Adrian Orr Says New Agency Needed To Fix Housing Crisis

Reserve Bank Governor Adrian Orr responded to Finance Minister Grant Robertson’s request for help in solving the housing crisis, saying a new government agency is needed.

The new agency would coordinate the government’s response to the housing crisis, which is currently led by various parts of the government.

The letter essentially rejected Robertson’s request for help in solving the housing crisis, noting that the tools the Bank had to combat house prices may not have any effect on the government’s “goal of housing New Zealanders and reducing inequality and poverty ”.

Instead, Orr handed the problem back to the government, saying the tools to lower house prices were basically in his hands.

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The Bank considered what tools it could use to solve the housing crisis, but noted that changing interest rates would have serious negative consequences and that using its other tools might not be effective.

Orr considered whether it was appropriate to put a “consideration” of house prices in his Monetary Policy Reference.

Essentially, this means that every time the bank thought of setting interest rates through its various tools, it would have to consider the price of the house.

But Orr said he did not believe this was a good option and warned it could have serious adverse consequences, including “higher interest rates leading to lower employment and below target inflation.”

This would lead to “less employment” that “affects more those on the fringes of the labor market, eg Maori, Pasifika, women and youth.”

“Adding house prices to the objective of monetary policy would be unique internationally, which could make monetary policy less effective and affect the efficiency of the financial market, by reducing public understanding of the objective of monetary policy.” Orr said.

Instead, the bank preferred that Robertson ask it to consider house prices as part of its financial policy. This is the side of the Bank that seeks to keep the financial system running smoothly and safely.

One of the tools the bank said it could use is the debt-to-income limit, or DTI.

DTS means that banks would have to put limits on the amount of loans people can make relative to their income.

Currently, the bank only uses loan-to-value (LVR) restrictions, which limit the number of loans banks can make to borrowers with low deposits.

Orr requested that Robertson give the Bank the power to use DTI, but cautioned that its implementation would disproportionately affect low-income buyers and cautioned that it was “ambiguous” whether it would actually help people excluded from the housing market.

“All of these factors hurt households with lower incomes and less wealth.”