Earlier this year we published an article about affordable housing in New Zealand and how Auckland, in particular, is one of the least affordable cities in the world. In this article, we look at a Reserve Bank intervention in the housing market, due to the housing shortage in Auckland and the ongoing housing problems in Christchurch, and how it will affect first-time homebuyers in New Zealand.

As of May this year (2013), the Reserve Bank of New Zealand has decided to intervene in the overvalued property market. The reason for the overly inflated prices in the New Zealand property market is due to housing shortages in two major cities: Christchurch and Auckland. The housing shortage in Auckland is due to population growth outpacing housing supply. In Christchurch, the problems have been the result of a major earthquake that destroyed many suburbs and a high demand for housing from the city’s new residents arriving for subsequent rebuilding.

The intervention will result in New Zealand’s big four banks now being forced to hedge against high ‘loan-to-value’ lending and holding on to more of their own money to guard against any future downturns in the property market. First-time homebuyers are seen as the target of Reserve Bank intervention, with higher interest rates introduced by banks for those who borrow more than 80 percent of a home’s value.

This will mean that it won’t be very easy for many first-time homebuyers to get into the market, making it even more difficult for them to get a loan and could push them to look to riskier lenders just to get started. “property ladder”. Many real estate investors will also feel the intervention, as it will be more difficult for them to obtain large bank loans to invest in multiple or large properties. Unfortunately the impact will be felt nationwide, and not just in the two big cities that are having housing problems.

However, one good result of such a move is that hopefully fewer people will experience financial difficulties as a result of borrowing too much money. Many real estate agents have seen a huge increase in mortgage sales as a result of low-equity loans, where homeowners borrowed 90-95 percent of their homes. Now homebuyers will be forced to financially plan for a new home, and possibly not overextend themselves on a property that is truly beyond their means.

So we’ll wait and see over the next year what impact this intervention has had and whether it has helped or hindered the housing problems in this country.