NZ government asks central bank on stabilizing soaring house prices

Deputy Prime Minister Grant Robertson speaks to media during a post cabinet press conference at Parliament on Nov. 09, 2020 in Wellington, New Zealand.

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New Zealand Finance Minister Grant Robertson said on Tuesday the government was reviewing policies relating to the housing market and has sought advice from the central bank on how it could help stabilize property prices.

Robertson confirmed he has written to the Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr seeking his advice, and has proposed including stabilizing house prices as a factor for consideration in the remit when formulating monetary policy.

“I expect to receive that advice towards the end of the year, and will discuss it with cabinet as soon as possible after that,” Robertson said.

The news sent the New Zealand dollar soaring to $0.6985, its highest since mid-2018, as it reinforced expectations the RBNZ will resist moving toward negative interest rates next year.

Robertson said he was not proposing any changes to the mandate or the independence of the central bank.

New Zealand’s house prices have defied all expectations by rising nearly 90% over the past decade, with 20%-30% gains in the past three years alone.

Historically low interest rates and fiscal stimulus from the government this year to support a pandemic-hit economy have fired up the market further, wrong-footing many economists who had expected a slowdown.

Westpac Bank said last week that it now expects house price inflation to peak at 15% by June 2021, and prices to rise 13% over 2021 as a whole.

Robertson’s letter to the central bank comes amid growing pressure for the government to restrain the booming property market that has shunted aside many first home buyers and stoked bubble risks.

In a letter to RBNZ Governor Orr released to the media, Robertson said housing price instability was harmful to the government’s aim to reduce inequality and poverty.

“With an extended period of low interest rates, and sometime before housing supply can catch up with demand, now is the time to consider how the Reserve Bank may contribute to a stable housing market,” Robertson said in the statement.

“Undertaking this work is not to suggest the Reserve Bank bears responsibility for house prices, but simply that it should have regard to something that is influenced by monetary policy.”

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