RBNZ calls for input on macroprudential tools

The use of macroprudential tools to restrain asset price increases has been a hot topic for months as the bank looks for ways to restrain house prices without taking the heat out of the rest of the economy.

Tools that could be introduced include a countercyclical capital buffer, a core funding ratio, sectoral capital requirements, and restrictions on high loan-to-value mortgage lending.

The bank says it is seeking preliminary feedback on the entire package of tools.

LVR restrictions have been particularly contentious. Critics such as Auckland property consultant David Whitburn have said they will make it harder for first-time buyers to enter the property market and provide more opportunities for foreign buyers.

RBNZ deputy governor Grant Spencer said policy makers around the world had been looking for ways to lessen risk in the financial system.

“Macro-prudential tools can have a role to play in this, by reducing the risks associated with excessive credit and asset price growth, or a reliance on unstable funding sources. As a result the Reserve Bank is now consulting on tools it believes could be useful additions to the policy toolkit in New Zealand.”

He said they would not replace the existing regulation of banks already done by the Reserve Bank.

“[They] would be supplementary tools, used from time to time to help manage risks arising from the credit cycle.”

Westpac chief economist Michael Gordon said housing-specific bank capital requirements or LVR restrictions could be useful in combatting the momentum in the housing market. “But there are risks involved with both, especially for LVR limits.”

He said it seemed unlikely that any tools would be implemented before the end of the year.

“Our view its that these tools are not an alternative to traditional interest rate management - they will tend to operate on a longer time frame than monetary policy, and their impact on borrowing costs is likely to be small. Consequently, they are not a substitute for changes in the OCR.”
Submissions can be made until April 10.

Comments from our readers

On 5 March 2013 at 1:07 pm Jeff Hale said:

NZ has a housing shortage. Restrictions like the elimination of the depreciation allowance or LACQS both of which, incentivised and subsidised, the building of spec housing add to that shortage.
Now the reserve bank want to further restrict funding opportunities. I say fantastic! I'm a landlord, the tighter the housing market the better for rents. Lets make it 50% minimum deposit for everyone. If you can't sell your own home your probably not going to be building a new one. Sounds all good to me.

On 5 March 2013 at 1:14 pm Andy said:

House prices are set by supply and demand. Nothing more, nothing less. Either build more houses, or reduce demand by restricting people coming into New Zealand.
LVR restrictions may protect capital, but won't solve the problem of supply and demand. In fact, it could cause a greater gap between the haves and have-nots as the demand for rental property increases and only the wealthy can afford to buy. Rent costs are likely to increase as landlords seek to improve yields, holding the rental market to ransom.

To compliment any LVR restrictions, the government should look at low-interest loans for deposits for first-home buyers (like the old housing corp loans). These can be underwritten by the government in order to protect the financial system and bank reserves.

Oh - and get rid of consumer finance - leave the personal lending to the banks - make people have to SAVE for their luxuries. THAT will improve the financial well-being of NZers...

On 5 March 2013 at 11:07 pm Richard said:

I hear a lot about its getting too hard for first home buyers to buy their own home. Well thats rubbish, my first home cost me $120,000 and I was paying 22% interest and earned less than many in real terms then those starting out.Now over 20 years I have traded to a better home. Trouble is first home buyers today want to start where many of us finish. In real terms they are not any more expensive. Perhaps less whinging and more hardwork would get a better result

On 6 March 2013 at 7:55 am Paul Mersi said:

Macro tools are fine for influencing macro issues; while there may be housing 'shortages' in Auckland and Christchurch, the concern I have is the effect of such measures on the rest of the country. NZ's economy is increasingly diverse on a regional and sectoral basis and taking steps that impact across-the-board may well be effective on the targeted problem area but detrimental to the rest. It disturbs me that this does not seem to be a focus of the consideration of the use and design of these macro tools.

RBNZ calls for input on macroprudential tools

The Reserve Bank has released a consultation paper on its proposed framework for macroprudential policy in New Zealand.

Monday, March 4th 2013, 7:14PM 4 Comments

Comments from our readers

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