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Finance Minister Grant Robertson has told Reserve Bank Governor Adrian Orr that it’s time to think about runaway house prices.
Robertson has written to Orr telling him that “instability in house prices is detrimental to our goals of reducing inequality and poverty, and is also likely to negatively affect the government’s goal of creating a more productive and inclusive economy.”
He wants the central bank to think about ways in which he and the government can work together to achieve “the sustained moderation in house prices that we have both sought.”
Your letter suggests that this could include asking the governor to consider home price stability when making monetary policy decisions, including decisions on interest rates.
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With home prices breaking records across the country, and Westpac forecasting increases of 15 percent this year, runaway home price inflation has become a hot political issue.
Much of the blame fell on the Reserve Bank, which has been printing money to stimulate the economy. The bank has promised it could print up to $ 128 billion through its various stimulus programs, and it is feared that much of that money will go to an already overheated housing market.
There is a general consensus that the most important factor in the price problem is the lack of supply. For three decades, New Zealand has failed to build enough houses to meet the demand of its growing population.
But another side of the housing story is demand. Housing is a largely tax-free investment, which means investors have every reason to invest money in the home.
ROBERT KITCHEN / Things
Finance Minister Grant Robertson has written to the Reserve Bank to say he wants to start a conversation about house prices.
And more than that, aggressive attempts by the Reserve Bank to cut interest rates this year have lowered borrowing costs for many, sparking a wave of housing demand, breaking median price records. of housing across the country.
This created a huge political problem for the government. The independence of the Reserve Bank is one of the cornerstones of our economy. Telling the central bank what to do would be a big step.
Robertson was very careful to emphasize that he was still an advocate for an independent Reserve Bank: The letter had “started a conversation” and did not tell the bank what to do, he said.
“I want to make it clear that I am not proposing any change to the Reserve Bank’s independence mandate.
He also wanted to emphasize that “this is not to suggest that the Reserve Bank is responsible for house prices, but simply that it should take into account something that is influenced by monetary policy.”
Change the mandate
The detail of what Robertson proposes to do is change the bank’s mandate. This is a regular address that the Government gives the Reserve Bank to tell it what it would like to see happen in terms of inflation and employment.
Robertson suggests that this mandate should be changed to ensure that the Reserve Bank takes house prices into account when making its decisions. The central bank’s objective would remain to keep inflation within a band and keep employment levels high. The difference would be that the central bank would have to explicitly consider keeping house prices stable when making these decisions.
Shadow National Party treasurer Andrew Bayly asked Robertson last week to write to Orr, telling him to direct the central bank to direct some of its programs toward business loans and away from residential housing.
Robertson rejected the suggestion that he had copied Bayly’s idea, noting that he was not proposing to give Orr an instruction, but hoped to reach an agreement on the general objective of the bank’s policy.
Robertson made the announcement when the government released its financial statements for the year ended June 30.
The government posted a painful $ 23.1 billion deficit this year. The Covid-19 pandemic wiped out $ 30.5 billion from last year’s surplus, which will likely be the last surplus in some time.
Audited accounts on Tuesday painted a grim picture of the financial hit the government suffered from the pandemic, but there are also bouts of optimism.
The accounts, while still bad, are considerably better than was forecast in the May budget, largely thanks to the economy holding up better than expected.
A stronger economy means lower spending in the form of unemployment benefits and higher incomes as more people work and pay taxes.
The silver lining is that the unaudited accounts for the three months to September this year showed that the deficit had halved from where it was expected.
