Finance minister intervenes on house prices

Grant Robertson has asked the Reserve Bank governor Adrian Orr to consider house price stability when the central bank makes monetary policy decisions, amid growing pressure to curb runaway valuations.

Grant Robertson

The move from the Finance Minister comes as critics round on the Reserve Bank for its part in record house price growth since the Covid-19 pandemic.

Record low interest rates, and the Funding for Lending Programme, have resulting in higher asset prices, boosting property valuations. The removal of loan to value ratio restrictions earlier this year is also widely believed to have contributed to price rises.

With meteoric prices raising concerns about affordability, Robertson has taken the unusual step of asking the independent Reserve Bank to watch valuations. 

Robertson said in a statement: “I have written to the Reserve Bank governor to seek his advice on possible ways the Reserve Bank can support the government to meet its economic objectives, in particular with relation to house prices. One proposal I am seeking advice from the Reserve Bank on is whether to include stability in house prices as a factor for consideration in the remit when formulating monetary policy.

“With an extended period of low interest rates, and some time before housing supply can catch up with demand, now is the time to consider how the Reserve Bank may contribute to a stable housing market. Undertaking this work is not to suggest the Reserve Bank bears responsibility for house prices, but simply that it should have regard to something that is influenced by monetary policy.

“I want to be clear I am not proposing any changes to the mandate or the independence of the Reserve Bank.

“I want to acknowledge the Reserve Bank’s approach during Covid-19 has served New Zealand incredibly well. I continue to support its independence and mandate. It is critical that it takes, as the remit asks it to, an approach that looks beyond the short term,” Robertson said.

The move comes after house prices hit record levels last month. According to REINZ data, median house prices for New Zealand excluding Auckland increased by 15.4% in the year to October.

In response, RBNZ governor Orr published his letter to Robertson. 

Orr said the central banks considered the impact of monetary policy on asset prices, and would continue to monitor high-risk lending.

A government announcement on Tuesday afternoon promised to “review housing settings”, including replacing the RMA.

Robertson said: “Our focus is on improving access to the housing market for first home buyers and ensuring house price growth does not distort the effectiveness of our overall economic rebuild – which we want focused on the productive side of the economy. 

“We have been clear about the policy responses that we are not prepared to consider, but there are other options that need to be investigated.

“Overly restrictive planning rules are one of the causes of high house prices and the replacement of the RMA is a priority to address that. We will build on the National Policy Statement on Urban Development and examine other potential barriers to affordable housing. Minister Woods is working on new and innovative ways to increase supply.

“I have also sought advice on further demand side measures that can add to the initiatives that we have already taken. I expect to receive that advice towards the end of the year, and will discuss it with cabinet as soon as possible after that,” Robertson added.

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