The debate over LVR regulation has become needlessly complex – the utter farce is that there is very widespread knowledge of the lunacy involved.
- If you prevent banks lending someone else will lend. Likely at a higher interest rate thus adding to the “risky housing debt” problem you set out to solve. Fail. And likely made things worse. Just don’t.
- If the object is to lower house prices and you assist someone to pay the price via an exemption or like workaround you just failed in your objective – worse everyone pays the price of the failure since workarounds are not free to administer.
If you do nothing, either:
- People conclude life is tough and adjust their aspirations down to their budget in the current market; or,
- People think more broadly in adjusting and think beyond living in Auckland or inner Auckland; or,
- People do borrow at excessive rates for their budget, get burned – nay fried – and learn a lesson nothing else will teach them; but,
- You do not impose the cost of their learning on all other investors and buyers; and,
- You have the satisfaction of being able to say “I used my brain, didn’t react on a short term ad hoc basis, and did what I know is correct in the long term.”
Just as an aside - imposing an LVR regulation will likely increase fiscal instability because of the higher variability of credit and default performance in non bank lending – that may be a breach of the Reserve Bank legislation which calls for the RB to maintain stability.
Testicular fortitude in this policy area please….