Reserve Bank (RBNZ) Governor Adrian Orr is refusing to be Finance Minister Grant Robertson’s whipping boy as the government comes under increasing pressure over soaring house prices.
Speaking to media on Wednesday, Orr said he was “really pleased” the RBNZ was “being invited into the discussion” over how to address rampant house price inflation.
Robertson on Tuesday wrote to Orr over concerns around the impacts its loose monetary policy (IE low interest rates) was having on house prices.
Robertson proposed the Monetary Policy Committee’s (MPC) remit be tweaked to require it to “avoid unnecessary instability” in house prices.
He said he welcomed the RBNZ’s views on “any alternative proposals with regard to the Reserve Bank’s monetary or financial policy”.
But Orr said in an interview with Stuff that the government, or fiscal policy, was best-placed to curb housing demand. He said the government could be more targeted than the RBNZ could with the "blunt" tools at its disposal.
Asked in a press conference whether the RBNZ would give the government advice on how it could change the tax system to address issues around housing and inequality, Orr said: “At the moment I don’t know the broader work agenda. One would assume issues of taxation would be in the broader work agenda…
“There has been so much work over decades on this issue that I don’t think problem identification is too difficult… It’s really around appetites for accepting policy recommendations.”
Robertson on Tuesday said he directed Treasury to look at what the government could do on housing affordability. He said extending the bright-line test beyond five years was on the cards, but a formal capital gains or wealth tax wasn't an option.
In an interview with interest.co.nz, RBNZ General Manager of Financial Stability Geoff Bascand said the RBNZ would look at how it could use macro-prudential tools that restrict bank lending to allay Robertson’s concerns.
But like Orr, he noted the likes of loan-to-value ratio (LVR) or debt-to-income ratio (DTI) restrictions could make things harder for some home buyers. He said using these required making trade-offs.
Orr tempers expectations around what the RBNZ can do to moderate house price growth
Orr stuck to the defensive position he took in the letter he wrote in response to Robertson on Tuesday, stressing the RBNZ already considered house prices in its policy-making.
Asked whether adding a house price clause to the MPC’s remit would therefore be a redundant move, Orr said: “I just wanted to make sure that people understand where we’re starting from and have clear expectations about what can and can’t be done.
“Because setting up false expectation for broad stakeholders - public alike - is not good policy setting.”
Orr clarified Robertson gave him a heads up on Monday that a letter was coming his way. He said he received the letter at around midday Tuesday - two hours before it was made publicly available, and a day before the scheduled release of the RBNZ’s Financial Stability Report.
Orr said the RBNZ’s would have had to have been “absolutely remiss” to have been surprised by the letter.
“The housing market, house prices, the haves, the have nots - all of these issues have been very high profile for decades in New Zealand,” he said.
Friction
Sean Keane of Triple T Consulting, in a note for Credit Suisse, said the public exchange of letters indicated there was “friction” between the RBNZ and Robertson, which was “unusual” given they had worked well together to date.
“The housing issue is clearly a break in that relationship, and at its core housing is always more of a political than an economic issue,” Keane said.
He believed the trigger for Robertson’s letter was Orr’s comments at the Monetary Policy Statement press conference on November 11. Orr and his colleagues repeatedly said they were not in the business of targeting house prices and were more concerned about the financial stability risk to banks that come from poor lending decisions.
Given Robertson made a point that week of telling media (during discussions about house prices) he’d brought forward a meeting with Orr, Keane said Orr's comments may not have been to Robertson’s "liking”.
Keane maintained it was reasonable to assume Robertson raised concerns over house prices with Orr and asked him if the RBNZ could pay more attention to the matter through its financial stability remit.
“The Governor’s comments at the [November 11] press conference didn’t hint in any way at the level of additional concern that Robertson perhaps wanted to see, and hence the need that he felt to issue such an unusual public letter,” Keane said.
Asked on Wednesday whether he was annoyed about the way the RBNZ was being drawn into politics, Orr stood by the response of the RBNZ and government to Covid-19 and said the New Zealand economy was “one of the most resilient on Planet Earth to date”.
He then acknowledged it had been flippant for him to call house price inflation a “first class problem” in a media interview after the release of the November 11 Monetary Policy Statement.
“What I meant was it was the worst problem except for the alternatives,” Orr said.
Will the RBNZ ultimately have to give way?
Keane said if Orr chose to contest Robertson’s request on taking account of house prices he'd be "misreading both the mainstream and the political mood of the moment".
“Governor Orr generally finds himself on the more populist side of most public debates so his positioning on this one will be interesting to watch,” Keane said.
“Whilst Minister Robertson’s letter was worded as being one of seeking input and ideas from the RBNZ and of consulting with the Bank, it is ultimately the case that if Governor Orr does not agree, then the Minister has the tools at his disposal to force this change through."
As per the video montage below, Robertson acknowledged as early as June that he was not designing his Covid-19 response with regard to the RBNZ’s monetary policy, nor considering the side effects of printing billions of dollars.
*This article was first published in our email for paying subscribers. See here for more details and how to subscribe.
107 Comments
I'm concerned ... that young and not so young people are choosing not to buy a home and instead are blowing the capital they have on a new car... we need more affordable options something about 350k would be good... its not the be all and end all but its a step/rung on the ladder
Not as many as you might think Mr/Ms IO but what difference does it make... there is the same number of rentals available. I have heard many people from commenters to politicians say they want mum and dad landlords to sell up and be replaced with corporate landlords in which case there will be a further concentration of ownership. Also we do not compete against fhb as you know already.
Just helping you become aware of any false narratives/heuristics you might have as a result of unconscious biases. Although at your age if you don't have that self awareness yet, you're unlikely to ever develop it.
Don't think you or anyone wants to know much about me - my life is inconsequential compared to the issues we are discussing. I own other investments other than property but nobody ever wants to discuss that on this website. But if we're talking about issues involving property, then we should each have a disclaimer that makes our biases clear for everyone to see. Otherwise how do we ever get to the truth of an issue if we just have a bunch of self interested bigots trying to push views that enrich themselves further and don't care for the greater good?
This was a PR stunt by RBNZ and Robertson. The timing of the letters and the 'heads up' that was given is a giveaway. It's definitely allowed each party to hit the news headlines and give the impression they're getting results whilst working through the issues. Even Orr and the team came across better media trained in the conference, keeping their composure and looking more confident. Unfortunately, the more you dig into what was said the more you realise nothing will happen.
Nothings going to happen anyway, even if they add the line "avoid unnecessary instability in house prices" to the law. WTF does "unnecessary" mean? Most of us probably see that it's necessary house prices come down by about 30% or more, if the RBNZ sees that too, they might purposefully bomb them? Or they might see it necessary they are 50% higher, so go the other way. WTF does "instability" mean? Is a change of 10% a year OK? 20%?
With zero numbers put around those statements they are near enough to useless.
It's plain and simple, the RBNZ is using housing as a vehicle to inject newly created money into the economy via Ultra low interest rate. They know exactly what they are doing. Their big comeback statement is always the same..."This isn't an isolated problem for NZ, it's global."
This is what happens when you get elected without any policies whilst not upsetting anyone. Labour cannot do anything to help bottom 35% of pop because the next 30% up don’t want to pay tax for it. That is also why governments never have enough to do anything about major issues. Tax base too narrow and no one can get elected to raise it. Like USA I am afraid
Yeah exactly. We all know the problem and we all know the solution. It's the voting public which is just 'ma and pa' and 'grandma and grandpa' who have skin in the game who don't want the gravy train to stop. This govt has the opportunity to do something given their majority and COVID-19 is a great excuse to finally be the govt to tackle the housing gravy train. If Cindy continues to please the masses then she'll just be another centre PM who just fills that spot for a while. However if she 'grows a pair' and implements meaningful policy albeit unpopular then that'll be her legacy. Also I don't buy the unpopular policies will just get reversed next change of govt...name the big controversial policies that were overturned in NZ political history vs those that actually just stayed.
That was a wicked barb from Orr. Translation "Suck it in Robertson and do what you know needs to be done".
Robertson asking Treasury to investigate what can be done re. house prices is a joke, given Labour has been all about house prices for about a decade. If it's truly the first time he's asked Treasury about that, he's not been doing his job.
“The housing market, house prices, the haves, the have nots - all of these issues have been very high profile for decades in New Zealand,” he said.
Nice way to dismiss the issue considering how heightened it is (pun intended).
How long can the RBNZ rely on the supposed wealth (debt) effect to drive the economy? If it couldn't work in the last mad rush coupled with high immigration and lower unemployment, what do they think the future is going to hold? What happens when interest rates can't be lowered anymore and the wealth (debt) effect is stopped? Seems like ponzi characteristics.
I also don't understand why the RB Governor acts ignorant to house price rises and uses the excuse they're only interested in inflation targeting. Surely increasing unproductive asset prices counters the ability for growth. They seem to be paid a lot of money to be deliberately narrow minded. I'm sure they understand all this so it would be good to understand their actual motivations. Their private opinion rather than their public one.
Maybe Orr's just buying time so that he can avoid a crash while he's in the RBNZ drivers seat? Either that or he's stuck in the 1980's.
Seems bizarre that we're pumping money into unproductive assets when we all know it's a massive problem with long-term negative consequences.
#aroha #bekind
Stress levels among the autocrats seems to be rising on this issue (now at mild finger pointing stage), despite this well prepared and briefed presentation.
If it continues, the chance of bits of truth being blurted out increases. I hope the likes of Jenée patiently keep the pressure on.
Sorry - edited to add hashtags to increase my Likes:
#aroha #bekind
Mr Orr and Mr Robertson's passing the buck and not intent to do anything except sound byte is now on the street.
Why was the government elected, to act and not to pass the buck. JA should not let her ego come in her way of introducing CGT as has the mandate to do so and also environment but with power comes ego ( had no ego to take U turn on not introducing CGT but not to impliment - Ego does not come in way when have vested interest as now even she belongs to elite club of owning multi million dollar house).
Watched a brief moment of interview of previous PM Key who stated that demand outstripping supply was the base problem. Leaving aside how it got to be like that, perhaps he is right and perhaps that too was the perception that gave birth to the ill fated Kiwi Build scheme. But there have been other proposals. Recall (March 2019) Westpac announcing a package involving, land, flat pack house and finance which appeared of some merit. Anybody know if that has progressed or did the regional and local councils just give it the elephant stamp.
Economy consist of demand and supply and not just supply. If supply cannot be managed should atleast try to manage speculative side of demand, why is it so hard for Mr Robertson and Mr Jacinda Arden to understand.
Though by doing the problem will not go away but still will contain BUT both have no intend as suits their vested interested. Jacinda Arden has started to enjoy being like one of National leader so thinking and behaving like one without missing out photo opportunity to show empathy for the world to see.
Here is an example of the “new” demand. Relatives have just sold a modest ownership flat thingy from the 70s to a couple in their eighties. Buyers will live in it & will be freehold funded from previous term deposits held. They will live in it and rent out furnished their 4 bedroom family home. Thus their return on their savings will be well and truly over the top of anything term deposits will return. QED. As a matter of interest, this is the first time they have ever owned property other than a family home. This would not have happened had there not been the lowest interest rates on record.
Interesting time ahead.
Everyone is aware of the disaster dish created by Mr Orr action and JA inaction as both have the same goal of keeping the house price up Up and UP. Both have tangeled themselves into a situation where they are unable to take action as the bubble is so BIG that any attempt may lead to blood bath on the street at the same time Any inaction is and will also lead to social / economic unrest.
So basically they are screwed by their own doing.
Advisable for them to let the economy take its own course and should support the the economy and not manipulate. Even if it leads to some correction, it will be healthy correction. Last year million dollar house has touched 1.3 million and if it corrects to 1.1million or 1.150 million will be healthy correction - though still 10% to 15% higher than last year BUT both Mr Orr and Mr Robertson will have to overcome the fear of correction or stabilization and come out of mindset of supporting and promoting the ponzi to survive personally and therby not thinking of the nation.
How long before the non asset owning public takes things into their own hands?
At some point the masses will work out that they can make the change happen. The tool is a rent strike.
When this grows legs it has the potential to crash the economy. Our leaders ignore this as an outcome at their peril. They need to act for this reason alone....
Like any other strike, it depends on a level of solidarity that is difficult to achieve. It requires a sense of urgency and inspired leadership.
It wouldn't work yet, because that leadership isn't in place.
I like the idea though. It should be a possibility if our political class continues to fail on housing. Better than violence.
tens of thousands of homeowners took up the "no questions asked" offer to stop paying their mortgage for a while. Based on what might happen. Some of them experienced no income loss at all. Meanwhile, renters were left to fend for themselves. Now the RBA policies have boosted the equities of all owners as expected. Renters are kicked a few more rungs down the ladder. There are 804,000 active bonds in Tenancy services records. Even a conservative rent average of $400 per week means 321 million a week in rent being paid. What percentage of that not being paid would be needed to get a reaction.
Brock, it's called passive resistance. Initially a small group, and then a much larger group and eventually a significant part of the community began by refusing to pay the toll. Frustration all round from bridge users and the toll collection operators. I had to explain to my children how history is made as they grimaced in the back seat... just pay it mum. Nope. By this stage many commuters like me had paid for the bridge many times over, while the thousands of dollars collected daily was siphoned off to other roads which people could drive on and never even go near the bridge, http://tvnz.co.nz/content/49090/2591764/article.html
Do you have a book of bad idea's? The landlord you rent from either has a mortgage to pay or lives from the rental income - so it's not a victimless crime. Even if they had mortgage relief, the interest is accumulating and has to be paid.
If you stop paying rent you are going to be evicted and you are never going to get another rental again, your credit and reputation will be torched. This will stay with you a long time. If you have a corporate landlord you will be pursued through the courts. If you are genuinely in need of financial assistance I'd like to think most private landlords would try and help you out. If you are being a d1++ to make a statement about how dissatisfied you are with the RBNZ then then you may find the response isn't so amicable.
You assume we live within a legitimate system where 'law' can be enforced - but that is only true if its supported by the majority of citizens (or where a minority have the ability to enforce their will on the majority - but that can become nasty). If the majority of citizens are renters and they don't feel they get fair treatment, why would they comply with the law? They would just rewrite it in their own favour - see history.
All I'm saying is we're heading towards serfdom - if that's the system you want here that's fine - and mostly because of monetary policy which is a state controlled action. If the serfs don't like that they can vote and if they don't get listened to, they may have the numbers/force to create their own rules.
Not quite sure I get your reference about stealing from a work place - shareholders own the place or work not me personally, so if I cared about the business I would care about its property and protect the property owners rights. Again if the serfs/works don't like the system and the have the numbers, history would dictate they'll just create new rules.
My point IO is that not paying rent is stealing, like being hungry and stealing from a supermarket. If you can't afford the rent, you probably couldn't buy it anyway. Civil disobedience isn't an option, do you think landlords would just sit around and take it?
I have always believed in home ownership and been taken to task on it here multiple times before the recent price surge. We do need to get people into affordable accommodation - but it's still going to stretch you financially and you have to sign up to the risk and sacrifices that come with it.
'Civil disobedience isn't an option, do you think landlords would just sit around and take it?'
That isn't a correct statement. Civil disobedience is what got society to where it is today. That is how we abolished serfdom and slavery.
That we now have some people like landlords who want to reintroduce a form of slavery because monetary policies have favored it, the civil disobedience might be the best option (will be the only option) if the democratic function fails. And right now, monetary and fiscal policies are failing a large proportion of western societies (this isn't just a NZ thing).
As I say above, the law is only true if the majority of people want to follow it. When the majority become renters then they can write their own laws. There is no correct way if a democracy is failing its own people - which is what we appear to be seeing in western democracies. People will take the law into their own hands. The rise of inequality and central banks decision to increase that gap, simply makes the law more and more meaningless for those who feel oppressed by it.
At some point the rules will change to reduce the inequality or those who are feeling oppressed will break their obligations to the law and create a new system that is fairer.
People are free to band together and go on strike. That is democracy in case you don't get it.
landlords will then become aware that is in spite of tax payer support there is this new risk in landlording. That's called a free market.
I think it would be an excellent way to encourage the exit of landlords from the market.
Go for it kids.
The last time I checked, you and a couple of mates deciding not to pay your rent wasn't democracy.
Landlords deal with idiots all the time, it's part of the business model. Some of those idiots decide to stop paying rent and they are generally out on their @rse pretty quickly, never to darken the door on a rental again.
OK what would happen? Economy would crash, Orr would take interest rates into negative territory, eviction notices would be served, and rental owners will just sit it out. The when all the non asset owners realised that living with their parents is not all its cracked up to be, they will rent again at a higher rental level. There are only two solutions - increase supply and restrict demand. Build more houses. And once borders open to foreigners, end net migration forever, or at least until house stock recovers.
It's like two kids caught out trying to blame each other. I have far more sympathy for the RBNZ as they're actually trying and they are constrained by their tools and mandate. Removal of LVRs was definitely an error. But by far the biggest failure has been the govt. Kiwibuild...what's that?! Taxing property..."Silence". RMA reform..."Great strides are being made". The govt has literally done nothing to help re this housing bubble. So much for go hard and go early.
Cannabis referendum for me.
She's ignored top medical / public health experts and current international evidence (which unanimously supported legalization as being the option of least harm). Then JA and Little went on to completely rule-out alterative harm-reduction approaches like decriminalization saying there's 'no mandate' (despite virtually 50% of the population in favor of full legalization). Weak leadership and a massive wasted opportunity for NZ. A win for anti-science / anti-intellectualism.
Democracy has a new flavour Muz. A la the Maori Party just walked out on parliamentary protocol as it does not fit their version of democracy being applied. Look for the shrill s in the Green Party to mimic soon enough. Mind you they need not be actually present in parliament for it to proceed thank god. But my prediction is that this is about to become more unruly than the Bolger/Peters coalition.
This is just brilliant. We have Grant and Adrian tossing the house price hot potato back and forwards, each saying, "You stop house prices going up so I don't get blamed." " No, you stop house prices going up so I don't get blamed." Then we get get Xing moaning about the democracy revolving door for political leaders. If Xing had his way, Sir Jim, or Dame Jenny, or Sir Geoffrey would still be running the show , like Mr Xi is back home. No show of him getting tossed out at the next election, or forming a coalition with any other political parties. We live in such awfully interesting times. Never dull.
Since any fix would need to be multifaceted and complex, the Government and RBNZ have fallen back to the blame game, indicating that no significant changes are going to happen. Ever.
Extending the bright-line property rule is just smoke and mirrors considering a quarter of sales have avoided paying the required tax. Most of these are probably owner-occupier speculators who are living in the property while renovating, then selling for a large untaxed profit.
3 years ago when the Labour coalition Government got in on the back of KiwiBuild (and Nationals failure to do anything worthwhile in the previous 9 years), instead of the endless parade of working groups, they should have just focused on making the necessary changes to allow residential property construction to ramp up.
But it is what it is. Just a shame that the future for people without their own home is getting gloomier by the week..
2) we needed that the last 20-30 years. If we had it we'll still have interest rates 5-10% and house prices 50% of what they are now. People would have savings and those savings would yield nice returns - no need to buy a rental. I don't see how you can do that now as it would destroy the economy.
Well interest rates can and will go back up - but not with this amount of debt. So you then need to ask who is going to end up holding the bad debt and what the new monetary system is going to look like. The Titanic may no longer look like the Titanic - its a new ship in its own right.
IO.. unfortunately interest rates of 5 -10% would pretty much decimate our whole economy and IMO we are past the point where we can view it as a viable option. Agreed we should have never got ourselves here but we have so now rapidly rising interest rates would be very very ugly.
Slashing immigration (including student visas) to the bone would adversely and pretty seriously affect parts of our economy but the economy as a whole would find ways to move forward and overcome the new normal of perhaps a few thousand very select migrants a year. Until then the lunacy that is our immigration policy will ensure demand for housing will forever outstrip supply steadily increasing the gap between the haves and have nots. There are other factors but IMO if we do not address immigration and take drastic action, nothing else really matters.
Something is going to give at some point. We're probably in some form of global liquidity trap - not just here in NZ, but around much of the world. QE isn't really going to help, it will probably just make things worse - i.e. asset prices rise, more debt, interest rates can't go much lower so ability to service the additional debt doesn't improve. Next slow down could be really significant - it could come in the next 12 months or it could be the next business cycle say 7-10 years.
The issue of house prices can be dealt with by addressing :
1. The duopoly in building supplies
2. The horrifically expensive Brandz process for new products
3. The horrific council processes to gain RC and BC
All this positioning isn't addressing the real issues.
I actually got a resource consent recently and found the process wasn't that hard at all. Even a builder I talk to says that since he is used to it, it's actually not that hard. Just takes some time from the council and it's expensive.
Agree on your other points though, building a house in this country is ridiculous. You are likely to spend 700k plus to build a 4 bed 220m2 house in this country. It's literally half the price in Aus.
Mr Orr and Mr Robertson's are both pathetic: they are passing the buck to each other when they are both culpable, with the current settings and policies of an unbalanced tax system, landlord subsidies, ultra-loose monetary policy, a noncompetitive market when it comes to building supplies, and current legislation that creates all sort of problems and obstacles to the development of new areas.
At least Robertson has been democratically elected, while Orr is just a pigheaded, un-elected bureaucrat whose inflated ego does not allow him to acknowledge what many have started to realize: that he got it wrong, and that he should immediately unwind some of his reckless decisions before too much damage is done to the NZ economy and society.
The RBNZ LVR restriction should have never come off.
Some banks have voluntarily reimposed tighter lending criteria.
Otherwise its in the government's court
It's not rocket science to fix - but political willingness is far far harder.
We have had appalling strategic failure after failure by government after government to address the issues.
Real (LAND) house prices have been rising since 70s/80s.
1) A population strategy based on maximising total welfare (wellbeing) per capita, not gdp growth. As soon as covid19 is over we risk reigniting the migration tidalwave.
2) Massive government fiscal stimulus to build state housing for the bottom of the market where there is no developer profit
3) RMA fixed/replaced. National standards for all effects (based on social costs benefit) & no zoning & density limitations otherwise - we dont need city plans stacked as high as the sky tower full of rules that planners dont bear the consequences of.
4) A land tax. Its not houses going up in price, but land. It wont be in Jacindas time (she does have the fortitude to show real leadership), but it needs to happen soon after.
Fantasy:
2017
"KiwiBuild is a real estate development scheme pursued by the Sixth Labour Government of New Zealand. It began in 2018, with the aim of building 100,000 homes by 2028 to increase housing affordability in New Zealand. "
Fact:
2020
"By October 2020 the scheme had built only 602 homes."
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