First scratch: ‘Stabilise house prices’

Robertson asks RBNZ not to worsen housing boom anymore; He suggests changing RBNZ’s policy remit to include ‘unnecessarily unstable house price inflation‘; Govt to review housing demand settings

Finance Minister Grant Robertson has announced the Government has asked the Reserve Bank to avoid using monetary policy in future in a way that further worsens the housing boom.

In a surprise announcement with the release of the Government’s accounts for 2019/20, he announced the Government was reviewing its own housing settings and proposing a change to the central bank’s formal remit to include house price inflation. The bank has previously had a mandate to ‘monitor asset prices’, but the proposed change is more active in saying the bank should “seek to avoid unnecessary instability in output, interest rates, the exchange rate and house prices,” with the house prices clause being additional.

”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.

Elsewhere, he said he had asked Treasury to review demand side settings in the housing market around tools such as the ‘bright-line test’ for whether landlords are trading houses for short term capital gains and other tax rules. But he again ruled out any form of wealth or land tax, or stamp duty.

Robertson also hinted at more efforts from the Government on improving housing supply. He said Housing Minister Megan Woods would have more to say in the coming weeks, but he said he did not expect the Government’s own build programme of another 8,000 state houses over the next four years.


My view: The Reserve Bank was specifically using house price inflation and the wealth effect to loosen monetary policy, so this potentially removes that tool. It will be hard to stimulate without it. This will make it difficult to further lower interest rates, given banks are currently not growing lending to businesses and prefer to lend extra against existing homes.

This is what happens when you build an economy that is really just a housing market with bits tacked on and your banking system is all about lending to landlords and other home buyers.

Robertson would not say the Government would do more to help the Reserve Bank by further loosening fiscal policy, but he said it would be something for the Treasury and Government to consider.

His comments about Woods’ announcement suggest something is in the works to help private developers and councils enable more infrastructure for housing and housing developments. This is the biggest hurdle.

The other major hurdle is the Government’s own self-imposed ban on new wealth, land or stamp duty taxes in this current term.

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