Dec. 10 (BusinessDesk) – The Reserve Bank has exempted loans for new home building from its restrictions on low-equity mortgages, saying such lending finances a greater share of construction activity than it had initially thought. The exemption will apply as from Oct. 1, when the LVR restrictions were first introduced. The policy had created some tension with a government eager to kick-start residential construction in Auckland by creating a fast-track approval process and special housing zones. “In response to feedback from banks and the building industry since LVR restrictions came into effect, the Reserve Bank sought additional information on high LVR construction lending,” the central bank said in a statement. The exemption only applies to houses yet to be built, not those that are newly built. The bank said exempting low deposit lending on spec houses “would run a higher risk of generating distortions in the housing market, in the form of over-building or raising prices.” Deputy governor Grant Spencer said while high LVR construction lending only amounted to 1 percent of total home lending, it financed about 12 percent of residential building activity. “This exemption will help to support the supply of new housing and, in doing so, reduce some of the pressure arising from excess demand in the New Zealand housing market,” Spencer said. Last month the Reserve Bank said it was too early to draw conclusions on the impact of its LVR restrictions although early indications were that they had tweaked lenders’ behaviour. Labour Party housing spokesman Phil Twyford said that Registered Master Builders Federation had argued that “lending limits were putting thousands of new builds at risk” and that “blew a hole in the government’s policy of trying to increase housing supply.” Labour has said it will exempt first-home buyers form LVR lending limits, while imposing a capital gains tax on speculators. Governor Graeme Wheele ...
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