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House prices added to Reserve Bank remit

The Government has instructed the Reserve Bank to take house prices into account when setting monetary policy, marking a significant shift in the central bank's role in the real estate market.

Thursday, February 25th 2021, 9:43AM 5 Comments

Grant Robertson

Finance Minister Grant Robertson announced that the RBNZ is now "required to consider the impact on housing" when making monetary and financial policy decisions.

Changes have been made to the central bank Monetary Policy Committee's remit, meaning it will need to consider sustainable house prices while working to its existing objectives, supporting maximum sustainable employment and keeping inflation around the 2% mark.

It comes amid growing pressure on the Reserve Bank, which has slashed the official cash rate to 0.25%, and introduced cheap financing programmes for lenders in the wake of the Covid crisis.

Loose monetary policy has helped NZ avoid a worst-case economic scenario, but the RBNZ has been blamed for the record surge in house prices.

The RBNZ has also been criticised for lifting LVR restrictions, further fanning the flames of the housing market.

Robertson's decision comes as the Government is criticised for failing to deal with New Zealand's housing crisis.

The finance minister said: "The committee retains autonomy over whether and how its decisions take account of potential housing consequences, but it will need to explain regularly how it has sought to assess the impacts on housing outcomes.

"The Bank will have to take into account the Government’s objective to support more sustainable house prices, including by dampening investor demand for existing housing stock to help improve affordability for first-home buyers.

"The Reserve Bank’s objectives and mandate remains the same, which is to maintain price stability, support full employment and promote a sound and stable financial system."

In addition to the significant changes, Robertson has asked the Reserve Bank to provide further advice on debt-to-income ratios and interest-only mortgages.

Robertson said: "I want to understand the extent to which interest-only mortgages (particularly to speculators) pose risks to financial stability, and whether restrictions should apply. Some jurisdictions, like Australia, have in the past applied restrictions on interest-only mortgages due to financial stability risks.

"Following the Bank’s request that the Government allow it to make use of tools such as debt-to-income ratio limits, I’ve asked for further advice on how the Bank might implement such tools. I have made clear that in principle I would want these to apply only to investors. It’s important that any potential restrictions do not disproportionately affect first-home buyers and low-income borrowers."

Robertson added: "Today’s announcement is just the first step as the Government considers broader advice about how to cool the housing market.

"We know the rapid increases we have seen in recent months are not sustainable, which has meant many first-home buyers are struggling to access the market. We’ll be making further announcements in the coming weeks on other policy responses."

Responding to the announcement, RBNZ governor Adrian Orr said: "We have a long-standing commitment to transparency about our policy actions and approaches, and this will continue."

In a statement, the RBNZ said it "welcomes the minister’s request for more information and analysis on debt-to-income ratios and interest-only mortgages, and will respond in due course".

Tags: house prices housing market LVR RBNZ Reserve Bank

« RBNZ governor wants lower loan ratesProspa NZ loans pass $100 million mark »

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Comments from our readers

On 25 February 2021 at 10:25 am Straight shooter said:
Robertson, deal with the constraints of the RMA and plethora of bureaucracy that councils put in place to impede development and house construction and you will solve the problem. 2-3 years for resource consents, 6 months or longer for building consents and constant delays to get inspections and COC's. Sort this out and stop blaming the RBNZ and your problems will be solved. Its nothing to do with LVR restrictions, interest rates and inflation but all to do with supply and demand. so simple yet so hard for politicians to get!
On 25 February 2021 at 12:41 pm Amused said:
Robertson added: "Today’s announcement is just the first step as the Government considers broader advice about how to cool the housing market.

Yes lets have another working group that takes 6-12 months to make any recommendations before the Government does anything substantial. No sense of urgency with this lot in charge that's for sure.
On 25 February 2021 at 1:48 pm Andy the adviser said:
Please excuse my ignorance. But how does that work?

1. RBNZ wants banks to pass on lower interest rates to borrowers
2. Government wants RBNZ to include house prices in inflation calculations
3. RBNZ mandate is to keep inflation between 1-3%
4. Government wants more housing and better affordability. Only options are to allow the private sector to step in, Government to borrow more to fund it, or heavily subsidise first home buyers (history shows this will push house prices up further)
5. The only tools RBNZ has are either increase OCR (conflicts with point 1 above) or increase LVR (bank capital) requirements (conflicting with point 4 above).

Taking in to account house prices, my guess is that actual inflation is possibly closer to 9-10%, and the RBNZ needs to do more to curb this. With wage and salary increases of only 1-2%pa, it is easy to see why it is getting harder for first home buyers. Giving out grants doesn't help the situation (as clearly shown).

How about the government and the Reserve Bank sit down together and work out a model of sustainability, rather than growth?

It might just work out better than all the failures so far!
On 26 February 2021 at 12:15 pm Bikedude said:
Its a supply and demand problem. Limited supply means higher demand. How hard is that to assimilate Mr Robertson. Sort out supply and you sort the problem, rather than hand it on to the RBNZ and stand there wringing your hands and expecting someone else to sort your problem. Leadership, not hugs.
On 26 February 2021 at 4:52 pm KiwiInvestor said:
I know of one broker who told me, and would be keen to hear others opinions on this, the introduction of debt to income (DTI) will kill the property market (and his business) overnight! As a tool the RBNZ could use, and I think on the cards to use, it will certainly strangle the property market and/or wider economy as lots of SME's borrow against there property for business loans. Whether the RBNZ or Government have considered this is the scary unknown.

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Lender Flt 1yr 2yr 3yr
AIA 4.55 ▼2.25 2.59 ▲2.89
ANZ 4.44 2.89 3.25 3.39
ANZ Special - 2.29 2.69 2.79
ASB Bank 4.45 ▼2.25 2.59 ▲2.89
Basecorp Finance 5.49 - - -
Bluestone 3.49 3.34 2.99 3.34
BNZ - Classic - 2.29 2.59 2.79
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
BNZ - Std, FlyBuys 4.55 2.89 3.19 3.39
BNZ - TotalMoney 4.55 - - -
Lender Flt 1yr 2yr 3yr
CFML Loans 4.95 - - -
China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.45 - - -
Credit Union Baywide 5.65 3.95 3.85 -
Credit Union South 5.65 3.95 3.85 -
First Credit Union Special 5.85 2.95 3.45 -
Heartland Bank - Online 2.50 1.99 2.35 2.45
Heretaunga Building Society 4.99 3.40 3.50 -
HSBC Premier 4.49 2.25 2.35 2.65
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - 2.25 - -
ICBC 3.69 2.25 2.35 2.65
Kainga Ora 4.43 2.67 2.97 3.13
Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank 3.40 3.20 3.50 3.50
Kiwibank - Offset 3.40 - - -
Kiwibank Special 3.40 2.35 2.65 2.65
Liberty 5.69 - - -
Nelson Building Society 4.95 3.20 3.24 -
Pepper Essential 4.79 - - -
Resimac 3.39 3.35 2.99 3.35
Lender Flt 1yr 2yr 3yr
SBS Bank 4.54 2.79 2.99 3.29
SBS Bank Special - 2.29 2.49 2.79
Select Home Loans 3.49 3.34 2.99 3.34
The Co-operative Bank - First Home Special - 2.09 - -
The Co-operative Bank - Owner Occ 4.40 2.29 2.59 2.79
The Co-operative Bank - Standard 4.40 2.79 3.09 3.29
TSB Bank 5.34 3.09 3.29 3.45
TSB Special 4.54 2.29 2.49 2.65
Wairarapa Building Society 4.99 3.55 3.49 -
Westpac 4.59 3.09 3.29 3.39
Westpac - Offset 4.59 - - -
Lender Flt 1yr 2yr 3yr
Westpac Special - 2.29 2.69 2.79
Median 4.55 2.73 2.99 2.89

Last updated: 23 April 2021 8:50am

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