The Government should not try to manipulate the housing market - in an effort to contain inflation - with regulations which will backfire, say leading industry sources.
'Inequitable, unworkable and ill-conceived' is how Dunedin-based national president of the New Zealand Property Investors Federation, Craig Paddon, responded to news the Reserve Bank and Treasury's options to control inflation could include imposing restraints on the housing market
'In effect, the horse has already bolted. There is a raft of non-bank lenders out there and regulation will just prompt more second and third mortgages,' Mr Paddon said when contacted yesterday.
Government may well find itself picking a fight against the entire country, ranging from businesses and investors through to ordinary homeowners, if it wants to attempt to exert control over the housing sector - the traditional cornerstone of investment for most New Zealanders.
A spokeswoman for Finance Minister Dr Michael Cullen declined interview requests by the Otago Daily Times and the New Zealand Herald, later putting out a press release.
Dr Cullen said he asked for a Treasury report on 'possible instruments' the Reserve Bank could use to 'slow down or stimulate' the economy to keep within the preferred 1 per cent - 3 per cent inflation target band.
He rounded on National Party finance spokesman John Key, who labelled the move as economic sabotage which could cripple the small business sector and send finance companies to the wall, accusing Mr Key of 'adolescent scaremongering'.
Earlier this week, Dr Cullen rubbished speculation about options including a capital gains tax.
Inflation tipped beyond the Government's preferred 3 per cent maximum last month, prompting Reserve Bank Governor Alan Bollard to increase the interest-driving official cash rate to 7 per cent, warning homeowners at the time that household debt levels were unsustainable.
The problem for the Reserve Bank is that fixed-term mortgage rates, representing around 80 per cent of all mortgages, are not affected by interest rate hikes and household spending is unaffected by the Reserve Bank's hiking of the interest rate.
Mr Paddon stressed that when the present 6.9 per cent fixed-term rates expired and people renewed at 8.2 per cent fixed or floating for 8.9 per cent in a year's time, they would then curtail spending.
Treasury options being considered include limiting the amount banks can lend on a property value, as some now offer up to 100 per cent mortgages.
Mr Paddon was scathing of the suggestion, saying if homeowners were forced to find 30 per cent or 40 per cent deposits on homes it would be 'virtually impossible' for many to own a home.
'There's huge difference between 40 per cent deposit in Auckland and say, 40 per cent deposit in Invercargill. That's totally inequitable,' he said.
'If Government goes down that track, with regulations, people will immediately look to get around them,' he predicted.
Real Estate Institute national president Howard Morley predicted the Reserve Bank's proposed review of bank's lending practices could result in negative and unintended consequences, including a reduction in rental housing stock and further falls in home ownership.
'We think the review is unwarranted in that it implies that housing sector and accompanying bank lending is the sole driver of inflation. Clearly, this isn't the case,' he said.
Consumers Institute chief executive David Russell told the New Zealand Herald the moves would make it far more difficult for first-home buyers, but the potential benefit was that steam would be taken out of the market, making it more affordable. However, he said, perversely, even signals the Government was moving to cut credit availability could fire up the market in the short-term as people rushed to get in.Need help or
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