Air coming out of the housing balloon but no 'great crisis' yet

August 3 2017

There is no "great crisis" in funding residential construction as banks are very keen to support mums and dads to buy homes, BNZ head of institutional banking Paul Blair says.

Meanwhile a property developer also believes it is actually "incredibly healthy" that it is difficult to find funding for infrastructure developments and other construction projects.

The building and construction industry's second Constructive Forum, hosted by the Registered Master Builders Association, has been in Auckland this week.

Finance Minister Steven Joyce says investor activity in the housing market has definitely declined in the last six to nine months.

It aimed to bring all of the industry, which had previously operated in silos, together, in order to show the Government its worth and to inevitably consider the housing affordability debate.

Another key focus for the industry has been the need to even out the peaks and troughs in the industry to ensure sustainable growth.

During a panel discussion between industry leaders and Finance Minister Steven Joyce, who spoke at the forum, the issue of the availability of finance was raised.

A housing task force report on Auckland, released in June after contributions from developers, builders, bankers, economists, architects and government officials, had found there was a shortage of funding for investment in infrastructure needed for development.

Blair, who represented BNZ on the panel, said the banks had an interest in growing the economy sustainably but things had tightened up in the wake of some "pretty horrible things" they did, particularly offshore, around the time of the Global Financial Crisis.

He said it was tighter for the industry to find funding, but the doors were still open for the right project.

"This is an extremely complex system, you guys are earning less and taking on more risk, which is not a good thing for you or the system.

"The opportunity here in a really small country is to find a way to lift the whole system up."

Willis Bond & Co managing director Mark McGuinness said he thought it was incredibly healthy for it to not be easy to get money off the bank.

As a property developer for more than 30 years, McGuinness said the worst times for the industry were when mezzanine fund providers dominated between 2005 and 2010.

"It was exactly that free access to finance that causes, among other things, booms and busts."

Joyce said there were undoubtedly frustrations in the construction industry but the latest boom had been much more sustainable.

The Reserve Banks loan-to-value ratios had seen the amount of investor activity decline in the last six months or so, but the question was whether they had been set properly.

"You could just end up chasing your tail downwards.

"The Auckland housing market is now flat and falling in terms of prices, and one of the things that's coming up is this discussion of well, when do they change LVRs, because they put them in place but when do they amend it?

"That's a conversation that's coming at some point, I don't think it's coming just yet."

Fletcher Residential chief executive Steve Evans asked Blair for the bank's view on financing mum and dads, because the construction industry's worst position was when people could not have access to buy a home.

Blair said it was important to consider the majority of the country's banking system was owned by Australian companies.

The Australian economic environment was different to New Zealand's and comparatively the construction industry loved the banks here.

But he said the banks were "very, very keen" to support mums and dads, and there was "no great crisis" as it projected retail credit to grow 5 to 5.5 per cent next year.

"That's mums and dad buying homes.

"I think the air's coming out of the balloon gently because in most other times in New Zealand history, that I've known, this thing has popped and there's been a real mess and we've all had to spend a lot of time cleaning it up.

"If I was you guys I'd be delighted with what you see in front of you."

 - Stuff