Tough road ahead for the Reserve Bank to try and contain property prices - top economist

A top economist is warning of a tough road ahead for the Reserve Bank (RBNZ) as it tries to contain property prices after Finance Minister Grant Robertson sent a letter to the central authority.

Robertson on Tuesday penned a letter to RBNZ Governor Adrian Orr asking him to consider how the central bank could help to stabilise house prices. 

Economist Shamubeel Eaqub says while the issue of house prices is a gruelling problem, the wrong decision by the RBNZ could have a wider impact.

"We don't want too much money going into only one part of the economy - we want it also to create jobs and businesses, and that's what's been missing," he told Newshub.

"That's what the Reserve Bank has to crack."

Eaqub said it's a complicated situation.

Shamubeel Eaqub.
Shamubeel Eaqub. Photo credit: Newshub Nation.

"I don't think we should get the Reserve Bank to raise interest rates to control house prices because the risk to the economy would suffer."

Meanwhile, former RBNZ Governor, National and ACT Party leader Don Brash said the central bank can only do so much.

"They can't control house prices directly and even indirectly, except by pushing interest rates very sharply and that's probably not what the Minister of Finance has in mind."

Brash. Photo credit: The AM Show

Brash is urging the Government to get its ducks in a row but agreed the situation is complex.

"The Labour party knows what needs to be done; they need to relax the restriction on land around Auckland.

"It's not house prices which are expensive in Auckland - it's the price of the land the houses sit on."

Robertson told The AM Show he intervened with the RBNZ at an appropriate level and said everyone needs to work together to make the market more affordable.

"We've been looking - as all New Zealanders have - at the rapid escalation of house prices in recent months.

"It's part of our agenda to strive for more equality in the housing market, to be able to improve affordability. 

"We've taken some time over the period since the election to think about what we can do, as the Government, but also reaching out to the Reserve Bank to ask them what they could do."