Credit: Original article can be found here
Reserve Bank Governor Adrian Orr says targeted government policy could do much more for the property market than monetary policy can.
OPINION: Parliament returning is sort of like everyone coming back from school holidays. There are the old experienced hands who get straight back into the swing of things, joined by the new members who don’t really know what’s going on, where to go and what to do.
When all the new MPs sat in the House for the first time to be sworn in, a couple of things were noticeable: first was just how big the Labour Party caucus now is. It fills up one entire side of the House and then spills over to the other – a sight not seen since the early 1990s.
The second was Labour’s chief whip and Wairarapa MP, Kieran McAnulty, wandering around with a seating plan, making sure that all of his new charges were sitting in the properly assigned seats.
Grant Robertson wrote to Adrian Orr asking him to consider house price inflation more closely.
Yet as the pomp and circumstance of the commissioning and state opening of Parliament got under way, ordinary politics was rolling along. And framing the entire week was the issue of house prices – and the massive inflation in them this year – bubbling back to the surface. Just when Labour thought it had a pretty clear run into Christmas, an issue that blighted its first term was suddenly back on the agenda.
* Grant Robertson writes to Reserve Bank, saying it’s time to think about house prices
* Jacinda Ardern and John Key weigh in on rising house prices debate
* Twenty years of inaction have led to a toxic NZ housing market
* The money-printing programme helping the rich get richer
This presents a particular political problem for Labour. When asked about it, the prime minister – and her front bench – consistently hews back to saying that supply is the problem, before talking about the number of state houses the Government is building.
Mark Tantrum/Getty Images
Prime Minister Jacinda Ardern consistently talks of building more state houses, but that is not the same as tackling housing affordability.
While it’s politically useful to conflate these two issues, they are more or less separate. State housing is about the provision of affordable rental accommodation, while house prices hit at home ownership, a deeply ingrained part of the New Zealand psyche – as it is in other former British settler societies, such as the United States, Canada and Australia. The promise of your own bit of land with a house is a strong one.
That’s what makes high prices – and the deposit required to get a house – stick in the craw so much. New Zealand risks becoming a place where the only people who can afford a house are those with very well-paying jobs or with family money behind them. And that’s before considering how much of the national pay packet is going into servicing mortgages, rather than financing more productive investments.
The latest surge in prices – an almost 20 per cent growth in the median price over the past year – has been substantially Covid-related. There have been more sales, but 18 per cent less stock available. Anyone looking for a house around the country comments on the dearth of stock. Understandably, a lot of people have hunkered down after Covid, perhaps putting plans for selling on hold.
The Reserve Bank’s ultra-low interest rates and cheap money have merely exacerbated the basic problem: too much money chasing too few houses. But a bit of perspective is needed here. Remember at the start of Covid, when there were predictions of a 10 per cent dip in house prices or even more?
Had large swaths of mortgage-holding New Zealanders dipped into negative equity – when the dollar amount of a mortgage is higher than the value of a house – high prices would definitely have been seen as the better problem to have. That’s particularly true from an overall financial stability perspective, which is what the Reserve Bank is charged with keeping an eye on.
Nevertheless, the significance of Finance Minister Grant Robertson’s letter to Reserve Bank governor Adrian Orr to start considering the impact of monetary policy on houses shouldn’t be understated.
There are many authors of New Zealand’s story of high house prices, writes Stuff Political Editor Luke Malpass.
The bank, led by the unelected Orr, has now been invited to bowl up policy ideas for the Government to implement. Orr says he reads Robertson’s letter as a chance for the central bank to use its expertise to help grapple with a public policy problem. That could mean some politically unhelpful suggestions for Robertson, particularly around tax. Yet Labour has already ruled out any tax changes other than its 39 per cent top rate, to kick in from $180,000 in income.
It’s also significant that Robertson has tasked the Treasury to come up with some “demand side” measures to help ameliorate the problem. There’s only one way that would work: reducing demand for houses. Quite how that would work – or fly politically – is another matter.
KiwiBuild was one of Labour’s biggest failures during the last term of government. Originally intended as a huge programme to build 10,000 houses a year with no clear objective why, it was a fundamentally unworkable idea that was always going to fail. Only a few hundred houses have been built to date.
Reserve Bank Governor Adrian Orr.
That now leaves the Government with a problem: housing affordability is a key issue. Yet the costs have been baked in over decades: only significant reform will see changes over the next term of government.
Unlike a decade ago, there is more or less agreement on the problem: there is a lack of supply of houses caused by the Resource Management Act (RMA), poor incentives for local councils to develop, and too many Nimbys (Not In My Back Yarders). Precious few people around Parliament talk about the perceived evils of urban sprawl nowadays.
Only radical action from the Government will get the incentives right for more houses to be built up and out. The new National Policy Statement on urban development a few months ago made a first change: no longer will consents be needed for building up to six storeys in designated areas, and no car parking will be required. These are designed to get dwellings built more quickly.
Getting much more land on the market, the infrastructure to service it, and decent roads and public transport links, will be the part where the Government would be able to pull levers if it wants to. The question will now be around the appetite to do so.
This is such an intractable issue because it effectively pits the economic interests of current homeowners against those who would own a home. So it doesn’t fall neatly along political lines. Many National supporters in particular, who live in leafy suburbs, are none too keen on densification around busy roads and along rail tracks. So quite how National calibrates its opposition will be interesting to see.
It is also an issue that cuts across many areas of government work: the proposed abolition of the RMA, the building supplies market study, local government, infrastructure, and water reforms.
Difficult as that is, there is just a feeling this time around that this is the Government that will have to grasp the nettle on the issue.