Housing crisis a supply issue

In their latest note, the bank team – led by chief economist Jarrod Kerr, say demand "may be about to top out" in the housing market, with the return of LVR restrictions due in March.

They say banks "have already started to pull back lending going to higher risk investor-related activity" ahead of the return of LVR rules.

Meanwhile, RBNZ governor Adrian Orr has asked the finance minister for permission to use debt-to-income ratios.

But the Kiwibank economists argue too much emphasis is on demand, rather than supply, in the housing market debate.

"Unfortunately, much of the debate focuses on demand for housing. LVRs and DTIs look to restrain demand, at least in the near term. Whereas the main problem is supply. House prices are surging on a lack of listings. Land values are skyrocketing as land remains locked. Decades of underinvestment in key infrastructure to unlock land for residential use is the issue. We have plenty of land, just not zoned for use. Add to that the ridiculous cost to build, and the inhibitive consent processes. If affordability is to be addressed, increase supply."

The bank's economists believe DTIs, proposed by the Reserve Bank last week, present several challenges.

They say the rules, which limit how much debt a buyer can take on relative to their income, would "adversely impact first home buyers".

The Kiwibank team also believe there's "no one size fits all" for DTIs across the regions, with some areas, like Auckland and Wellington, commanding significantly higher prices, and larger mortgages, than smaller towns and cities.