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Reserve Bank must consider impact on housing of its policy decisions, Robertson says

The government has decreed the Reserve Bank will now have to take house prices into account when making its decisions.

Finance Minister Grant Robertson.
Photo: RNZ / Dom Thomas

Finance Minister Grant Robertson wrote to the bank’s governor Adrian Orr late last year suggesting this course of action.
In his reply Orr warned against the option, saying there could be adverse trade-offs.
Robertson has pushed ahead regardless, changing the Bank’s remit so it must consider government policy on house prices when making monetary decisions.
“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,” Robertson said.
The Bank has also been directed to consider housing in regard to its financial policy functions.
“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,” Robertson said.
“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 a letter to Robertson in December, Orr asked the government to grant the Bank further powers, such as debt-to-income ratios.
Robertson today asked for more details on how the Reserve Bank would use that tool.
“I have made clear that in principle I would want these to apply only to investors,” he said.
“It’s important that any potential restrictions do not disproportionately affect first-home buyers and low-income borrowers.”
Robertson also asked for advice on whether interest-only mortgages should be restricted and to what extent they posed a risk to the country’s financial stability.
“Some jurisdictions, like Australia, have in the past applied restrictions on interest-only mortgages due to financial stability risks.”
Robertson had intended to announce a suite of measures to try cool housing demand this week, but said that had been delayed by the recent Covid-19 outbreak.
A fuller announcement is now expected in mid-March.
“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,” Robertson said.
The Reserve Bank said it was on side with the changes, which chimed with the suggestions it gave to the government on housing policy.
“The minister’s direction is in tune with our recent advice to the government in which we detailed the many influences on house prices, including the actions of the Reserve Bank,” Governor Adrian Orr said.
He said the adjustments would increase the focus on understanding and communicating the impact of the RBNZ’s decisions on house price sustainability.
The RBNZ has long and consistently said that its main concerns about the growth in house prices has been the impact and threat it poses to the stability of the financial system.
It has said issues of affordability and supply of houses were matters outside of its control and responsibility.
Meanwhile, an economist said he doubted the government’s new requirements would have much effect on the overall housing market.
Westpac chief economist Dominic Stephens said the controls on property investors might be tightened if the government agreed to debt-to-income ratios, but would be unlikely to materially affect the setting of interest rates.
“Having to assess it isn’t going to make a huge difference, so I don’t think there’ll be a big impact on the housing market, there’ll be some impact on how it runs its financial policy and no change to the way it runs its monetary policy.”
Stephens said the changes would shine some light on the impact of interest rates on housing, broadening debate from the narrow current view on supply, regulation and the like.