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Summary
- The RBNZ initiates new tools to keep house prices in control.
- Government says these should not impact first-time home buyers.
- The RBNZ says these tools will only help in keeping the prices at sustainable levels.
The Reserve Bank of New Zealand (RBNZ) and the Minister of Finance have agreed to add debt serviceability restrictions to the list of potential tools available.
New Zealand’s policy makers are battling the hottest property bubble and have initiated various measures since the beginning of the year on the demand and supply side. This move, which was initiated earlier on in February, after the government formally asked the RBNZ to regard house price sustainability while making financial stability decisions. The government had also asked the RBNZ to provide more information on debt-to-income ratios and interest-only mortgages.
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The RBNZ, which had been working on it, released the debt serviceability restrictions as a tool to its kit.
Also Read: New Zealand PM Ardern announces plans to combat housing crisis
Also Read: Deep dive into New Zealand Property Market
According to RBNZ debt serviceability, restrictions such as the Debt-to-Income (DTI) limit, are likely to be the most effective additional tools that could be deployed by the Reserve Bank to cool off the housing prices. In addition, an analysis has found that such restrictions will impact the investors of the housing market more, and not have so much impact on the first-time home buyers.
The RBNZ while announcing the launch of the new tool also said that this would complement the Mortgage-to-Value Ratio (LVR) restrictions.
Also Read: Will NZ Government Succeed In Putting The Brakes On Rising House Prices?
The Central Bank expects that these two complementary tools would help in cooling off the housing market in NZ.
While the government has agreed to these new tools, it is of the view that they should be implemented in such a way as to avoid any impact on the first-time home buyers.
However, any implementation will be preceded by public consultation and Regulatory Impact Assessment.
Although the RBNZ is not directly involved in setting the remit target price for housing, it said on Wednesday that those tools would keep the prices at sustainable levels.
It may be recalled that the government in February had tasked the Central Bank to consider its monetary policy decisions on the housing crisis in NZ. The Finance Minister, Grant Robertson had said that the RBNZ must take into account the government policy to have more sustainable house prices.
Also Read: No Surprises As RBNZ Keeps OCR Unchanged At 0.25%
Today’s announcement is the first step towards keeping the house prices at sustainable levels. However, Adrian Orr, the RBNZ Governor, has stressed that monetary policy target on inflation and employment would not change and therefore, interest rates would also not change.
