Prime Minister Jacinda Ardern is concerned after National's shadow Treasurer called on the Government to ask hard questions of the Reserve Bank on rising house prices.
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 like ASB, ANZ and Westpac 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.
But National's shadow Treasurer Andrew Bayly is worried 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.
Low-interest rates, combined with property investors and first-home buyers competing for very limited housing stock in New Zealand, has caused the prices to soar. Median house prices in Auckland recently surpassed $1 million.
"Low-interest rates and the Reserve Bank's money printing are simply adding fuel to the fire of New Zealand's broken housing market," Bayly said on Tuesday. "Since March, housing lending has increased by $8.7 billion while business lending has fallen by $6.1 billion."
He said the Reserve Bank's policies are becoming "highly contradictory".
"On one hand, the Reserve Bank is adding fuel to the fire of the housing market with its accommodating monetary policy. And on the other hand, the Reserve Bank is trying to cool the housing market down by announcing loan-to-value ratios will come into force early next year."
The Reserve Bank is planning to bring 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 understood the Reserve Bank is looking at targeting LVRs to investors and not first-home buyers.
Bayly said the Government must ask serious questions of the Reserve Bank and the coherence of their approach. He thinks the Reserve Bank should target the lending to more productive areas of the economy, and National leader Judith Collins shares his view.
"It is certainly something I think that people do need to address," Collins said. "We are now seeing massive amounts of extra borrowing going into housing and a lot less borrowing going into business which is something which needs to be some concern about."
But Prime Minister Jacinda Ardern is concerned about influencing the Reserve Bank, which operates independently of the Government.
"That seems a significant departure for a political party in New Zealand to move away from what has been long-term consensus around the separation between politicians and the Reserve Bank," she said in response to National's suggestions.
"I'd say that is concerning. There's very good reason we have those separations."
Bayly said he is not trying to intervene in the Reserve Bank other than to suggest there should be clear expectations around monetary policy and its purpose.
"At the moment we've got a disconnect in the sense that the way that lending is being provided to banks is, unfortunately, going to unproductive parts of the economy," he told reporters.
"It's for the bank to decide what mechanism it should employ to actually achieve a good outcome. But I think there's a role for Government to be very clear about what the objective is."
What's Labour doing about it?
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 KiwiSaver HomeStart grant. The deposit requirement was reduced from 10 percent to 5 percent.
Ardern said she has asked for advice on how to further aid first-home buyers with deposits.
"In that space, I'm looking at all options that do overcome that hurdle that at the moment means the difference between some people becoming homeowners is whether or not their parents can support them into a home. That's not the kind of divide we want in New Zealand, it's not who we are. We want it to be an accessible market."
Labour's housing policy launched during the election campaign didn't have any major changes. It will continue with KiwiBuild and has committed to repealing the Resource Management Act (RMA), which all major political parties agree on.
"The Government must also look to fix the fundamental problems of the housing market, which is a lack of supply," Bayly said. "The Government must do everything it takes to enable new housing development, including replacing the RMA immediately."
Some pundits have suggested a capital gains tax could divert investment away from property in New Zealand, but Ardern has ruled out introducing one under her leadership.
"Everyone knows that for a number of elections Labour did campaign on a capital gains tax. That was something we weren't able to win over New Zealanders with those campaigns and we've accepted that."