NZ reaches for macro-prudential antidote
New Zealand has announced an expansion of subsidies for first home buyers in Auckland to help at least partly offset a planned clampdown on low deposit lending by the Reserve Bank.
Prime Minister John Key announced the changes at his National Party's annual conference in Nelson, responding to opposition attacks on the government's position on the Reserve Bank of New Zealand's restrictions, which are expected to hit first home buyers.
Key announced an expansion of one existing scheme linked to withdrawing funds saved in the state-subsidised KiwiSaver pensions, and another scheme designed to help New Zealand expatriates on higher incomes who are returning home with small deposits.
Currently Kiwisavers can receive a subsidy of NZ$1000 for each year they are in the scheme up to a maximum of five years or NZ$5000 per saver, but the subsidies are only available to those couples with combined incomes under NZ$100,000 and to those buying houses worth less than NZ$400,000 in Auckland.
Key said the income threshold would be lifted to NZ$120,000 and the Auckland house price threshold would be lifted to NZ$485,000. He said the government would also lift the income and Auckland house price thresholds to the same levels for the existing the "Welcome Home Loan" scheme aimed at returning expatriates.
The changes would apply from October 1 and cost NZ$64 million over four years. The Government forecast the schemes would almost triple the average number of recipients to over 13,500 per year, including a quadrupling of the numbers in Auckland to almost 4000.
Key said he agreed with the Reserve Bank's concerns about a potential bursting of a housing bubble that could hurt the financial stability of New Zealand's banks. The bank has signalled it plans to limit growth of low deposit mortgages, but has yet to announce the final go-ahead and the exact details of the "speed limits."
The revamped schemes would also require borrowers to have a 10 per cent deposit. The KiwiSaver scheme previously had no requirement for a deposit, while the Welcome Home scheme required a 15 per cent deposit.
"We have been very careful, of course, to ensure that this package of policies doesn't contribute in any excessive way to the demand for housing," Key said.
"That would put more upward pressure on house prices and that is not the intention of this policy and we have been very careful not to cut across the Reserve Bank's options for cooling down the heated housing market," he said.
Key said the bank had a tough decision to make and he supported its independence. Last month Key argued for an exemption for first home buyers, but the bank has pushed back, saying it wanted to avoid exemptions.
"Today's package is a way of ensuring that, even if lending is restricted or interest rates rise, first home buyers are looked after," Key said.