Reserve Bank of New Zealand LVR Consultation Submissions

From:
Sent: Tuesday, 8 December 2020 11:08 AM
To:
Subject: LVR Consultation December 2020
Hello.
While I support the re-introduction of the LVR, what would make a real impact on house price inflation is the introduction of loan to income ratios. I suggest 4.5 times annual income. The key reason why house prices are out of step with incomes is because banks have loaned more than they should to borrowers. House price inflation starts and ends with the mortgage lenders. Reduce what home buyers can borrow, and you will reduce the cost of housing. Sincerely,

From:
Sent: Tuesday, 8 December 2020 12:09 PM
To:
Subject: Re: Media release: Reserve Bank proposes reinstating LVR restrictions Hi During the 1970’s and 1980’s lending was restricted by requiring 40% of bank deposits to be held in NZ Government stock and local authority stock. It is simple and easy to measure and manage and stops banks creating credit and boosting house prices. I suggest this is more effective than LVR measures. thanks

From:
Sent: Tuesday, 8 December 2020 11:31 AM
To:
Subject: Reinstating Loan-to-Value Ratio restrictions Dear RBNZ It is a good idea to reinstate LVRs to cool the property market as I think that this is about the only hope that it can be contained and not run like wildfire. The RBNZ is very correct in voicing his opinion that it is better to have a galloping housing market than a lame duck for the present state of the economy. The LVR should be dual-fold :

1. Property investors should be toned down to the previous ratios before the lifting of
   the LVR this year. We do hope that this will help stabilise the market but it might never. We tend to forget that there are many Kiwi returnees who are part of the problem. These people have been used to earning high salaries and perks together with some expensive accommodation overseas. A million dollars for a house in New Zealand is peanuts compared to what is offered in countries like the States, Britain and S.E. Asia. They are also very cashed-up and have the means and backing to purchase more than one property. The only way we will know is for the government to keep a tab on who buys what in New Zealand. Not hard to do, since Land Information should be able to process this.
2. First-time home buyers could through the generosity of the RBNZ, have no LVR
   restriction imposed. The onus of lending prudently would then fall on the lending bank with the RBNZ overseeing that the loans are within the lending guidelines. This would also ascertain if the volatility and surging property market is due to investors or first-time home buyers or something else.
3. With interest rates the lowest we have ever seen; property investment is a no￾brainer. If I can get 3% returns, I've got it made. This is no fault of the RBNZ or Adrian
   Orr. This is the way things are now. For many, if they do not take advantage of the time-of-their-life, when do they do so? Why do we work? To enable a comfortable life for ourselves and the family. Why do we invest? To enable a comfortable life in our later years.
4. Property is under out personal control, ia sense that we are at liberty to decide when
   to buy and when to sell. Right now, the Stock market and the commodities market are and always has been a casino for the BIG BOYS to fleece the small man. Sometimes we hold on to a "good" stock for "forever". Then comes along "Santa Claus" with his bag full of money and offers, what the market perceives to be a good deal, and there goes your long-term investment. This has happened too many times over in New Zealand. So, do not blame us for investing in the property market, there is nothing else. Btw, fund managers and brokers are advocating every day for the investing public to pour money into the Capital Markets instead of property. Why? To make them richer. No other

reason. By the end of this financial year, they would have fleeced their investing and naive first-timers of fees close to or over a billion dollars. That is a helluva lot of money. Kind regards

From: Kerry McDonald
Sent: Tuesday, 8 December 2020 3:16 PM
To:
Cc:
Subject: Restoring LVR rules - comment Thomas K (Kerry) McDonald In response to your invitation for comment on this policy proposal:

• This provision should never have been removed – it was irresponsible to do so, which was
  largely for (various) political reasons.
• I have a major concern with the stability of the NZ financial system and the capability of
  RBNZ. Anything to lessen this system risk is important and an earlier date of implementation would be preferable.
• I submitted my views on the capability of RBNZ to the Treasury Review (and otherwise)
  which was of little/no value. In particular, the RBNZ lacks a hard core of the requisite policy capability and experience which would allow it to provide credible and effective policy leadership.
• This is a critical NZ problem but the regulation of financial systems in many economies since
  1998 has seriously weakened confidence in them and the relevant regulatory agencies.
• This is reflected in a progressively elevated level of financial system risk, to a now excessive
  level, including in NZ.
  Kerry McDonald
  Economist, Company Director; former Chairman of BNZ and director of NAB

From:
Sent: Tuesday, 8 December 2020 3:05 PM
To:
Subject: Reserve Bank proposes reinstating LVR restrictions Hi I hope you are well. I'd like to make a submission for the above proposal. I'm not 100% sure where to go to do that so I thought I'd just email you. I'm pretty simple but my thoughts on housing are that we need to decrease demand and the best way to do this is to remove, or partially remove, investors. You do this by making it unattractive or not viable. So, how about this:
 LVR's for investment properties (own home shouldn't be touch) to 40% or 50%, so you need 50% deposit on an investment property;  Get rid of interest only loans on investment properties, if you're only paying interest then you are 100% just looking for capital gains and it's pure cashflow, you have no intention to repay that loan until you sell;  Brightline test to 10 - 15 years;  Some sort of Loan to Income ratio. Now, I'm not sure which of these you have control of but to me if you did all of the above investors would be looking at alternatives which may give the market a chance to catch up. Kind regards,

From:
Sent: Wednesday, 9 December 2020 1:21 PM
To:
Subject: LVR Restrictions
Hi there,
I'm 28 year old male trying to save for a house by myself in Wanaka... tough task at the best of times. I am saving well and investing money to try afford a deposit but house price growth rate is out pacing my savings. I would heavily recommend the RBNZ reintroduce LVR restrictions, particularly to investors. I would hope the LVR for investors could be put up to 50-60% or introduce restrictions about using equity in other houses to be able to afford the deposit and loan for additional homes. By dropping interest rates so severely and removing LVRs the RBNZ has thrown future generations of kiwis under the bus. It is high time the RBNZ did something that didn't benefit the 1% at the expense of the rest of us. Kind regards,

From:
Sent: Thursday, 10 December 2020 1:17 PM
To:
Subject: LVR Consultation Decemeber 2020
Good afternoon RBNZ
I am submitting in favour of reinstating LVRs on investors.
My name is I am a 22yr woman living in Manurewa South Auckland. I recently graduated from UOA and my partner and I are currently looking for our first home. My bias here that I am a first home buyer, and so I am in support of most measures that are designed to slow down the housing market. However in this case even if you do reinstate LVRs it will not effect me personally, as I will probably already own a home by then. So I'm reach out not on my own behalf, but on behalf of my neighbours. I would like LVRs reinstated on investors to help more first home buyers enter the market. It is very sad to turn up to an open home in my hometown and be some of the only first home buyers. If more people in my neighbourhood were able to own their own homes, there would be more stability, less crime and better communities. It would help lift families out of generational poverty and reduce widening income inequality. Thank you for your time.

From: Mark Currie
Sent: Sunday, 13 December 2020 8:58 PM
To:
Subject: Targeted LVR'S
Hello
Especially in view of the dialogue between the finance minister Grant Robertson & Mr Orr of recent days. Why is there such a reluctance to consider TARGETED LVR'S before discussing DTI's. Surely this is an area which hasn't been exhausted enough. Suggestion:
1st home owner (and 1st ONLY)- 10%
Single home owner- 25%
2nd home owner(Investor)-50%
New build(Any)- 10%
Why doesn't the Reserve Bank use it's "new advisory " position to suggest a centrist flat land value tax of 0.333% annually on ALL land, offsetting against income tax with the revenue going towards the lowest 33% to 25% of income earners, and revenue for regional councils. Could Adrian Orr even make the public suggestion of a referendum on this controversial matter. Very, very importantly, with RMA reform, I am sure these 3 changes would break the back of the housing crisis. Thankyou for your time to consider these suggestions. Regards, Mark Currie Get Outlook for Android

From: Mark Currie
Sent: Tuesday, 16 February 2021 1:15 PM
To:
Subject: RE: Targeted LVR'S
Thanks
Maybe I didn’t clarify enough that any tax raised from Land Value Tax should only be spent in the region it is gathered, with obvious differences from region to region. This would be an economically sustainable solution to the broken Housing supplement scheme, which sucks revenue from central government, and does nothing to stop the escalating price of LAND. At 0.333% annually on ALL land, from my amateur calculations, I believe the tax raised nationally would raise $4 – 5 billion. Thanks for your consideration. I am happy to have this published, with my name included. Please don’t include my workplace name and details. Regards Mark Currie

From:
Sent: Sunday, 13 December 2020 10:28 PM
To:
Subject: Re: Media release: Reserve Bank proposes reinstating LVR restrictions To whom it may concern: RBNZ 'LOAN TO VALUE & MUCH MORE' SUMMARY: All possible options, on or off the table (for now) have been canvassed in the local Aotearoa financial media. Usually the most obvious - a CGT - gets a 'plain necessary as the nose on your face' placement. Quickly followed up by a 'but; but; but' list of problems and issues of implementation. The entire investment mindset of Kiwis has for generations (meaning since early 1960s) has been 'home ownership' based on (1) 'why pay; as rent someone else's mortgage' and (2) 'rents being as high as they are [out of net incomes] paying a lower-cost mortgage on a property for long term home ownership is a no-brainer' The question can then be put (3) How can Aotearoa NZ now avoid a society sharply divided on BOTH incomes [high v low] AND on ownership of assets in land and improvements [high v low] (4) AND by extension overexposed in the case of 'investors' AND 'nest-builders' to an 'auction market' that can with a 'snap of the fingers' become completely ILLIQUID and hence 'crash' for want of buyers and sellers (5) Taking out core intermediating banks ? HOUSING & ECONOMIC WELFARE
1.1 No one can fail to notice that social & state housing policy can only be made effective if
the operational choices made are incorporated into the related Acts of Parliament portfolios:
HEALTH (social distress and self-harm; suicides) SOCIAL DEVELOPMENT (making short to medium directional changes) and HOUSING (including types or housing to taste or need).
1.2 It is already clear what options are possible - including reinstating LVR lending ratios
(deposit proportion: value of mortgage contract @ given 'offer interest rate) - but have to extend far beyond LVR controls alone. That has been made clear recently by PM Jacinda Ardern. POLICY CONUNDRUM (?) OR CONUNDRA !
2.1 Some commentators are now finally; belatedly making the call -
There is no longer any formalized; orthodox theory or paradigmatic model that fits the facts [mechanistic workings] of the Aotearoa NZ domestic economy, operating openly and 3xpo within a world competitive frame. NEW KEYNESIWNS v NEW CLASSICALS
3.1 Whether viewed as a 'Keynesian Aggregate' OR as a 'Walrasian Web' of continuously￾clearing; stable and steady-state expanding sub-markets) - knowing -

(a) 'how the economy NOW actually works' - as the sum total of human interactions and economic production units (firms) (b) how the economy: particularly 'western 80% service exchange economies' - actually respond to monetary and fiscal policy 'levers' (or exhortation for that matter). (c) Or as it is increasingly obvious - how economies DON'T BEHAVE AS ASSUMED (?) REAL PRODUCTION v MERE MONEY-EXCHANGE
4.1 One service for another; plus mark up = 'profit' = 'economic surplus' = 'growth myth' ? In
that regard new classical macroeconomics assumed (incorrectly ?) workers; employees and enterprise owners 'knew' the real wage (or could ascertain it by proxy). And, were not 'money illusion fools' ie not subject to 'nominal confusion'.
4.2 On that basis any changes to wages were immediately assessed as having REAL
INCOME EFFECTS; OR NOT. If not then employment (hours of employment) and unemployment could not change. NATURAL RATES 'not too hot [high] v. not too cold' [low]
4.3 It was a reasonable assumption from the New Classical Model to assume (1) an
immovable NATURAL or 'Goldilocks' rate of unemployment, estimated (USA) to be 6% and New Zealand: based on the long run average in actual HHLFS 1986-2020: in fact a roller￾coaster record ~ 5% of workforce.
4.4 And matched with that a NAIRU in which inflation sh/could be held in a 1 to 3% SNZ
CPI range.
4.5 The rationale: 'galloping inflation in one direction' distorts market signals needed to
reallocate Labour and capital from sunset to sunrise sectors.
NZ ISSUE: What sunrise sectors? 1. AirBnB, Uber and the like 2. funeral services 3. op shop sector 4. tourism (big Q ?) 5. export of education (now abruptly fragile ?) 6. home-working 7. SME entrepreneurs ? (Mean SME life ~ five years with high risk of capital destruction)
4.6 By lowering/raising the base OCR rate to set/reset the term structure of all interest rates.
As a BOOSTER/DAMPER on the prime villain CONSUMERINFLATION. As, or when necessary, a lever upon credit creation and borrower demand for reckless ponzi schemes in a deep recession. NAIRU ('non-accelerating inflation rate unemployment')
4.7 Facts are: repeated cycles of very low unemployment are discernible in the NZ
macroeconomic record. The HHLFS rate had9 repeatedly reached an absolute nadir ~ 3.5% (a) prior to the 1987 share and property market crash

(b) prior to the 1997-98 Asian Tiger Crash (in the course of which HHLF surveyed unemployment soared to 8% cf. the absolute peak of 11% in 1991-92 (in delayed climactic fallout from the '87 Crash; compounded by the Budget of 1991 ['MOAB'] (c) In Yr 2007 just prior to the 2008-14 long slump out of the 'GFC' = World Economic Crisis that came from mortgage backed securities AND a substantial international banking crisis. (d) There has been a precursor lengthy 'monotonic' [straight line] decline in the NZ unemployment rate since the THIRD HISTORIC REAL ESTATE SPECULATIVE BOOM began c. 2010-20. Which led in 2016 to another absolute nadir in SURVEYED UNEMPLOYMENT of ~ 3.6%. Which has since the Covid-19 impact bounced back UP toward almost DOUBLE @ 6-7% 'Jobseeking'. TRUE UNEMPLOYMENT [GENUINE OR 'REAL PRODUCTIVE']
5.1 POINT OF DEBATE: In Soviet National Income Accounting of the classic 1950-80
period Soviet central planning growth-accountants did not believe the services sector (from government bureaucracies to private exchanges, not involving production of goods and services) SHOULD NOT BE RECORDED - and were not.
5.2 It has long been discernible from wider definitions of 'weak labour force attachment' that
allowing for (a) long term discouraged unemployed (b) those with mental and physical impairment; the dying (c) technological and skills mismatches and process change (d) no amount of normative exhortation to 'pull your weight' (e) 'everyone should work, who can' could is not much more than empty political rhetoric.

From:
Sent: Thursday, 17 December 2020 6:37 PM
To:
Subject: LVR Consultation December 2020

Following is my submission on LVR

 House Price Problem, is more a land price problem, as cost of house building has increased but its more the cost of the land that is inflating..  Land price is a direct impact on cost of providing products and services.  So since land prices have increased so much, wage increases have been subdued. So any inflation that has been present, has been from land prices not labour price increases  also business loans are normally higher cost as they represent more risk. Banks should be required to have a risk premium on investment properties.

My recommendation is for
 LVR of 60%
 any investment property of less than 60% capital should have a higher interest rate applied. of 2% extra whether floating or fixed.. and banks should be required to pass this higher rate onto mortgage holder event of the rate is fixed.

I do have an idea, that may seem odd, but it could help in addition to above. and it is outside your perview.. But you could recommend to Govt. The Govt has raised minimum wage.. and this partially helps increase inflation, as costs need to be passed on.. But this doesn’t necessarily see upward movement in all wages.. So my idea is to increase wages for all employees in NZ across the board by $1-2 per hour each year for next 5 years. This is fair, as all employers are in same boat, and would likely need to adjust prices to accomodate. This has benefit of  increasing inflation  lowering ratio of wages to house prices.

ie what we need to do is stop land/house inflation. and increase wage inflation. There is precedent to government making wage increases to whole of market. This was in the form of changing Annual leave from 3 weeks to 4 weeks. Which essentially was a 2% wage increase. So the market can sustain a wholesale wage increase. However a percentage wage increase still widens the gap between rich and poor. A consistent dollar amount wage increase for all people if fairer and lessens the gap between rich and poor

Thanks

From:
Sent: Saturday, 26 December 2020 8:31 AM
To:
Subject: Submission LVR Proposals
Greetings
This is my submission to the LVR proposals.
Under the new construction exemption reduce the deposit requirement from 20% to 10% and removed the Low equity premium (LEP) that may apply to loans with less than 20% equity (more than 80% Loan to Value Ratio – LVR). We need to increase the supply of housing, tinkering with the demand side of the equation will fix the housing crisis. You need to incentivise investors to build more houses, the government cannot increase supply of housing, history has shown this. Make it easier for Property Investors to invest in new builds. Property Investors are the solution to the problem, not the problem. Incentivise new builds so investors can exist ‘existing houses’ market so those houses can be left for First Home Buyers, which will lead to an increase in supply of new housing. You get a double positive outcome - increased supply of nee housing and more existing houses for FHBs to purchase. Thanks

From:
Sent: Friday, 23 October 2020 8:47 AM
To:
Subject: LVR restrictions
Good morning,
Congratulations on the recent election results!
I was very disappointed with the news on RNZ this morning about how the LVR restrictions have been relaxed for property investors leading to the latest surge in house prices. Please could you intervene to ensure the Reserve bank reinstates the LVR restrictions. The last thing this country needs right now is a property boom. It affects vulnerable people in the community, and widens the gap between the rich and poor. Regards

From:
Sent: Friday, 13 November 2020 9:43 AM
To:
Subject: Demonstrating Solidarity, Compassion and Courage: Housing: Addressing the Imbalance Dear Prime Minister, Jacinda Ardern Demonstrating Solidarity, Compassion and Courage: Housing: Addressing the Imbalance I want to thank you for going on record and saying, with regards to the housing unaffordability crisis that "It just cannot keep increasing at the rate that it is" ; because, clearly this is (and has for some time been) in the realms of insanity. It takes compassion and courage to publicly say what needs to be said: that multiple generations of New Zealanders right now (and yet to come) can no longer afford to purchase (what I believe should be a fundamental human right) their own home. The current situation has reached a level of insanity that can only be addressed through direct government intervention - as folk no longer act with common sense, but are driven by fear, desperation and emotion to pay vast sums of money that are, really, unaffordable - no matter what the interest rate is. I have faith in you and your team to do the right thing and stand up for the common man, and look forward to the response of your team in dealing with this unacceptable situation. The sooner LVR restrictions are increased dramatically for investors, the better. The fact that, at this point in our history, we find ourselves in 'a perfect (property) storm' as a consequence of COVID-19 and New Zealanders returning form abroad in droves, is no excuse for standing by idly and doing nothing about it. I commend you on your courageous stance !

Kind regards

From:
Sent: Wednesday, 18 November 2020 9:35 AM
To:
Subject: A personal case study : Why LVRs should be lowered to 5% for FHBs Dear Prime Minister I note with positive optimism your comments in the media in considering lowering the deposit threshold for first time home buyers. I write to you today to share our personal circumstances, in our pursuit to purchase our first home in New Zealand. For many months now, we have been watching and listening to economists make predictions on the housing market, and get it horribly wrong. We emigrated from South Africa and became proud NZ residents in July
2020. A critical part of feeling at home and increasing your sense of
belonging in a new country, is home ownership. My two boys, familiar with the stability that home ownership brings (we owned our home in South Africa), sometimes say that ‘we are now homeless’. Which is obviously not the case, and we have wonderful landlords, however, this underlines the emotional fulfilment that owning your own home brings. Our savings goal :
My husband and I are both employed in stable, good jobs, and earn decent incomes. However, we are nowhere close to meeting the 20% deposit threshold. After selling our South African property, we immediately placed every last cent into a Term Deposit at a New Zealand bank. We have a diligent savings plan, and in addition to contributing to KiwiSaver, save a combined total of 36% of our nett after tax salaries in a dedicated ‘home deposit’ account. Our goal is to be in a position to qualify for a mortgage and purchase a home by the time our two year rental contract expires, which is August
2021. My projections indicate, whilst adhering to this very strict savings
regime, that we will only have 8% deposit saved by that time, which is incredibly disheartening. Wellington’s median house price has increased by $100 000 over the past 10 months, which means that it’s a moving target, and our chances of reaching even a 10% deposit by next year reduces every month. An online ANZ mortgage calculator indicates that we may qualify for a $1 500 000 loan value, which way exceeds our targeted loan amount. A standard, family sized home will range in cost between $900 - $950
000. And even though we can comfortably repay a higher monthly

instalment, we are risk averse at heart and do not want to over-extend ourselves. As our guaranteed annual combined gross income is +$180 000, we do not qualify for Kainga Ora’s First Home loan initiative. We may be able to qualify for a new development loan with a 5% deposit, but there are no new developments planned for our area in the foreseeable future due to lack of land availability. We would prefer to remain in the town we currently live in, Tawa, approx. 20kms north of Wellington, as we don’t want to disrupt our children’s lives again by uprooting them to another neighbourhood. LVR’s for investors :
The recent move of 3 of the major banks to reintroduce a 30% deposit LVR for investors is encouraging but ineffective, if in fact banks allow the 30% deposit to come from unrealised equity gain from another property, ie in reality they do not put down any cash as deposit. Friends of ours are in that fortunate position. They have been granted a loan for a second property against the current value of their primary property and do not have to fork out any cash. There’s a massive difference between requiring a 30% deposit which needs to be funded with cold hard cash, eg $300 000, vs the bank doing an internal transfer between your existing and new home loan. This means that the newly reinstated 30% requirement will do very little to give FHB’s the competitive opportunity to secure fair value house prices and investors will continue to buy property in the low interest environment and further drive up the prices. Key points for consideration :

• By not allowing a FHB to buy a home with only 5% deposit, the time it
  takes for them to reach 10% or even worse 20%, the extraordinary rate of house price increase would erode the proportionality of the savings as deposit;
• Whilst FHB’s are saving towards the deposit, those funds are kept out of
  circulation of the NZ economy, which it badly needs at the present;
• By allowing more FHB’s to enter the property market, you will start to
  reduce the current wealth divide between property owners and non￾property owners;
• There’s a difference between ‘high risk individuals’ and a ‘high risk
  loan’. The ‘high risk’ is not the person being financed, but the constant increase of property values, meaning the bank has to outlay more funds and the buyer has to sign up to eye watering levels of debt. There is a significant skilled migrant population of new residents who all owned property in their previous countries, had impeccable credit records, yet face this barrier to home ownership.
• If we were truly ‘high risk’, we would not keep up with rental payments
  and there would be poor financial conduct evident in our bank

accounts. From the perspective of a FHB, it makes no sense to be paying increased rental expenses to an investor, and not be able to use that same money towards paying off your own mortgage.

• Our KiwiSaver savings cannot be used towards funding the deposit, as
  there is a 3 year contribution rule.
  Our suggestions and request :
   Allow FHB's who meet the bank’s credit assessment and repayment criteria to purchase property with a 5 % deposit;  Allow the KiwiSaver first time home withdrawal requirement of 3 years contribution to be waived;  Increase Income Cap & Increase House Price cap of Kainga Ora’s First Home loan criteria. (current max income of $130 000 and max house price cap of $500 000)  In addition to introducing stricter LVR requirements for investors (+30%), require them to actually fund the deposit in cash. I respect and appreciate the independence of the RBNZ, but appeal to you as Government to positively influence the environment that will enable us to realise our goal. Yours sincerely,

• First Home Buyers:
  o Make low LVR’s available to first home buyers – 90-95%. Build in parameters to ensure that this cannot be arbitraged i.e. it applies to one person or a couple, once and subject to the purchase price being <120% of the regional average they live in. o Limiting low LVR’s to people trying to get on the market at a an entry level point tempers risk for banks in that you are funding the purchase of assets that have a greater degree of liquidity. o Those that want more expensive houses or perhaps are leveraging family resources too don’t get the same LVR benefit. o Propose that this be in substitute to government grants or cash subsidies that would otherwise act to increase overall prices.

• Apply a more dynamic LVR model to incentivise new builds:
  o Establish a delta in the LVR between new builds and existing stock to encourage the latter.

• Apply a more restrictive LVR model to residential property investors:
  o Dramatically reduce the LVR available to residential property investors; o In the shorter term this may need to be used as a toggle to ensure price stability i.e. up and down to ensure you don’t result in negative price movement that could be equally detrimental to the economy; o Longer term, look to materially remove access to leverage. This is less about bank stability, more focussed at ensuring that you see a shift in capital from non￾productive housing stock into more productive segments of the economy like business; o productive so that capital can begin to shift into more productive segments of the economy;

• Taxation:
  o Introduction of Capital Gains Tax or alternatively, the extension of the Bright Line Test, may inadvertently reduce housing liquidity as people hold onto assets for longer; o As an alternative, if you were to dramatically reduce leverage across investment portfolios it would result in positive gearing not negative gearing, producing positive cash flows that are taxable as income tax. The benefits are twofold in that (i) it delivers a more stable and consistent tax stream for government; and (ii) avoids unnecessary cost and political consequences of introducing a new tax; o The above measures would go some way to taxing people with genuine wealth and provide an opportunity to reverse the income tax increase recently passed. Higher individual tax penalises discretionary effort to get ahead in life and is much easier to win votes and stay in power as a government than it is to make meaningful change that impacts a much wider voter base, In summary low interest rates are creating increasing disparity and inflating asset prices which include our housing stock. Banks have retained discipline around low LVR lending so their reintroduction is unlikely to yield demand without more dynamic application. It’s also worth noting that the book equity most property investors have generated over the past 12 months is unlikely to be offset by a reduction in investor LVR’s to 60%.

Even if house price inflation hadn’t taken flight over the last 12 months, targeting a reduction in investment property investment is needed to advance broader national interests. Taxing the top 1%, increasing regional fuel tax or increasing minimum wage will not address the issues we face with the latter largely adversely impacting the worse of members of society through inflation. What would happen if residential property investment capital shifted to business investment and entrepreneurialism? Perhaps you’d see an increase in GDP per capita (as opposed nominal GDP growth from clogging our infrastructure with more people) and with that a rise in incomes for those who are most vulnerable.

FIRST Union submission to the
Reserve Bank of New Zealand regarding
Reinstatement of Loan to Value ratios

1. INTRODUCTION
   1.1 FIRST Union (hereinafter ‘FIRST’ or ‘the union’) is a private sector trade union
   representing more than thirty thousand workers across the retail, finance, commercial, transport, logistics and manufacturing sectors. Housing affordability is one of the four pillars of our strategic plan and therefore one of the key focal points of our work.
   1.2 The union has thousands of members in the finance sector, including hundreds of
   workers at private banks that assist in providing mortgages to working people across the country. Many of these workers have long held the view that rapidly rising house prices are unsustainable for NZ workers and the economy as a whole. For this reason and others, a key campaign for finance sector workers over the past decade has been the removal of sales targets, that also have major impact on job security and worker’s mental health. 1
   1.3 FIRST members include many of low-paid essential service workers, many of whom
   have been severely impacted by the economic shockwaves associated with Covid￾19. In the third quarter of 2020 unemployment had grown by 1.2% to 4.8% and labour underutilisation had grown by 2.4% to 10.6%; 2 workers across the country are losing their jobs while even more are experiencing cuts to their hours. A December 2020 Horizon Research survey suggests that over 1.1 million adults across NZ are ending the year worse off than they started it, with low-income workers among the most vulnerable groups. 3
   1.4 For most low-income households across NZ, housing – whether renters or
   mortgagees – the largest expense is housing, swallowing an increasing proportion of workers’ income. Homeowners and renters experienced some state relief during the crisis, including the removal of loan to value ratios (LVRs), a rent freeze (expiring in September 2020) and mortgage holidays (due to expire in March 2021). These and other protections for homeowners, as well as the $28 billion Funding for Lending programme, have resulted in a significant unforeseen upward shift in house prices, severely impacting affordability for low income families.
2. HOUSING UNAFFORDABILITY
   2.1 By 2018 home ownership amongst New Zealanders had fallen to 64.5 percent, its
   lowest level in more than half a century. Since 1991 this same trend has echoed across every region in the country, as working people have been increasingly priced out of the housing mortgage market. A majority of FIRST Union members are low￾waged workers, and our data indicates that most are renters.
   2.2 According to REINZ data, in December 2020 the median national house price had
   risen to a new high of $749,000, an increase of 18.5 percent from just one year prior ($632,000). In October 2020 alone the national median house price increased 1 In 2013 FIRST Union published the paper titled “Women and work in the NZ banking industry:
   Targets and Debt following the crisis”, that cited workers’ attitudes towards sales targets, the severe stress associated with those achieving those targets and how this was used as part of a performance management agenda. 2 See https://www.stats.govt.nz/indicators/unemployment-rate and https://www.stats.govt.nz/indicators/underutilisation-rate. 3 See https://www.stuff.co.nz/business/123823096/over-one-million-adults-worse-off-than-at-start-of￾year-horizon-finds.

$24,000. In Auckland – where a majority of the union’s membership live – the median price grew to $1,040,000.
2.3 The union believes that NZ’s housing stock is now heavily overvalued, fueled by both
a material housing shortage, declining interest rates, tax benefits and a lack of other competitive investment opportunities. As a result the value of NZ’s housing stock has increase $250 billion to $1.3 trillion since the election of the Labour Government in September 2017, a period in which only the number of new dwellings has increased only 7%.
2.4 This single-term increase alone is larger than the value of the entire New Zealand
stock market. The money that floods the housing market – including the $28 billion from the Funding for Lending programme – starves other key parts of the economy of much-needed investment opportunities, hindering the process of decent job creation elsewhere.
2.4 House price inflation has consistently outpaced wage growth, such that in mid-2020
the Auckland median house sales price was about 11.5 times the median household income (according to Demographia the national ratio is 8.64 ).
2.5 Rents in New Zealand tell a similar story. While MBIE data on median national rents
seems to end in June 2020 (at $485 per week), the Trade Me Rental Price Index reached $515 in January 2021 a 4% annual increase. While Auckland experienced more moderate growth (2.7%) it remains the most expensive region in country, with median rents of $570 per week.
2.6 The level of indebtedness amongst low-income New Zealanders is growing out of
control, with the level of household debt reaching 162.7% of income in Q3 2020, its highest level yet. Figure 6 of the Consultation document shows that for households with mortgages this is almost at 350%. While we don’t yet have data for Q4, the relatively high involvement level of first home buyers in the market and the record high prices would indicate that household debt is likely continuing its upward trend (since March 2012).
3. LOAN TO VALUE RATIOS
3.1 FIRST Union supports the use of macroprudential tools like loan-to-value ratios
(LVRs) to reduce financial risks like asset bubbles, as well as influencing market participant behaviour to improve housing affordability. In this instance, however, we believe the current proposal does too little to support working class people into home ownership, while at the same time continues to promote dangerously-leveraged investors to play an outsized role in the market.
3.2 Under the current proposal, two LVRs would be reinstated:
A) For owner-occupiers setting a maximum of 20 percent of new lending at LVRs above 80 percent; and B) For investors setting a 5 percent maximum of new lending to investors at LVRs above 70 percent. 4 See http://demographia.com/dhimedia2020.pdf

3.3 It is clear that the role of rent-seeking investors in the market – who can profit from
both high rental costs and periodically cash in capital gains through reselling – are playing a larger role in the market now. September 2020 data shows that investors had a 26% share of purchases in the third quarter of 2020, the highest figure since Q3 2016 (soon after this RBNZ implemented 40% LVRs), 20% higher than a year ago.5
3.4 This point was underscored by data analysis undertaken by Ramifier which matched
up property title and companies office records, indicating that:

• One sixth of property in New Zealand is owned by professional investors that
  have more than twenty properties to their name;
• One third of property in New Zealand is owned by ‘mum and dad landlords’.
  This data includes all kinds of property (rural, commercial and residential), however it clearly demonstrates that investors have a disproportionate impact on land use and home ownership in New Zealand, to the detriment of the working class who are increasingly priced out of the market.
  3.5 The outsized role of investors has helped transform housing into the primary asset
  class in New Zealand, as it is the best way to make generate wealth, in the form of rent payments and untaxed capital gains. This, plus a number of other factors, have helped to undermine housing unaffordability. The high level of investor ownership in the market also means that in the event of declining house prices they would be more likely to sell their properties due to the risk of losses. This may in fact become a necessary step to improve affordability for first home buyers.
  3.6 Since LVR restrictions were removed the share of new investor lending at LVRs
  above 70 percent has increased to around 35% of total new investor lending. The enormity of new investor borrowing is a major threat to affordability.

4. RECOMMENDATION
   4.1 In our view, more restrictive LVRs for investors – particularly professional investors –
   need to be put in place until such a time that the property market slows down and housing construction increases. We believe that for now professional investors should be limited to borrowing 25% or less of a property’s value. At the same time, barriers for first home buyers need to be reduced, with LVRs for first home buyers increased to 90%. Therefore we advocate for the following LVRs:
   A) For first home owner-occupiers setting a maximum LVR of 90 percent, such that first home buyers experience a maximum deposit size of 10%; and B) For owner-occupiers who are not buying their first house setting a maximum of 20 percent of new lending at LVRs above 80 percent; and C) For investors introducing a minimum LVR of 25 percent, such that investors would need to have a deposit of 75% or more. 5 See https://www.corelogic.co.nz/news/first-home-buyers-take-record-share-purchases-q3#.X￾7Ngekzaw4

PO Box 11543
Wellington
New Zealand
Ph 04 385 8722 www.commmunityhousing.org.nz
20 January 2021
Financial System Policy and Analysis Department Reserve Bank of New Zealand PO Box 2498 Wellington 6140 LVR Consultation December 2020 By Email:
Thank you for the opportunity to offer our views on the reinstatement of loan-to-value ratio (LVR) restrictions on residential mortgage lending from 1 March 2021. We support the immediate reinstatement of these restrictions to mitigate the extremely negative impacts on housing affordability which resulted from their removal in April 2020. In addition, we again call on the Reserve Bank to take a more active role in ensuring the affordability of housing.

1. Community Housing Aotearoa (CHA) is a peak body for the community housing
   sector. In order to achieve our vision of ‘all New Zealanders well-housed’, we have a strategic focus on supporting a well-functioning housing system, and working toward the progressive realisation of the right to housing.

2. Our 90 provider members are home for nearly 30,000 kiwis nationally across 18,000
   homes, and our 19 partner members include developers, consultants and local councils. Community Housing Providers (CHPs) are primarily not for dividend entities that develop, own and manage social and affordable housing stock, with rental and progressive homeownership tenure offerings. We work closely with Te Matapihi, which represents Iwi-based and Māori community housing providers. More about us can be found here.

3. Banks are significant lenders to our sector providers. Our members are classified as
   investors and subject to the commercial - rather than residential – lending requirements and programmes in place. Although they are supporting government efforts to provide affordable housing, there are no settings that recognise – or incentivise – banks and financial institutions to provide preferential lending to the not for dividend community housing sector. We and our partners have made previous submissions, on the LVR changes and to the finanical markets authority consultation, raising these issues.

Problem definition for this policy
4. We are concerned with the sharp increase in house price inflation and the continued
lack of a mandate for the Reserve Bank to target house prices. Whilst the RBNZ looks at the risks this poses for financial stability, the limited scope to address the negative impacts on society of extremely unaffordable housing risk allowing continued pressures to build which could undermine the overall perceived legitimacy of government institutions and their adopted policy and regulatory settings. The risks are greater than just the banking sector.

5. We are concerned with the impacts on households of the high house price-to￾income ratios and household debt levels relative to both international comparator
   countries and historical averages. Should the current historically low interest rates begin to rise, there is potential for widespread defaults impacting both households and the banking sector.

6. We share the RBNZ’s concern about the increase in high-LVR lending to investors
   since the restrictions were removed. We believe this has directly contributed to the futher deterioration in house price-to-income ratios and household debt levels for households with mortgages. We also believe it has contributed to rising homelessness through the deterioating affordability of homes and rents. Policy proposal

7. We support the reinstatement of LVR restrictions as a necessary step to meet the
   RBNZ’s focus on financial stability, but more importantly, to help ease pressures on lower income households to maintain a roof over their heads.

8. We again call upon the Reserve Bank to work with banks and financial institutions to
   provide preferential lending to the not for dividend community housing sector that recognises they are not driven by the same economic factors as profit-oriented investors. Doing so will assist the government to achieve its stated goals in ending child poverty, and to see homelessness become rare, brief, and non-recurring. Doing so will also assist in the progressive realisation of the right to housing. Impacts on reinstating LVR restrictions

9. We agree with the RBNZ’s assessment that high-LVR investor lending will fall rather
   than rise by reinstating the restrictions. We also agree that the impact on owner￾occupiers will be more muted.

10. We agree with the analysis that the orginal imposition of LVR restrictions and the
    further tightening of those helped to moderate house price inflation.

11. We do not share the RBNZ’s expectation of a small negative impact on economic
    activity from reinstatement. We believe that the current house price and rent levels

are stifling consumption and negatively impacting on households and the economy.

12. We do not forsee an impact on the supply of rental property due to the
    reinstatement of the LVR restrictions, primarily due to the exemption regime on new build investments. We hope that by mitigating house price inflation more first homebuyers can enter the market and somewhat ease competition for existing rental housing. In summary, we support the reinstatement of the LVR restrictions. We again call upon the RBNZ to work with banks and financial institutions to provide preferential lending to the not for dividend community housing sector to further ease the negative impacts of high house price-to-income ratios and household debt levels both on households and as a risk to financial stability. We would welcome a discussion with you on the above points. Kind regards

Kiwibank Limited
Level 9, 20 Customhouse Quay,
Private Bag 39888,
Wellington 5045
21 January 2021
Cavan O’Connor-Close
Financial System Policy and Analysis Department Reserve Bank of New Zealand WELLINGTON By email: macroprudential@rbnz.govt.nz Dear Cavan Consultation on Reinstating Loan-to Value (LVR) Ratio Restrictions Kiwibank welcomes the opportunity to submit on the Reserve Bank’s Consultation Paper:
Reinstating Loan-to-Value Ratio Restrictions.
Kiwibank supports the Reserve Bank’s proposal to reinstate LVR restrictions from 1 March 2021 at the levels they were at before their removal last year due to the onset of Covid-19. We agree that re-imposition of LVR restrictions should reduce financial system risk, the key objective of this change and help to moderate house price increases. As the Reserve Bank is aware, Kiwibank chose to impose similar limits with respect to its residential mortgage lending during the last quarter of 2020 and considers these limits to be sensible in the current circumstances. Kiwibank considers it is well placed to comply with the new restrictions from the proposed 1 March 2021 commencement. However, if as a result of this consultation the Reserve Bank determines that the new restrictions for lending to investors should apply at a lower LVR level, or that the speed limits should be more restrictive, the implementation date should be extended. We believe that it would not be in the public interest if loan pre-approvals have to be withdrawn in order for banks to ensure they comply with any more restrictive conditions of registration than those already signalled. In order to avoid the resulting inconvenience to customers in that situation we suggest the Reserve Bank allow an additional three months for implementation from the time of any announcement. This will allow time for banks to clear their existing pipelines of loans that have been approved but not yet settled, and pre-approvals that have not reached that stage. We consent to this submission being made public. Yours faithfully Liz Knight Chief Risk Officer cc: Richard Wallace, RBNZ

Bank of New Zealand
Level 9, 80 Queen Street, Auckland
Private Bag 92208, Auckland 1142
New Zealand
Cavan O’Connor-Close
Financial System Policy and Analysis Department Reserve Bank of New Zealand PO Box 2498 Wellington 6140 By email:
22 January 2021
Dear Cavan
LVR Consultation December 2020
Thank you for the opportunity to provide feedback on RBNZ’s proposal to reinstate the loan-to-value ratio (LVR) restrictions from 1 March 2021 to the same level as before the onset of COVID-19, which was:

• for owner-occupiers – a maximum of 20 percent of new lending at LVRs greater than 80
  percent (after exemptions); and
• for investors – a maximum of 5 percent of new lending at LVRs greater than 70 percent (after
  exemptions).
  BNZ supportsthe proposal and has already reinstated LVR restrictions for investors(after exemptions). With effect from 7 December 2020 no pre-approvals for new lending to investors at LVRs greater than 70% have been allowed. In addition, current internal credit settings and appetite for owner occupier non-exempt commitments volume has been consistently managed below the RBNZ restriction of 20 percent and this status will be maintained. Q1: Do you have any comments on the problem definition for this policy? We understand the problem definition to be that an increase in highly leveraged borrowing, against an uncertain economic backdrop due to COVID-19, is beginning to create risks to financial stability. This is because if household balance sheets are highly leveraged, a downturn in the housing market can place banks and households under pressure through rising mortgage loan losses, especially if unemployment increases. In a worst-case scenario, this could lead to a ‘fire sale’ of distressed housing assets, which would increase the likelihood of a negative feedback loop between the housing market and the wider economy BNZ has no comments on the problem definition noting the feedback provided by BNZ in the original LVR consultation. Q2: Do you have comments on any aspect of our policy proposal? We understand that the aim of the policy proposal is to limit the risks to financial stability associated with high-risk lending in the housing market and we agree that reinstating LVR restrictions will go some way to achieving this aim.

22 January 2020
Cavan O’Connor Close
Financial Systems and Policy Analysis Department Reserve Bank of New Zealand PO Box 2498 Wellington 6140 By email:
Dear Cavan
ASB response – LVR Consultation
ASB Bank Limited (ASB) welcomes the opportunity to provide feedback to the Reserve Bank on the reinstatement of Loan to Value Ratio (LVR) restrictions. Our responses to the consultation questions are set out in the enclosure to this letter. We acknowledge that ASB’s submission may be published on RBNZ website and may be released in response to a request under the Official Information Act. ASB does not seek confidentiality for any aspect of this submission, other than my direct contact details below. If you require any further information in relation to this submission, please do not hesitate to contact me. Yours faithfully, Jennifer Bourne Manager, Government Relations & Regulatory Affairs ASB Bank Limited Enc.

_________________________________________________________________________________ ASB responses to consultation questions _________________________________________________________________________________ Q1: Do you have any comments on the problem definition for this policy? We have no comments on the problem definition. Q2: Do you have comments on any aspect of our policy proposal? ASB is supportive of the policy proposal to reinstate Loan to Value Ratio (LVR) restrictions by re￾introducing section BS19 of the Banking Supervision Handbook. We agree that LVR restrictions help make household and bank balance sheets more resilient to a correction in property values if it occurs. ASB believes a balanced and sustainable housing market is in the best interests of all New Zealanders. The lending market has improved markedly since New Zealand went into its first lockdown. COVID-19 hasn’t impacted the property market as anticipated and ASB is now witnessing rapid growth in lending volumes. The number of applications ASB is receiving is at an all-time high, up 70% on this time last year, and while the proportion of first home lending is up, we have observed, since COVID-19, a rapid increase in lending for investors. As the Reserve Bank are aware, we have already increased the minimum deposit required of investors to 30%, to help re-balance the market and support opportunities for first time buyers. We will continue to review these settings in light of economic and market conditions. Other options for managing financial stability risks We note that the Reserve Bank is contemplating the use of other macro-prudential tools, such as Debt-to-Income (DTI) limits, to manage financial stability risks associated with the housing market. Our general observation on macro-prudential tools is that they should be competition neutral. In relation to DTI limits on new mortgage lending, we know that the lower interest rate environment, although moderated by the use of servicing test rates, has allowed borrowers to access higher levels of debt relative to their income, and we are mindful of the impacts this could have on a borrower’s financial position over the longer term. With home loan rates being as low as they are, we think it is also prudent to consider DTI multiples in certain lending situations, and we actively use these today. We look forward to engaging further with RBNZ on this option. Q3: Do you have any comments on our assessment of the impacts of reinstating LVR restrictions? We agree that reinstating the LVR restrictions will see investor lending at LVRs above 70% decline, however investor demand is strong and may be persistent even in the face of LVR changes. We agree there will be a more limited impact on owner-occupier lending in reinstating restrictions.

ANZ BANK NEW ZEALAND LIMITED
22 January 2021
Mr Cavan O’Connor-Close
Financial System Policy and Analysis Department Reserve Bank of New Zealand P O Box 2498 Wellington 6140 By email: macroprudential@rbnz.govt.nz Dear Cavan ANZ submission on the December 2020 Consultation Paper: Reinstating Loan-to￾Value Ratio Restrictions. ANZ Bank New Zealand Limited (ANZ) supports the Reserve Bank of New Zealand’s (RBNZ) reinstatement of Loan-to-Value (LVR) restrictions as an appropriate macroprudential measure to help mitigate risks around the current New Zealand housing market environment. With these risks in mind, towards the end of 2020 ANZ acted in the spirit of the tighter controls encouraged by the RBNZ, by voluntarily imposing its own credit policy measures to restrict high LVR mortgage lending to investors as follows:
 On 7 December 2020 ANZ imposed a maximum LVR of 70% for new residential investment mortgage lending; and  On 15 December 2020 ANZ reduced this further, to a maximum LVR of 60%. In its consultation paper, the RBNZ proposes to reinstate the LVR restrictions framework for residential mortgage lending, at the same levels that were in place in April 2020, and to take effect 1 March 2021. ANZ wishes to respond on two aspects of the consultation paper:

1. Reinstating LVR restrictions
   ANZ supports the RBNZ’s proposed levels for owner-occupier LVR restrictions, being a maximum of 20% of new lending at LVRs greater than 80% (on the basis that the BS19 policy is unchanged). However, in the current environment, ANZ believes restrictions for investors need to be more stringent than those proposed by RBNZ, in order to be effective against risks arising from a sharp correction in house prices. As mentioned by RBNZ in its consultation paper, overseas findings indicate a higher risk profile surrounding investor lending in times of stress. To mitigate this, ANZ recommends that the RBNZ sets restrictions for investors to a maximum of 5% of new lending at LVRs greater than 60% (also on the basis that the BS19 policy is unchanged), at least initially, and bearing in mind the RBNZ has an on￾going option to relax this according to market conditions. While ANZ has self-imposed this level of restriction as a step towards restoring balance to the housing market and enabling home ownership to be as accessible as possible, the 60% maximum LVR for investors needs to be imposed industry-wide to be effective.

2
ANZ BANK NEW ZEALAND LIMITED
The recent environment of historically low interest rates, reduced LVR requirements and on-going issues with housing supply and demand, mean that escalating property prices are putting home ownership out of reach for many New Zealanders. At the same time, investors are able to take advantage of escalated property values to support further borrowing. House price growth rates1 of 2.6% for the month of December 2020 and 6.1% over the final quarter of 2020, are levels not experienced since 2004. Growth in home lending is following a similar increasing trend with steady growth month on month, and reaching record levels in the last quarter of 2020; RBNZ statistics2 show New Zealand home lending commitments for November 2020 reached $9.3b, representing a 19% increase on the previous month, and a 37% increase on the November 2019 figure. These home lending statistics3 also illustrate reduced accessibility to home ownership in New Zealand, by evidencing a considerable shift in the mix of first home buyers versus investors during the period July 2020 to November 2020, illustrated as follows:
 In June 2020, first home buyers comprised 20.3% of total monthly residential mortgage commitments; by November 2020 this proportion had reduced to 17.3%.  In contrast, the investor portion of residential mortgages was 19.4% in June 2020, increasing to 24.2% by November 2020. It is ANZ’s view that a 70% maximum investor LVR across the industry would prolong the issues RBNZ is endeavouring to address. Previous RBNZ LVR settings for investors at 60% resulted in a measured approach that was effective in managing the acceleration in lending growth and investor concentration, without undue impact on the housing market.
2. Debt to Income (DTI) limits as a macroprudential tool
The RBNZ consultation paper briefly discusses further work to be undertaken on other potential macroprudential tools to manage financial stability risks associated with the housing market, for example debt-to-income (DTI) limits. ANZ believes LVR restrictions have been sufficiently effective to date in reducing financial stability risks associated with the housing market, and reiterates its previous comments4 regarding the proposal for a macroprudential tool based on DTI limits. In brief, ANZ considers DTI is a blunt measure of customer loan affordability, primarily because DTI does not take into account:
 The distinctions between short and long-term customer debt;  The composition and consistent treatment of income across the industry; or  The expenditure profile of the borrower. Due to lack of sensitivity, a DTI approach disproportionately impacts lower-income and younger New Zealanders who are early on in their working lives. Placing these sectors

1 CoreLogic NZ Limited; ‘Record summer in store for scorching hot NZ property market’; 5 January 2021; https://www.corelogic.co.nz/news/corelogic-house-price-index-dec-2020#.X_5YYWwUmUl 2 RBNZ Statistics: New residential mortgage lending by borrower type - C31, released 23 December 2020; https://www.rbnz.govt.nz/statistics/c31 3 Ibid. 4 ANZ response of 18 August 2017, to RBNZ consultation paper: ‘Serviceability Restrictions as a Potential Macroprudential Tool in New Zealand’ (June 2017); https://www.rbnz.govt.nz/regulation-and￾supervision/banks/consultations-and-policy-initiatives/active-policy-development/serviceability-restrictions￾as-a-potential-macroprudential-tool-in-new-zealand

3
ANZ BANK NEW ZEALAND LIMITED at a disadvantage would give rise to an unintended consequence of widening the housing inequality gap. ANZ is happy to discuss further, and requests that the RBNZ engages early regarding any further development work on proposals for serviceability restrictions. Contact for submission ANZ is happy to discuss its submission directly with RBNZ officials. To arrange this, please contact Thank you for the opportunity to provide feedback on the proposed reinstatement of LVR restrictions. Yours sincerely Chief Risk Officer