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The central bank rejected the suggestion to add a house price consideration to its monetary policy mandate, saying the government should add it to its financial policy mandate if it wanted to strengthen its role in the market.
Photo: RNZ / Gyles Beckford
Finance Minister Grant Robertson wrote to Reserve Bank Governor Adrian Orr last month suggesting the change, a move Orr interpreted as an offer for the RBNZ to offer his thoughts on ways to cool the housing market.
In a detailed response to Robertson published today, Orr said adding a home price consideration to the financial policy mandate was his preferred option.
“This could be accomplished using the Reserve Bank of New Zealand Act (RBNZ Act), which is due to have its first reading this week. The RBNZ Act contains a provision for you to issue a Financial Policy Referral to which the Bank of the Reserve must have in its fulfillment of its mandate of financial stability.
“We look forward to working with you in defining home price consideration. It is important that you accurately capture the government’s concerns about the housing market and the unique role of the Reserve Bank in relation to complex drivers. and multifaceted of the housing market. “
Orr said this option was preferable to adding a home price consideration to the monetary policy mandate, which could result in trade-offs, including higher interest rates, leading to lower employment and inflation rates below the goal.
He also reiterated the RBNZ’s suggestion that debt-to-income ratios be introduced from a financial stability perspective, however, he noted that this can hurt households with lower incomes and less wealth.
The report said that many factors affected home prices, including the availability of land, building regulations and taxes.
“Previous government studies have identified housing supply as the most important determinant of house prices in New Zealand, and responsive housing supply is essential to ensure positive and sustainable housing outcomes.
“Suppressing housing demand factors may lower house prices, but it will only prove to be a temporary intervention until supply responsiveness is restored.”
Orr said government agencies already had a “wide range of levers” to address housing issues and that clarifying the “bottom line” was important.
“Given the wide range and number of parties involved, and the complexity of the underlying issues, there is a need for a single agency or ‘clearing house’ to coordinate the government response between agencies. The Reserve Bank appreciates the opportunity to participate in the broader government response. “
Robertson said he would wait until next year before making any decisions.
“I thank the governor for his response and will consider it, along with the advice that I have asked the Treasury. The government will make announcements in the new year,” he said.
The government ‘lacks a clear direction’
One of National’s Finance spokespersons, Andrew Bayly, said Orr had confirmed in writing that the government “lacked clear direction” on housing.
“It is clear from the letter from the Reserve Bank that the government is not doing enough in terms of its own responsibility to improve the housing supply.
“This includes a wide range of measures: amending the RMA quickly, ensuring an adequate supply of land, addressing the problem of rising construction costs, and making sure that building regulations are fit for purpose,” he said.
Bayly said the recommendation for a “whole government” response showed that it is not using all the tools at its disposal and that a more “robust” response was needed.
He urged Robertson to accept Orr’s suggestions.
“We have already lost a month. We need action and we need action now,” he said.
