Westpac's acting chief economist, Michael Gordon, has warned that housing may become more concentrated into the hands of the multiple property investors, whose portfolios can be borrowed against to pay the higher deposit.
The Reserve Bank's new LVR requires property investors, across the country, to have a minimum 40% deposit; in response to spiralling house prices across many parts of the country.
However, real estate commentators have said in recent months they had not yet seen much reaction to the new LVR, announced in mid-July and which comes in from October 1, but was already being adhered to by the banks.
Mr Gordon said property investor loans were now effectively capped at a 60% LVR, while only 10% of owner-occupier loans nationwide can be at an LVR above 80%.
``With previous measures to clamp down on housing demand, we've seen a strong run-up in prices in the months beforehand, followed by a cooler period that has proven to be short-lived,'' he said in his monthly ``home truths'' housing update.
Following the first round of LVR restrictions in 2013, house prices fell by less than 1%, but with interest rates being raised at the same time, prices were close to flat for most of the following year, he said.
``The reality is that it will take several more months of data to get the full picture of the impact of the latest LVR restrictions.
``That said, we're on the side of expecting the impact on prices to be short-lived,'' he said.
Mr Gordon said his assessment stemmed from Westpac's long-running ``investment value'' approach to modelling the housing market.
``We assume that leveraged investors are the marginal buyers of houses so they tend to set the pace for other potential buyers, and we assess their willingness to pay, based on expected returns and costs,'' he said.
While the LVR restrictions reduce the number of potential buyers who can qualify for a loan, for those who do, the restrictions make little difference to their willingness to pay, he said.
The investors' willingness is based on factors such as rental yields, borrowing costs and tax treatment, none of which are altered by the LVR rules.
``So when LVR rules are tightened, we would expect to see an initial slowdown in the housing market; for instance, less competition at auctions would mean that buyers may not have to bid up to their maximum price, at least at first,'' Mr Gordon said.
However, over time, competition among the remaining bidders would eventually reassert itself.
The result would be a similar level of house prices as without the LVR restrictions, but with ownership becoming more concentrated in the hands of those who qualify for a loan, he said.
``That's most likely to be multiple property investors, who can leverage off their existing portfolio to raise a deposit for a new purchase,'' Mr Gordon said.
He said data from CoreLogic showed the multiple property investor group of buyers had accounted for a rising share of house purchases since 2013, although it was hard to say whether that would have happened without the LVR restrictions anyway.
``In theory, its possible to tighten the LVR restrictions to the point that the number of eligible home buyers falls below the number of homes for sale; that could have a more lingering
impact on house prices,'' Mr Gordon said.
However, if demand had to be ``squelched down towards zero'' in order to balance the market, it was then time to reflect on what that said about the supply side.
He noted that in October last year, after the ``bright line'' test for capital gains tax was imposed, house prices fell by 4.2%, although ``that proved to be a one-month phenomenon''.
Mr Gordon said he was surprised to see a slight lift in August house sales, in seasonally adjusted terms, given that the LVR restrictions should have had a direct effect on the number of eligible buyers.
However, he noted sales had already slowed during the previous three months, so were well off their peak, which could mean a lack of supply, rather than suppressed demand, was having the greater effect on housing turnover.
