Wheeler tough on housing market 26 February 2015 5:50PM Banking Day staff New Zealand Reserve Bank governor Graeme Wheeler has made his strongest comments this year about the risks to financial stability from Auckland's over-valued housing market.Wheeler's comments come as speculation grows that New Zealand's central bank will introduce new macro-prudential measures to slow mortgage lending without having to put up interest rates.Appearing before parliament's Finance and Expenditure select committee yesterday, Wheeler said New Zealand's house price inflation had been the fastest in the OECD from 2003 to 2007 and that Auckland's median house price was now 50% above the 2007 level and high relative to disposable incomes.New Zealand's household debt to income ratio had risen from 60% in 1990 to 145% now, he said."So you put all those factors together and you start to worry about the potential damage that could happen to the financial system and to the broader economy if you were to see a significant adjustment in house prices," Wheeler said.Although not asked specifically about any new macro-prudential tools the bank might introduce, Wheeler did strongly defend his 2013 decision to introduce limits on the number of high loan-to-value ratio loans banks could make."What was concerning us was the banks were competing very aggressively to lend to people with low deposits. So putting all those things together, and the fact the supply imbalance looked as if could take a long time to address, that's why we felt we had to move. So it was a combination of reasons," he said."I think if you ask what impact the loan to value ratios had, we probably wouldn't say it's 100 basis points. I think the analysis we did at the time was that we felt it was somewhere between 25 and 50 basis points, but in terms of the impact we think that it has reduced house price inflation," Wheeler said. "We felt at the time when we did the modelling that it would be of the order of perhaps 2.5 to 3 percent in terms of reducing house price inflation. It may well be that it has reduced it slightly more than that."Wheeler rejected a suggestion by ACT MP David Seymour that attempting to influence the housing market with LVRs was a case of "mission creep" by the bank."We have a mandate in respect of financial stability and a major asset like housing, which is the biggest asset on banks' balance sheets and also on individual balance sheets, is one factor we need to think carefully about when considering risk to financial stability," he said.Wheeler's comments came on the day of the release of the KPMG Financial Institutions Performance Survey, which included a warning that New Zealand bank executives feared foreign cash buyers who had no need to borrow were over-inflating property prices, possibly to unsustainable levels.In a report yesterday Fitch Ratings also noted New Zealand's high household debt levels relative to international peers and the fact that all four of the country's Australian owned banks had large exposures to mortgages and agriculture. But the agency said the banks had built in buffers to mitigate the risks and it re-affirmed its AA- ratings for all four (Westpac, BNZ, ANZ and ASB).