Soaring house prices boil down to a "perfect storm" of low interest rates, a large number of returning New Zealanders, and a lack of housing supply, according to Finance Minister Grant Robertson.
Auckland real estate prices are up 16 percent on last year, new data from the Real Estate Institute shows. Auckland's median house price has soared past the hundreds of thousands and hit the $1 million mark for the first time in history.
The Reserve Bank is now considering bringing back loan-to-value ratios (LVRs) on mortgage lending. The restrictions were introduced back in 2013 to cool the property market by slowing down liberal lending but were lifted in April for 12 months due to COVID-19.
The Reserve Bank said on Wednesday it would begin consultations in December on the possibility of bringing the restrictions back by March next year. It means investors will once again typically have to raise 30 percent of a home's value for a mortgage and 20 percent for home occupier loans.
Robertson said he welcomes the Reserve Bank's decision to look at bringing back LVRs, telling Magic Talk on Thursday: "I do think that's a sensible thing to do to avoid the financial stability risks of high-risk lending."
But Century 21 owner Derryn Mayne said she's seen no evidence of that, and says not enabling as many first-home buyers into the market would be "such a cruel blow" given record-low interest rates while rents remain high.
"We as a country need to encourage young people into home ownership, rather than pulling up the ladder behind us," she said. "After all, this may well be the best chance young Kiwis have in their lifetime to buy a house."
The Reserve Bank has also announced a new lending programme - offering to pump another $28 billion into the economy over the next couple of years through cheap loans to banks, which has been criticised as contradicting bringing back LVRs.
"These are decisions that are for the Reserve Bank," said Prime Minister Jacinda Ardern. "What they have already indicated though is that they are interested in what's happening with the investor market. They have the ability through the LVR regime to target specifically that end of the market."
Ardern said first-home buyers will "equally be aided" by the historically low interest rates. She said the Reserve Bank is consulting on how LVRs are used and whether they could be more targeted towards investors.
Robertson said New Zealand currently has "the elements of a bit of a perfect storm" when it comes to the housing market and admitted it won't be solved quickly.
"We obviously do have low interest rates at the moment but you combine that with the fact we've got a large number of returning New Zealanders coming into the market," he said, referring to the influx of returning Kiwis fleeing COVID-19.
"We've also got the long-term legacy of not having built enough houses in New Zealand and the population growth that we've seen, so that's taking time to resolve. We never said we'd be able to do it in one term."
Robertson said Kiwis "need to be aware of what they're borrowing" and the fact that interest rates "will rise again one day", and in the meantime, he said the Government will play its part to build more houses to increase supply to help ease the strain.
Labour campaigned on KiwiBuild as the housing crisis solution, promising 100,000 houses in 10 years, but with just 258 houses built as of September 2019, the policy was 'reset' - the targets were dropped and it shifted towards progressive home ownership.
On top of progressive home ownership, the revamped KiwiBuild included changes to the requirements for a KiwiSaver HomeStart grant. The deposit requirement was reduced from 10 percent to 5 percent.
KiwiBuild was tweaked to allow up to a quarter of unsold KiwiBuild homes into the open market, so now 25 percent - up from 15 percent - of KiwiBuild homes that don't sell to people who fit the criteria, can be sold to spectators.
The Government also announced a $350 million Residential Development Response Fund to support the residential construction sector hit by COVID-19, and it was sold as a complementary programme to KiwiBuild.
The Government shares some of the increased risk associated with COVID-19 by backing developments through underwrites - either purchasing unsold houses from developers or topping up any shortfall, depending on the contract.
Similar underwriting happens on KiwiBuild developments.
Labour's housing policy launched during the election campaign didn't have any major changes. Labour will continue with KiwiBuild and has committed to repealing the Resource Management Act (RMA), which all major political parties agree on.
"Urgent reform is needed to the RMA and our planning system to unlock housing supply," said National's housing spokesperson Nicola Willis.
"After three years of wasted effort and energy on the KiwiBuild failure, the Government must turn its attention to addressing the underlying planning and infrastructure challenges that have strangled New Zealand’s housing supply for far too long."
Robertson confirmed the Government has no plans to reduce taxes or temporarily cut GST to help stimulate the economy and put more money into people's pockets.
"There is no plan to do that at all and I think any Government that did a temporary GST cut would struggle significantly to put it back up again once you'd done that," he said.
"The New Zealand economy is doing well. We've got to keep an eye on things like the housing market, but overall we're doing better than we expected in the face of a hugely challenging environment.
"That challenge is not going to go away and so it's better to be investing in the long-term in my opinion than it is for those sugar-hit policies."