From the Editor

The Labour Government was returned with a massive mandate. It has made it clear since the election that it intends to continue to enact regulatory policies that seem to take little heed of the advice it has received from the private investors who maintain the stock of residential rental homes.

But the strong surge in housing prices over the latter part of the year – and the electorate’s concern about housing affordability – means that we can expect the government to continue to interfere in the housing market. Whether they are capable of doing so effectively, remains an unknown.

REINZ has reported a 20 per cent year-on-year increase in house prices and the government is under significant pressure to cool down the market.

It was interesting to note in November the government’s attempt to interfere in the working of the Reserve Bank of New Zealand, with Finance Minister Grant Robertson essentially attempting to get RBNZ to shoulder the responsibility for soaring housing prices.

Robertson has also asked for Treasury advice on how well measures such as the brightline test are working, with a view to possibly tightening them.

As well as dropping the official cash rate to help stimulate the economy throughout Covid-19, the RBNZ’s quantitative easing programme has been pumping billions of dollars into the economy through bond buybacks to help the government stave off recession and keep the economy primed. But this wholesale printing of money is of course one of the main reasons house prices have been soaring.

The reality is that the government cannot on the one hand encourage the RBNZ to flood the market with money to keep employment alive, but then complain because the main street banks are thus encouraged and enabled to lend more to house buyers.

Robertson asked governor Adrian Orr if the Reserve Bank could take a more active role in cooling the housing market in order to bring about a period of "sustained moderation" to New Zealand's housing market. Given the extended period of low interest rates, “"now is the time to consider how the Reserve Bank may contribute to a stable housing market”, he told Orr.

Of course, one of the key reasons the RBNZ is set up as it is, is precisely so that does not have to take instruction from the government of the day.

Orr responded, diplomatically, on behalf of the RBNZ, by stating it welcomed the opportunity to work with government on improving housing affordability. But he noted the RBNZ had always considered the impact of its policy.

“We have for many years identified the risk that highly indebted households and businesses can pose to the financial system,” he said. “This concern is why we recently signalled our intention to reinstate loan-to-value ratio restrictions for higher-risk lenders, in particular, property investors.”

And he added that in lowering interest rates, the RBNZ was helping to meet its inflation and employment mandate. Dealing with house prices did not just fall to the Reserve Bank, he reminded the finance minister,

“As I've said publicly on many occasions, monetary and financial regulatory policy alone cannot address this challenge, there are many long-term, structural issues at play.”

Indeed there are.

This year has sometimes felt as if it would never end, but at last New Year 2021 is in sight and - we trust - a much more positive year for everyone. We wish all our readers a peaceful holiday season and a prosperous 2021.

David Porter
Editor and Publisher, UP magazine