"You can restrain demand, the macro prudential measure have some impact, and there may be more to come, but we've focused on supply because in the long run that will be the dominant influence"
Minister of Finance Bill English says the government is heeding the Reserve Bank of New Zealand's call for more housing in Auckland's bubbling real estate market by trying to boost supply, while flagging that further macro prudential tools may be needed from the bank.
Last week central bank governor Graeme Wheeler told the Canterbury Employers' Chamber of Commerce the bank warned "the more that house prices get out of line with historic relativities, the greater the risk of a sharp correction, leading to financial instability" and was watching the Auckland and Christchurch housing market closely, where a lack of supply has pushed prices to record levels.
In 2013 the bank introduced loan-to-value ratios, which limit the amount private banks can lend on a house with a deposit of 20 percent or less, while last year it hiked the official cash rate 100 basis points to 3.5 percent. Earlier this month the governor moved to a neutral stance on interest rates, as inflation falls below the central bank's tightening level.
English told the finance expenditure select committee the government was cutting regulation and streamlining consents in order to build the supply pipeline in Auckland, where the central bank says 10,000 new houses are needed annually to fill the shortfall but that further macro prudential tools, like LVRs may be needed.
"You can restrain demand, the macro prudential measure have some impact, and there may be more to come, but we've focused on supply because in the long run that will be the dominant influence," English said. "Double digit house price inflation can't go on forever and it won't particularly with the kind of supply reaction those high prices bring on, it's a combination of the market responding to those high prices by getting more supply in and the government trying to make it easier to do so."
After the committee the minister told media the decision to use more macro prudential tools lay with the central bank.
"If you think of the context for the bank, up until the middle of last year house prices were slowing down, since the election they've picked up a bit faster than anyone expected and so now the governor has indicated publicly further tools," English told reporters. "Our concern is not so much that house prices fluctuate but if there is continuous increase in prices it creates risks to financial stability."
(BusinessDesk)
