[ad_1]
Supplied
Shadow National Treasurer Andrew Bayly says the government should lead the Reserve Bank.
The shadow treasurer of the National Party, Andrew Bayly, believes that the Reserve Bank should be controlled to cool the boom in house prices.
Bayly says the bank should stop throwing more and more printed money into the overvalued housing market.
He is asking Finance Minister Grant Robertson to write to the Bank, telling it to put conditions on the nearly $ 28 billion of cheap funds it is willing to give to banks, money that will likely end up in the housing market.
The government and opposition generally stay away from the Reserve Bank, which is fiercely independent, but the bank’s deployment of an “unconventional” monetary policy to combat the Covid-19 recession has led some politicians to ask that the bank be checked. .
READ MORE:
* Politicians point fingers on the runaway housing market
* James Shaw says it’s time to tax capital gains and wealth to cool down the housing market.
* The stimulus scheme may simply drive up house prices
Bayly said the time was right for the government to state what it wanted from the bank in a letter of expectations.
“The government needs to lead, it needs to see itself as a leader sometimes,” Bayly said.
The $ 28 billion will come from the Bank’s Financing for Loans (FLP) scheme. It is designed to pump money into the economy by creating incentives for banks to lend more. It adds to the $ 100 billion that the bank said it could inject into the economy.
Bayly said the Bank should target these interventions to make sure they end up in productive businesses, rather than the housing market.
“Our view is that the Reserve Bank can, and should, require banks to direct new Reserve Bank funds to the productive parts of the economy, particularly commercial loans,” Bayly said.
“If the government is serious about the housing situation, it will send a letter of expectation to (Governor) Adrian Orr immediately, before the new scheme is implemented in December.
“The current runaway situation in house prices is not sustainable.
“There has been no new funding to support agriculture and horticulture, and little has been given to developers to build new houses,” Bayly said.
FLP-like overseas schemes had tried to avoid injecting too much money into the housing sector by offering additional incentives for banks to direct their loans to businesses.
The Bank has defended its decision not to impose restrictions on the FLP scheme, saying that this would limit its effectiveness. The plan is designed to pump money into the economy and it is feared that diverting that money from home loans would limit the effectiveness of the plan, since home loans make up the majority of bank loans.
The Reserve Bank has signaled that it could take some measure to cool down the housing market, saying it will consult on the recovery of loan-to-value (LVR) restrictions next March, earlier than expected.
LVRs limit the amount of low-deposit loans that banks can make. This means that borrowers will need a higher deposit before obtaining a mortgage.
Bayly said he doesn’t know why the Bank takes so long to make a decision on LVRs.
“I don’t know why they are delaying that,” he said, but added that the bank should be cautious when reimposing LVR.
“My problem with LVRs is that they can be quite a simple tool. They can be quite detrimental to first-time home buyers, ”he said.
LVRs can hurt those buyers by raising the minimum deposit required for a mortgage.
