LVRs are working

Christian Hawkesby analyses the impact of the Reserve Bank’s tougher Loan to Value Ratios and concludes:

In conclusion, in the short-term mortgage approvals and housing sales should provide the best reading on the impact of the LVR restrictions.  There are early signs that the LVR restrictions are beginning to bite.  We believe this will continue.  Furthermore, over the long-term we expect housing affordability to provide another restraint on house price inflation.

House prices are a function of the relationship of between supply and demand.

Requiring more people to have a bigger deposit before they can borrow will dampen demand, at least in the short term.

A longer term solution requires increasing the supply, or shifting demand from places like the more attractive areas of Auckland to other places where there’s fewer people competing to buy and prices are lower.

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