of the year. another option is a new debt - to - income ( dti ) speed limit to complement the lvr requirements by improving the resilience of household balance sheets to income or interest rate shocks. a dti limit would make defaults less likely in a downturn. furthermore, a dti bis central bankers ’ speeches and lvr in combination would constrain credit growth and house price pressures on a more sustainable basis than would lvrs alone. a dti would be a new instrument that would need to be agreed with the minister of finance under the memorandum of understanding on macro - prudential policy. adoption would require more analysis and systems preparation than an extended lvr. we intend to consult with the banks on the viability of a dti policy and data issues before making a decision on implementation. a third option is a housing capital overlay. the reserve bank has already indicated that it will be conducting a full review of bank capital requirements over the coming year. we will consider whether macro - prudential overlays have a role to play as part of that process. 6. conclusion in conclusion, the reserve bank is concerned about the risks to financial and economic stability inherent in the growing housing market imbalances. auckland pressures are reemerging following an easing in the market from late 2015, and house price inflation has accelerated in a number of regions. the causes of the imbalances are complex with a number of important drivers on both the demand and supply side. addressing these imbalances will require policy action by a variety of agencies on a number of fronts. the underlying housing shortage needs to be urgently addressed, particularly in auckland where population growth continues to outstrip housing construction. a step up in supply is required and finalisation of the auckland unitary plan will be a key opportunity to facilitate such a step. on the demand side, the key drivers are population growth and easy credit. the low cost of credit is making higher debt levels affordable, particularly for investors who can deduct interest costs from taxable income. residential investors are accounting for an increasing share of house sales and new mortgage credit. the bank ’ s interest rate policy must have regard to financial stability concerns, but the global environment is likely to keep interest rates low for some time yet. macro - prudential policy can assist in containing the growing risk to financial stability as the current housing market reaches new extremes. in light of the growing risk, the reserve bank is closely considering

slow - down in credit growth and house price inflation for a period. debt - to - income ratios have been used internationally but not yet in new zealand. dtis aim to improve the safety of borrowers ’ balance sheets, thereby reducing the likelihood of mortgage defaults in a downturn. in particular, debt - to - income limits are intended to better equip borrowers to continue servicing mortgages in the face of income losses and / or increases in interest rates. dtis, like lvrs, tighten credit conditions, resulting in some brake on credit and house price inflation. capital overlays, like lvrs, improve the capacity of banks to absorb losses from mortgage defaults in a downturn. additional capital requirements might also slow credit growth as banks adjust to higher equity funding. how might these macro - prudential instruments assist in the context of the current housing market imbalances? the original 2013 lvr restrictions ( requiring a maximum 80 percent lvr for most mortgage borrowers ) and the auckland investor lvrs brought in last year ( reducing auckland investor lvrs to a maximum of 70 percent ), have had the intended effect of making bank balance sheets more resilient to a potential housing downturn. together with the government ’ s october 2015 tax measures, the auckland investor lvrs also helped to reduce auckland house price inflation from its peak of 27 percent pa in september 2015 to 12 percent in may 2016. as discussed earlier, we have recently seen spill - over effects in the regions close to auckland and a more general resurgence in housing market pressures across the country. the proportion of sales to investors nationally has grown from 34 percent in january, to 39 percent in may this year. lvrs on new investor lending have reduced significantly, but new credit commitments to investors have recently been growing about twice as fast as for the overall market. investors have effectively used equity generated by increased valuations on their existing portfolios to raise the larger deposits needed for new acquisitions. the reserve bank has a range of policy options available. one is tighter lvrs to counter the growing influence of investor demand in auckland and other regions, and to further bolster bank balance sheets against a housing market downturn. given the growing housing market pressures across the country, one approach would be to adopt a single national lvr limit for investors. given that the banks have much of the relevant systems work in place, we expect that such a measure could potentially be introduced by the end