The bank is considering a DTI cap of seven times a borrower’s income, claiming it will deter some house purchases by investors.

A lower DTI cap of six is expected to have more impact on moderating house prices and dampening investor demand, but it will also have higher efficiency costs.

About 84% of rental houses are provided by private landlords and the federation says tenants will again be the losers if DTIs are ever introduced.

This, along with other changes the Government has made removing mortgage interest tax deductibility, extending the bright-line test to 10 years and reintroducing loan-to-value ratios (LVR) will make it even harder for private landlords to supply homes for tenants, says Sharon Cullwick, federation executive officer.

Both National and ACT have come out and said they will reverse the Government’s tax deductibility and bright-line rules.

Many investors believe the rules could lead to increased rents for tenants as landlords try to recoup the extra tax they will have to pay on each property.

Even the Treasury warned against introducing the tax deductibility rules. 

Cullwick says constant changes in legislation will not give confidence to property investors or developers to begin building new houses to help increase supply.

She says DTIs in reality reduce the likelihood of mortgage defaults while LVRs reduce losses to banks if borrowers’ default.

“However, during the consultation period on DTIs, the federation will outline the negative effects of these policies on the supply of rental property and therefore the effect on tenants looking for homes.”

’Tinkering around the edges’

Shadow treasurer Andrew Bayly says introducing DTIs won’t do anything to address the supply problem that is fuelling the country’s housing shortage.

“This is more tinkering around the edges when the Government should be prioritising initiatives that will actually get more houses built.”

National has been calling for emergency housing powers to be introduced similar to those used after the Canterbury earthquakes.

Draft legislation is ready to go that would short-circuit the RMA and incentivise councils to build supporting infrastructure by offering $50,000 for every extra house they consent above their historical average.

“This legislation could be picked up today to get the ball rolling but the Government appears more interested in waging war with investors.

“Trying to kill off demand with blunt tools like DTI limits, without addressing the housing supply problem, will simply lock thousands of Kiwis out of the market unnecessarily.”

Bayly says while the concept of debt serviceability restrictions may have a place if excessive risk-taking by banks was posing a threat to financial stability, it’s unclear that is the case. In fact, retail banks are already conservative in their lending practices.

He also says the arrival of the 143-page interest deductibility and bright-line rules discussion document brings with it confirmation of what an unprincipled mess the proposed legislation is.

“We know investors and landlords have a role in New Zealand and the demonisation of this small group of people is bizarre and divisive behaviour from the Government.

“We urge property owners to share their views on interest deductibility and bright-line changes despite the short timeline Housing Minister Megan Woods has allowed [for] consultation.

“It is astounding that Finance Minister Grant Robertson would be so cavalier about breaking the fundamental rule of tax which is: tax profits, not revenue.

“It is no wonder that property owners feel the rug has been pulled out from under them.”