Today the Reserve Bank announced that as of October this year new lending restrictions will be placed on Auckland property investors in an effort to cool the Auckland housing market.

From October the bank intends to require a 30% deposit for property investors in the Auckland Council area it said today in its six-monthly financial stability report.

I believe that this programme should have a demonstrable effect on the behaviour of investors. There are significant tax advantages to having your rental properties on interest only and low equity. The yields, especially in Auckland, are being challenged and so the strategy relies on capital gains.

This increases at a macro level the downside risk of a property correction. The introduction of this scheme will affect mainly those wanting to invest in the future as it is unclear how the reserve bank could apply it to current stock in investor portfolios.

I am supportive of this approach as it targeted in the right areas (i.e. Auckland and Investors) whereas other macro prudential rules make it difficult for first home buyers wanting to enter the market.

However like all regulation however good the intention it is a blunt instrument and will have unintended consequences that will play out in the market over the next 18 months.

What are your thoughts?

The information contained in this article is of a general nature and should not be taken as advice. It reflects the opinions of the writer only and does not necessarily reflect the opinions of New Zealand Home Loans.