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More curbs could be poured onto the housing market if house prices within and outside Auckland continue to strengthen.A rebound in March housing figures has economists speculating on whether the Reserve Bank will beef up the current "loan to value" ratios or even bring in a new set of restrictions.
Westpac chief economist Dominick Stephens said rising house prices were "a global phenomenon" because low interest rates had people looking for other assets such as housing for better returns.
He suspected that the strong focus on Auckland's housing shortage as a reason for high house prices was "barking up the wrong tree" .
Stephens said the tipping point for the Reserve Bank was likely to be March's strong housing figures out last week, which showed Auckland house prices had "exploded back into life" after several months of slowdown.
He said the rebound in Auckland was not particularly surprising, as the tax and mortgage lending regulations introduced by the bank and the Government late last year were always expected to have a temporary cooling effect.
However, the power of the rebound was unexpected.
"The interesting things here is not necessarily the Auckland market, but the fact that housing markets across almost the whole of New Zealand are ramping up, the sharemarket is also rising and debt levels are rising.
"All of this indicates that low interest rates are playing a role."
Possible options for the Reserve Bank included raising "loan to value" ratios in the regions, which are 10 per cent.
Auckland's "LVRs" are 15 per cent, which mean banks cannot make more than 15 per cent of new loans to homeowners with less than a 20 per cent deposit while investors must have 30 per cent.
A second option would be to require banks to have more capital on hand but it had already done this before.
Stephens said that if anything, there was more of a case for it now with household debt levels rising. Mortgage credit levels have risen within the space of a year, from 5 per cent annually to 8 per cent now.
The third option was a completely new restriction, lending based on debt to income ratios.
In Auckland, where the average house is thought to be about nine to 10 times the average household's annual income, the change could be profound.
However, with LVRs already in place, Stephens said he did not "really see that point". There was considerable overlap between people who were hit by high loan to value ratios and the ones who could not service high debt levels.
Other economists are also beginning to flag that stronger mortgage restrictions might be in the wind.
BNZ chief economist Tony Alexander wrote last week that he was watching for potentially more housing credit controls to offset interest rates cuts, most probably this month and again in June.
And ASB said in a research note that it was quite possible the Reserve Bank would broaden Auckland's investor restrictions to the rest of the country.
"Alternatively, the investor deposit requirement of 30 per cent could lift to say 40 per cent."
"We're all seeing the same thing," Stephens said.
"Inflation is very low, so central banks are forced to keep interest rates low, and that pushes asset prices up. We learned a lesson about that last decade, this time central banks are responding with lending restrictions.
"I can't really see much way out of this low inflation environment, except to restrict the quantity of lending.'
However, he prefaced all his comments by saying that the Reserve Bank often surprised him and it had "a whole universe of possibilities".
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