…And we see no scope for the Reserve Bank to push mortgage rates higher again this year. Consumer price inflation is awfully low, and that obliges the RBNZ to keep interest rates low."