Government under pressure across the political spectrum by inflated house prices

By RNZ’s Jane Patterson

The government is under pressure from all sides as house prices continue to skyrocket.

The market continues to defy predictions of a post-Covid dip, with prices hitting new records across the country.

Former Labor Finance Minister Michael Cullen has sounded the alarm about the amount of cheap money that is spilling out and helping to fuel the housing boom, while National calls on the government to control the Reserve Bank.

Historically low interest rates help drive demand, and the Reserve Bank is also proposing a massive loan program that offers banks near zero interest rates, with the goal of stimulating the economy.

The median home price in Auckland has hit $ 1 million and prices nationwide have risen 19.8 percent year-on-year, bringing the median to $ 725,000.

The Reserve Bank recently announced a no-target loan scheme, which is expected to further inflame property prices.

National has asked the government to send a letter to the bank’s governor, Adrian Orr, insisting that conditions be set for the new financing.

Leader Judith Collins says today’s market is not sustainable.

“House prices continue to rise far beyond what anyone would expect. And since this is one of the big problems that the government took in the 2017 election and has failed miserably, I think we need to address the cost of money.”

She says the government must ensure that loans are directed to the most productive parts of the economy.

“Now we have seen large amounts of additional loans for housing and far fewer loans for business.”

Prime Minister Jacinda Ardern says the Reserve Bank is independent, so she will not heed National’s call.

Cullen says putting more cheap money into the economy is sure to drive up house prices, if there isn’t a corresponding increase in supply.

He says the Reserve Bank used to focus solely on inflation, but its actions now have much broader economic consequences.

“But I think what it is doing is that we will almost certainly have negative impacts on some of our crucial problems, such as rising house prices.

“And also, how the fact that doing this is widening most of the differences within society when obviously at least the current government would prefer to see the opposite,” says Cullen.

There will be no action on the demand side from the government, with Ardern maintaining the no capital gains tax stance under his leadership.

“Everybody knows that in several elections Labor campaigned on a capital gains tax. That was something that we could not convince New Zealanders with those campaigns, and we have accepted it.”

Collins also doesn’t think a capital gains tax is the answer.

“It certainly hasn’t been the answer in other countries, just look through the ditch in Australia, it certainly hasn’t smothered it.”

Ardern says ministers will look at options to help people access cash for a deposit.

“There are those in Auckland who will actually say that the rent they are paying would actually mean that they could own a home, but the deposit is an obstacle, so we continue to look for products that can help with that.”

Adrian Orr has said that the Reserve Bank has a very clear mandate to keep inflation within the established target band and contribute to maximum sustainable employment.

He says there are still big challenges ahead, and housing is not the only story.