Debt to income idea is dumb

I like it when I’m right. I feel a tingly sensation that causes a smug smile.

A few days back I said the debt to income idea was dumb. Because it is.

And I said that its bad for property projects. Turns out others all think the same.

Reserve Bank debt-to-income caps would be disastrous for house buyers and the residential and building sector, says a real estate chief.

Connal Townsend, Property Council chief executive, said any new restrictions would worsen housing affordability and his organisation was “terribly concerned” about it.

Last week, the Reserve Bank raised the possibility of introducing debt-to-income ratios after it warned the Government that resurgent house prices were a risk to the economy.

Governor Graeme Wheeler said the average house price in Auckland was nine times larger than the average income, making it one of the least affordable metropolitan markets in the developed world.   

The bank has raised the idea previously but said last Wednesday it was “seriously considering” the measure.

If the regime comes in, people could be stopped from borrowing too much compared to their incomes. That is already operating in Britain, where most buyers cannot get a mortgage higher than 4.5 times their annual earnings.

But Townsend said any such move would not only kill off buyers’ hopes, but also be very detrimental to the apartment and house-building sector.

“We are terribly concerned about the unintended consequences more limitations will have. Restricting borrowing does not change the value or shortage of land,” Townsend said.

“This policy could stop what we need most, which is building more houses in Auckland.

“Limited land supply and speculation have caused buyers to become price-takers with demand becoming relatively inelastic. Monetary policy tools should be aimed at changing that, not pricing more people out of the housing market.”

It’s simple. Supply, supply, supply.

I struggle to understand by supposedly smart people like Nick Smith fail to understand this.


– NZ Herald

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As much at home writing editorials as being the subject of them, Cam has won awards, including the Canon Media Award for his work on the Len Brown/Bevan Chuang story. When he’s not creating the news, he tends to be in it, with protagonists using the courts, media and social media to deliver financial as well as death threats.

They say that news is something that someone, somewhere, wants kept quiet. Cam Slater doesn’t do quiet and, as a result, he is a polarising, controversial but highly effective journalist who takes no prisoners.

He is fearless in his pursuit of a story.

Love him or loathe him, you can’t ignore him.

To read Cam’s previous articles click on his name in blue.