Finance Minister Grant Robertson’s big step in an attempt to cool the overheated housing market

Finance Minister Grant Robertson has taken a significant step in the government’s quest to tackle rising house prices by pressuring the Reserve Bank to change its mandate.

He has also sought advice from the Treasury on how current measures are working, such as the bright line test and protection from rental losses, with a view to possibly expanding them.

Robertson announced today that he has written to the Governor of the Reserve Bank, Adrian Orr, asking if the bank would take a more active role in cooling New Zealand’s overheated housing market.

The move, Robertson hopes, will help bring about a period of “sustained moderation” in the New Zealand housing market.

At the launch of the government’s updated books this afternoon, Robertson said New Zealand’s stronger-than-expected economic performance has forced house prices to rise.

REINZ has reported that there has been a 20 percent year-on-year increase in house prices and the government has come under enormous pressure to cool the market.

Today, Robertson took the significant step of writing to the Governor of the Reserve Bank, Adrian Orr, asking the central bank to consider expanding its remit to include housing market stability in his job description.

“I am concerned that the recent rapid rise in house prices, and the forecasts that this will continue, are affecting the government’s ability to meet the economic targets set in the Remit,” he said in the letter.

In another press release, he said that given the prolonged period of low interest rates, “now is the time to consider how the Reserve Bank can contribute to a stable housing market.”

The Reserve Bank acts independently, which means that it does not receive its instructions from the Government.

In its agreement with the Government, the role of the Reserve Bank is to control inflation, employment and financial stability.

Robertson has asked Orr to add “stability in house prices” to the mandate of the Reserve Bank.
“I want to be clear,” said Robertson, “I am not proposing any change in the mandate or independence of the Reserve Bank,” he said.

The ball is now in Orr’s court; It is up to him and his committee to decide whether to accept the government’s call.

In his letter, Robertson made clear that he wants a response from Orr soon: “I would ask you to consider this as soon as possible.”

In addition to lowering the official cash rate (OCR) to help stimulate the economy throughout Covid-19, the Reserve Bank has been pumping tens of billions of dollars into the economy through bond buybacks. ; This is often called quantitative easing or money printing.

Economists have pointed to these two forms of stimulus as the main reasons why house prices have soared, while the rest of the economy is in recession.

Despite this, Robertson said he was not blaming the Reserve Bank for the rapid inflation in house prices and said the central bank has served New Zealanders “incredibly well.”

The government has focused heavily on the demand side of the housing equation, saying it was looking to change its rules on first-time homebuyer subsidies.

Robertson said today that the government was looking at “everything we can” when it comes to housing supplies.

For example, you’ve asked Treasury for advice on how to extend the bright line test, which right now means people have to pay taxes on a home if it is sold within five years of its purchase.

Meanwhile, the Crown accounts show that the amount of debt that the Government has assumed to combat the pandemic is $ 750 million less than expected, while tax collection is $ 172 million higher than what had been forecast. .

The figures show an updated version of the Government’s books, compared to the Pre-Economic Fiscal and Economic Update (PREFU).

Given the nature of the economic environment, Treasury figures have been jumping as the Government quantifies the impact of Covid-19.

Treasury Secretary Caralee McLiesh said the figures show the economy “has proven to be more resilient than we expected in the budget.”