Correction: Real Estate Institute O'Sullivan says first-home buyers could give up on home ownership

Departing Real Estate Institute chief executive Helen O'Sullivan said the Reserve Bank's decision to continue the loan-to-value ratio restrictions on home loans could see some first-home buyers give up on the idea of ever owning a house.

RBNZ governor Graeme Wheeler yesterday said the LVR regime in place for a year had been successful, with house price inflation falling nationally from just under 10 percent to 4.9 percent, while in Auckland it had halved from 17 percent to 8.5 percent. Although there had been speculation the RBNZ would lift the restrictions yesterday, Wheeler said there remained a risk of a resurgence in house price inflation, particularly given strong immigration flows and he didn't think it appropriate to ease the LVR speed limit at this time.

O'Sullivan said it was meant to be a temporary measure but was now starting to look more permanent.

"Does that mean Auckland will have to have building consents of 13,000 a year before the LVRs are moved, because it will take some time to get there," she said. "The long-term implications could be that first-home buyers give up on home buying and that's fine if they turn to other investments but not if they just end up buying jetskis."

There was data in the US that long-term asset accumulation was linked to property purchases, although it's not axiomatic that one would follow the other, she said.

The Reserve Bank yesterday said the LVR restrictions had reduced the ratio of first-home buyers to about 17 percent of new lending over the past year, from a peak of 21 percent in September 2013, and just below the 19 percent average over the past decade.

The general concept was that the LVRs were a temporary measure that would cool demand until supply ramps up, but O'Sullivan said she wants some clarity from the RBNZ as to how long that is expected to take. She also said consideration should be given to extending the amount of home loans banks can make to people with under a 20 per cent deposit, such as adding an extra 5 percent of those sort of loans to first-home buyers eyeing up properties under the $400,000 mark.

Wheeler also said he was considering measures to discourage speculators from buying multiple houses given the LVR regime had favoured investors over first-home buyers.

The RBNZ initially proposed in September last year that banks would have to classify mortgages for property investors with more than four properties as commercial loans from July this year, forcing the banks to conserve more capital to back the loans. This was later increased to those owning more than five properties. But the move has been delayed until next year following more consultation with the banks who said they rules were impractical to implement.

O'Sullivan said it would mean property investors could end up being charged higher interest rates. The problem was identifying what landlords were long-term investors and those that she would regard as speculators who bought a property with the goal of flicking it on in six months to make a capital profit.

She said the Real Estate Institute had compared housing data over the past five years with the consumer price index and found that the compound annual growth rate when adjusted for inflation for house prices was only 6.2 percent in Auckland and 5.8 percent in Canterbury. In many parts of New Zealand such as Northland, Hawkes Bay and the Manawatu there had been a decline over that period.