The government has urged the Reserve Bank to slow out-of-control price growth
Finance Minister Grant Robertson has written to the Reserve Bank of New Zealand asking Governor Adrian Orr to address skyrocketing house prices, which he says may “present a financial stability risk to the economy” if current growth levels are allowed to continue.
COVID-19 has done little to stem the growth of New Zealand’s booming housing market, with REINZ recording a 20% rise in median house price in its October statistics. The government has been facing increasing pressure to get prices under control, and Robertson is now urging the Reserve Bank to look for ways of achieving “sustained moderation” in house prices.
“I expect to receive that advice towards the end of the year, and will discuss it with Cabinet as soon as possible after that,” Robertson said.
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He also acknowledged that lack of supply has been a key factor in driving up house prices, and that “overly restrictive planning rules” were being looked at – specifically, the replacement of the Resource Management Act (RMA).
Orr has since responded by saying he welcomed the opportunity to improve housing affordability, but said that “monetary and financial regulatory policy alone cannot address this challenge.” He also noted that the Reserve Bank’s primary goal has been to promote spending and investment during an economically challenging time.
“There are many long-term, structural issues at play,” Orr said.
“Like other central banks globally, our key response to the COVID-19 economic shock has been to lower interest rates using a variety of tools. Lower interest rates promote spending and investment, thereby enabling us to meet our inflation and employment mandate over the medium-term.”
Commenting on the key drivers of the housing market, Squirrel director John Bolton said that ‘next home buyers’ have also increased substantially over the past year, given the amount of people sitting on high-equity homes – yet another accelerator for prices.
“We’ve never really talked about next home buyers, it’s always first home buyers and property investors, but this is really a function of COVID-19,” Bolton noted.
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“People are spending a lot more time in their homes, and their homes are becoming more important, and they’re wanting to do more. We’re seeing a lot of people who are wanting to use the equity they’ve built up in their home over the last 5-10 years to buy something better, get themselves into a better suburb, better house, etc. And of course, this is also pushing up the housing market.”
When it comes to slowing things down, Bolton says the reinstatement of LVR restrictions will almost certainly have an impact, albeit primarily on the investor space.
“The Reserve Bank is going to reintroduce LVR restrictions, that’s very much a certain thing,” he said.
“I think that will put a bit of pressure on the property investment market, and it might slow down a bit of bridging finance too. For first-home buyers, I think that market is going to pretty much stay the way it is.”
