Tauranga's building industry is expecting a rise in building confidence after the Reserve Bank announced new builds will be exempted from new lending restrictions.

This week's back down comes after the industry raised concerns the lending restrictions were limiting the amount of low equity first home buyers into the market – affecting the number of new homes being built.

GJ Gardner Homes Tauranga managing director Shane McConnell in front of a new home build in Ohauiti.

This in turn would affect Government efforts to increase the supply of new homes to help curb house price inflation.

As a result new home builds are now excluded from the loan-to-value ratio changes, which came into effect on October 1.

GJ Gardner Homes Tauranga managing director Shane McConnell believes it is a smart move in addressing the critical housing shortage in the Bay of Plenty with the need for provision moving forward.

'I understand the need for Central Government of managing a housing bubble but at the same time they have the pressure of bring more stock on board, making housing affordable and bringing first home buyers in.”

New home buyers who have a mortgage with an LVR of more than 90 per cent are still restricted to five per cent of new lending, while total new lending for LVRs of more than 80 per cent are restricted to 10 per cent.

Applicants must have a deposit that is 10 per cent or more of the property's purchase price, replacing the existing requirement for a 15 per cent deposit on lending above $200,000. Income caps are $80,000 for one buyer and $120,000 for two or more buyers.

When speaking to SunLive in early November, Shane was calculating a significant drop in new home builds this year due to a lack in client interest and financial pressure with the new caps.

The company was originally on target to exceed last year's 40 new homes built, until the new restrictions came into play with new home buyers feeling the pinch as they bore the brunt of the Reserve Bank's restrictions.

But Shane now admits there is a level of optimism spreading throughout the industry which in time will bring more business.

'I understand that there quite a bit of pressure on just the rental stock which would indicate a shortage of housing.

'But we have quite strong demand at the moment.”

Registered Master Builders Federation chief executive Warwick Quinn is delighted with the reversal following open discussions with the Reserve Bank on the LVR's impact on new construction activity.

He believes the Reserve Bank is reacting very responsibly in exempting new construction.

'The impact on enquiry levels since the policy came into force was immediate and as time progressed it was not only low deposit buyers impacted but those who couldn't sell their homes and others with more than 20 per cent equity,” says Warwick.

'Collectively we saw enquiry levels fall by 27 per cent which would have created a large hole in the residential building sector mid-2014.”

Warwick says the issues related to ensuring housing supply was maintained so that the LVR policy could have maximum effect.

With the exemption now in place building companies will be able to plan with more certainty and those companies who were contemplating restructuring in early 2014 and laying off staff will now hopefully not need to.