Finance Minister Grant Robertson requests Reserve Bank to consider how it can help stabilise house prices

Finance Minister Grant Robertson has penned a letter to Reserve Bank Governor Adrian Orr requesting him to consider how it can help to stabilise house prices.

"One proposal I am seeking advice from the Reserve Bank on is whether to include stability in house prices as a factor for consideration in the Remit when formulating monetary policy," Robertson said on Tuesday.

The Reserve Bank's Remit is its operational objective. It currently includes keeping inflation between 1 and 3 percent, with a focus on keeping inflation near the 2 percent mid-point; as well as supporting maximum sustainable employment.

Robertson has written to the Reserve Bank seeking advice on possible ways it could support the Government to meet its economic objectives, in particular with relation to house prices.

He said one option he's interested in discussing with the Reserve Bank is changing a section of the Remit to "better highlight" that monetary policy takes house prices into consideration.

It comes as low-interest rates, combined with property investors and first-home buyers competing for limited housing stock in New Zealand, caused house prices to soar by 20 percent on the same time last year, defying predictions of a COVID-19 crash.

Median house prices in Auckland recently surpassed $1 million.  

"House price instability is harmful to our aims of reducing inequality and poverty, and is also likely to negatively impact the Government's aim of creating a more productive and inclusive economy," Roberson said in his letter to Orr.

"This is particularly the case where investments in the economy are increasingly being made in the existing housing stock, rather than in other more productive assets."

The Reserve Bank is rolling out a Funding for Lending Programme (FLP), making up to $28 billion available to banks at the record low-interest rate of 0.25 percent, to lend and help stimulate the economy. 

The FLP is essentially a way of pumping cheap money into commercial banks in the expectation they will pass it on to businesses and households. 

These types of monetary policies are used to help reduce unemployment during a recession by decreasing interest rates in the hope that less expensive credit will entice businesses into borrowing more money and thereby expanding. 

National's shadow Treasurer Andrew Bayly has expressed concern that the FLP is being rolled out without any requirement for the new lending to be targeted at productive investment. He fears it will add even more pressure to an already stretched housing market.

The Reserve Bank is also considering bringing back loan-to-value restrictions (LVRs) next year, meaning banks would once again require a deposit of 30 percent from investors to get a mortgage and 20 percent from home occupiers. 

It's been suggested the Reserve Bank might consider looking at targeting the FLP and LVRs to help first-home buyers and small businesses rather than property investors.

Robertson said he wants to be clear that he's not proposing any changes to the mandate or the independence of the Reserve Bank, but rather asking them whether to include stability of house prices as a factor for consideration in the Remit when formulating monetary policy.

"With an extended period of low-interest rates, and some time before housing supply can catch up with demand, now is the time to consider how the Reserve Bank may contribute to a stable housing market," Robertson said.

"Undertaking this work is not to suggest the Reserve Bank bears responsibility for house process, but simply that it should have regard to something that is influenced by monetary policy."

Robertson said he is also seeking advice on the demand side of housing. The Government intends to repeal the Resource Management Act (RMA), the complex piece of planning law blamed for holding back new developments.

"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.

He said the Government will also build on the National Policy Statement on Urban Development, which encourages more high-rise buildings around areas where there is sufficient public transport.

In 2017, Labour campaigned on KiwiBuild as the housing crisis solution, promising 100,000 houses in 10 years, but with just 258 houses built as of September 2019, the policy was 'reset' - the targets were dropped and it shifted towards progressive homeownership.

On top of progressive homeownership, the revamped KiwiBuild included changes to the requirements for a First Home Grant. The deposit requirement was reduced from 10 percent to 5 percent, making it more accessible.  

The First Home Grant enables applicants to access up to $10,000 if they have 5 percent of their deposit, among other conditions such as income thresholds. 

Prime Minister Jacinda Ardern said last week her Government would look into adapting the First Home Grant policy to help more first-home buyers tackle the hurdle of saving up a huge deposit.  

But in a briefing to Housing Minister Megan Woods in July 2019, Treasury warned that homeownership assistance without dealing with supply could increase house prices.