Bay of Plenty Times
House price ‘hot potato’ going on
Governor blasts media messenger, minister calls shots
Afortnight ago, Reserve Bank governor Adrian Orr complained to reporters abouthowmuchmore they wrote about house prices than about the labour market.
Orrwas clearly getting tired of taking questions about the national obsession with property, as he yet againmadethe point that controlling house prices, per se, was not his job.
While the central bank keeps a watchful eye on risky bank lending to any section of the economy, when it sets interest rates it focuses on keeping inflation low and stable, as well as trying to boost employment.
Yesterday morning, Orrwas back in front of the media, grudgingly acknowledginghowimportant housing affordability is, but hinting that itwas the media elevating it above other important issues and work the central bankwasdoing.
“Yes, the housing issue, etcetera, is an issue. It’s been an issue forever,” he said. “Just as, by the way, can I say, [are] themanyother thingswe deal with, such as financial inclusion, climate change and the responses to that.
“House prices sell newspapers.” Orr is at once correct, but also guilty of a blatant case of shooting the messenger.
This time at least, the reason he was being asked, over and over, about the state of the housing market could not sensibly be blamed on editors.
Aday earlier, Finance Minister Grant Robertson stood in front of reporters, volunteering that he had written Orr a letter that morning suggesting he pay attention to house priceswhensetting interest rates.
Although it was framed as merely a suggestion— andeven if the Reserve Bank should agree, it would not likely form any part of policy for months— the letter had a sudden impact on what financial markets expect the Reserve Bank to do with the official cash rate.
According to figures from Westpac, the odds that the Reserve Bank will cut theocrsome time in the first half of next year virtually halved on Tuesday, even after traders had seen the Reserve Bank’s response to Robertson, that it already paid attention to house prices.
Orr insisted yesterday that the letterwas not a challenge to the Reserve Bank’s independence, but someawfully big bets are being taken that interest rates are not going as low as previously thought, and the only thing thatmovedthe dialwas the Minister of Finance.
Since he becamegovernor in 2017, Orr has done little to shake off the idea that his politics align with the Beehive, imploring the Government to help himout by spendingmoreto helphimmeet his spending targets and frequently adopting the language of wellbeing.
Orr has been farmorewilling to appear in grinning photos with politicians than he has been to criticise them.
In the face of a subtle, yet clear intervention into the bank’s business, Orrshowedsigns that hemaybe willing to push back harder than before, even though he tried to frame Robertson’s intervention as a cry for help that he washappy to answer.
As he revealed that the Government wasreviewing the factors driving the housing market, Robertson confirmed yet again that it had no plans to touch tax settings, which tend to favour investment in property over other asset classes.
Orr pleaded ignorance. Asked if the Reserve Bank would offer advice on tax settings, he said he did not knowwhether it wason the agenda. “One would assume issues of taxation would be in the broader work agenda.”
Later, he saidnzhouse prices had been looked at somanytimes that the issuewas not identifying the problem. Instead, the issuewasthe “appetite for accepting policy recommendations”.
The fact that house prices are surging even asnewzealand emerges from a short but severe recession is clearly a function of the ultra-low interest rates which the Reserve Bank is responsible for.
But the bigger and longer-term issues are tax settings that encourage property investment, and planning laws which influence supply.
Responsibility for these sit with the Government, something Orr is morethan capable of articulating.
Bytrying to pass the buck for the recent price increases to the Reserve Bank, Robertsonmayopen himself tosomehometruths from the governor that the real problem lies with the Beehive.