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Summary
- Adrian Orr has recommended the Government to create a new housing agency to address housing issues in response to Finance Minister’s bid to fix the housing crisis.
- Mr Orr asserted that the Government already had the necessary tools that could be used to tackle housing concerns of the country.
- RBNZ Governor asked Robertson to give the central bank power to use debt-to-income limit or DTIs.
Adrian Orr, Governor of RBNZ, has addressed Finance Minister Grant Robertson’s suggestion for the role central bank can play in resolving housing crisis, by stating that Government should form a new housing agency to tackle the country’s housing concerns.
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He stated that a single agency or clearing house is needed to co-ordinate the response of the Government across agencies, which is controlled by many parts of the Government at present.
RBNZ’s response to Government’s request
Finance Minister Grant Robertson had asked RBNZ to consider house prices while forming monetary policy in a letter to the central bank on 24 November.
On 11 December, Mr Orr responded to Robertson’s letter stating his views on how the central bank can assist in fixing the surge in house prices.
DO READ: New Zealand Housing Prices continues to Soar
He expressed his displeasure for the idea asserting that the bank already considered housing prices and pressed back on the notion of setting interest rates as an alternative for RBNZ’s remit to be changed.
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Governor Adrian Orr further added that compelling the Reserve Bank to take house prices into account while setting interest rates could result in below target employment and inflation, higher interest rates, etc.
He also noted that the Government already has the needed tools to address the problem and one such tool is tax policy.
Orr recommended allowing the use of DTIs
RBNZ instead suggested that Mr Robertson should have asked to accept house prices as a part of its financial policy, which is the side that looks at making the financial system run smoothly.
Debt-to-income limit or DTI could be one of the instruments that the Reserve bank could use. DTIs suggest that banks will have to place a cap on the amount of borrowing that individuals could do compared to their earnings.
ALSO READ: RBNZ begins consultation to reimpose LVRs from next year
The bank, currently, uses loan-to-value ratio (LVR) constraints, which restrict the amount of lending that banks can do to low-deposit borrowers.
The RBNZ Governor requested Robertson to grant the bank the authority to use DTIs while cautioning that implementing them would affect low-income customers unfairly and warned on its ambiguity in benefitting people.
