RBNZ talks about new tools

Governor Graeme Wheeler said, in his first Monetary Policy Statement, that the Reserve Bank and The Treasury are working on a Memorandum of Understanding about the tools that could be used in the future to manage asset bubbles without hurting the wider economy.

He said they had reached an agreement and the MoU was presented to FInance Minister Bill English yesterday.

As well as loan-to-value restrictions, the bank is looking at introducing further changes to the core funding ratio, a counter-cyclical capital buffer, and risk weightings on asset classes.

The Auckland housing market in particular is showing signs of increasing strength, with prices up 12% year-on-year. But the high dollar is hurting exporters and a hike in interest rates could exacerbate that.

Wheeler said he had been doing a lot of work around loan-to-value restrictions, talking to bank boards.

He said he did not think there was a house price bubble in New Zealand yet, because nationwide price inflation was only about 5% per year and credit growth was about 2% or 3%. “At present we don’t see that we would need to use macroprudential instruments.”

But he said, had the bank had them at the time, they could have been useful during the housing boom of 2002 to 2007.

“If we felt there was an asset price bubble gathering momentum and threatening to do damage, we would look at macroprudential tools in the first instance.”

Wheeler said housing shortages and population pressures were driving Auckland house prices up. But he said there were signs of more housing stock coming on to the market.

An indicator of an asset bubble would be when house price growth accelerated nationwide, he said.

Comments from our readers

On 7 December 2012 at 9:50 am Andy said:

This is refreshing to see a Governor who can think outside the square and who understands the real relationship between supply and demand (in housing)! While I agree with limiting low-equity lending, there does need to be a better option for people to get into their first homes. Should we be re-introducing housing corp loans (for the deposit only) or options to capitalise WFF payments? The Welcome Home Loan package is a nightmare - hence the low uptake.
Closer dialogue between the Treasury and Reserve Bank is a good move.

On 10 December 2012 at 7:52 am selwyn parker said:

5% house inflation is excessive and more than acceptable.
Particularly if you are in your late twenties, paying off a student loan, and trying to save a house deposit and only earning 3.5%pa interest after tax. Bring on more affordable new housing stock to now to help alleviate this pressure.
From someone who is concerned about home affordability for our next generation!

On 11 December 2012 at 4:56 pm Johnny said:

If a median Auckland house is increasing at least $60,000 per year (the 12% quoted) how is ditching 5-10% deposit loans going to help affordability?
I would have thought with appreciation like that, even half that, you're better to buy on 5% deposit and put the money you'd otherwise be saving toward a larger 20% deposit into mortgage repayment with your clearly rapidly increasing capital gain working for you rather than against you, and for the bank.
The bank knows the equity is improving under those conditions, so is comfortable lending the higher sum.

RBNZ talks about new tools

The Reserve Bank would rather use tools such as loan-to-value restrictions than hike the Official Cash Rate to target another house price boom.

Thursday, December 6th 2012, 2:23PM 3 Comments

Comments from our readers

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