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The Reserve Bank is coming under fire for fueling the house price bonfire with its latest move to boost the economy, but its advocates say it’s not the bank’s job to control the housing market.
“He’s been dragged in because he was the innocent bystander at the crime scene, and everyone’s saying, ‘oh, he looked like him,'” says RNZ business editor Gyles Beckford.
In The detail Today, Beckford explains the role of the Reserve Bank, the bank of banks, and why has been embroiled in a political storm.
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* James Shaw says it’s time to tax capital gains and wealth to cool down the housing market.
* Homeowners compete to beat the return of loan-to-value restrictions
The government rejects opposition calls for control of the central bank, and Prime Minister Jacinda Ardern says political parties should not interfere with the independence of the Reserve Bank.
The tumult stems from the central bank’s latest move to inject $ 28 billion into the economy over the next few years through cheap loans to banks in a “loan finance” program. The banks then pass the cheap money on to home buyers and businesses.
Critics blame the Reserve Bank for helping drive home prices further by making it easier for real estate investors to access low-interest loans. It is the latest in a series of moves by the bank in recent months to boost the economy hit by the Covid crisis.
Hagen Hopkins / Getty Images
The Reserve Bank is coming under fire for fueling the house price bonfire with its latest move to boost the economy, but its advocates say it’s not the bank’s job to control the housing market.
In March, the bank lowered the official cash rate, the wholesale rate, to commercial banks to a record low, and a month later removed loan-to-value restrictions. Banks are starting to introduce LVR again, as economists warn of an overheated housing market.
Beckford says the Reserve Bank has no control over house prices and the governor, Adrian Orr, has become “increasingly grumpy” for being blamed.
“In a reasonably straightforward way, of course, they are (responsible) because they have lowered the cost of borrowing to absurdly low levels. It’s cheap to borrow, but the Reserve Bank says, ‘We don’t determine housing policy, that’s what governments do, that’s what the market does ”.
“But they have been drawn into it because they are the means by which the real estate market shoots up.”
Beckford explains why it’s more complicated than saying it comes down to a shortage of housing.
“It’s a combination of reasons, part is cost, part is the ability to obtain financing, part is the influence of rents and interest rates, but it is a great melting pot,” he says.
He cites other factors, such as the number of homes being offered for sale in multi-year lows, new housing developments hampered by red tape and zoning from local agencies, land bankers, or homeowners sitting on vacant lots waiting the rise in prices, the impact of migration in recent years and the fall in the stock of state housing.
