Roosting chorus: Intervention staged
Robertson asks Orr to try not to pump up house prices any more; Govt may extend brightline test & tighten ring-fencing for landlords, but again rules out wealth or land tax or bigger state house build
TLDR: The Government finally took what appeared to be some concrete action today to try to dampen the fire raging in the housing market, but again held back from using its biggest hoses and is intervening well after the blaze has taken hold.
Grant Robertson wrote to Adrian Orr this afternoon suggesting the Reserve Bank try not to unnecessarily cause too much house price inflation. He suggested inserting “and house prices” into the Monetary Policy Committee’s formal remit that currently says the MPC shall: “seek to avoid unnecessary instability in output, interest rates, and the exchange rate.” The remit was agreed between Orr and Robertson in February last year and removed language used in previous ‘policy targets agreements’ about monitoring asset prices as superfluous. (In some form of irony, the NZ dollar rallied almost a cent to 69.9 USc after Robertson’s intervention)
Impotence exposed without Act change: But Robertson stopped short of suggesting changing the underlying Section 8 of the Reserve Bank Act, which specifies the bank must keep the ‘general level of prices stable over the medium term’ and ‘support maximum sustainable employment’, but makes no mention of house prices.
Orr wrote back this evening pointing out that while Robertson wasn’t going to change Section 8, all the Reserve Bank had to do was acknowledge the letter and get on with its job, which included already doing what Robertson had asked for. Orr effectively said the house price inflation was one channel used to ease monetary policy.
“I can assure you that the MPC, in making its decisions, gives consideration to the potential impact of monetary policy on asset prices, including house prices,” Orr said.
“These are important transmission channels that affect employment and inflation. Housing market related prices are also included in the Consumer Price Index, for example rents, rates, construction costs, and housing transaction costs,” he said.
Essentially, Orr was saying: ‘We’re already doing what you asked. Change the Act if you really want us to do things differently. And anyway: house inflation is a feature of our policy, not a bug.’
Sadly, the whole exercise makes the Government look like its intervention was more staged than real, and designed to convince voters that it was ‘doing something,’ without actually doing much. Robertson played down suggestions of loosening fiscal policy to help the Reserve Bank, again ruled out wealth or land taxes or a stamp duty. He also pushed back at suggestions the Government could increase its current state house building programme beyond its current plan to build 8,000 over the next four years. The only suggestion on lifting supply was that Housing Minister Megan Woods was planning an unspecified announcement shortly.
The Reserve Bank and Orr will be able to respond more fully at its half yearly Financial Stability Report tomorrow afternoon, which I’ll be attending. I welcome your questions.
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Coming up
Weds Nov 25 - 2pm - Reserve Bank to publish six monthly Financial Stability Report (FSR) . Expected to warn of re-imposition of high LVR lending limits from May 1, 2021.
Weds Nov 25 - Opening of Parliament for 53rd term, including swearing in of new MPs
Thurs Nov 26 - Speech from the throne in Parliament outlining Government’s agenda
Dec 1 - Landlords must include a Healthy Homes statement with any renewed tenancy agreement after this date. Landlords have until July 2024 to comply with new rules on heating, insulation and dampness.
Weds Dec 9 - Parliament rises for the year.
Ngā mihi
Bernard
PS: Many thanks to Auckland Zoo for today’s kākā pic
PPS: Some fun things
This Max Hastings review of the latest series of the Crown is gossipy, astute and surprising.
There is a difference in this house bubble since the GFC, house investors / buyers have been taught since 2014 that the govt, RBNZ and banks wont allow houses prices to retreat as they all have bet the economy on houses! If at any there are speed wobbles, Orr, Labour and banks will set measures to save house owners form reckless investing. The cost of living for renters along with no income growth will be tough. Watch out for the youth tech drain, once borders open!