In our last Face to Face with Bernard Hickey we discussed why the Reserve Bank faces such difficult decisions. As a result of low inflation and stagnant growth, interest rates are at an all time low and need to go even lower to spur economic growth. However, low-interest rates are doing little to spur the economy, instead more and more money is going into inflating the price of existing assets – resulting in rising house prices in New Zeland.
In this Face to Face we look at what the Reserve Bank can do resolve this dilemma. They need to reduce interest rates, but at the same time they need to put a dampener on the housing market. They are currently proposing to do that through reducing the loan to value ratios for investors; limiting the amount of money an investor can borrow to 60% of house prices nationwide. If that doesn’t work they are looking at limiting the amount of total debt someone can hold to a multiple of their income; a move which could severely curtail lending particularly to investors.
Of course we mustn’t forget the Reserve Bank isn’t solely responsible for house prices – far from it – central and local government have more levers to pull including closing tax loopholes for housing (which drives demand) and removing planning restrictions to allow increased density in central Auckland (which drives supply). On the latter point a lot rides on the Unitary Plan which will be released this month.
What can the Reserve Bank do about rising house prices in New Zealand? was last modified: August 17th, 2016 by