Minister gives bank plenty to chew on
Joyce’s get out of jail card proves why he’s the campaign go-to guy.
‘‘Any last requests?’’ It’s a classic scene of Kiwi TV advertising - the Pixie Caramel that takes so long to chew the firing squad falls asleep and their intended victim scales the prison wall to freedom.
These days, Finance Minister Steven Joyce is the one up against the wall, thanks to the rampant housing market. And his Pixie Caramel is a cost-benefit analysis of debt-to-income ratios (DTIs).
The Reserve Bank has nominated DTIs as a tool to limit how much banks can lend to would-be homeowners.
The move is intended to avert a personal debt crisis that could occur if buyers continue to borrow heavily to get a foothold in the market, but become unable to service their debt once interest rates start to rise.
The collateral damage would likely see a saw cut through the bottom rung of the housing ladder.
Thousands of first-home buyers would be priced out of the market. Many are on incomes where such a cap on borrowing would leave them unable to buy a onebedroom home in a city where $1 million is now the average price.
‘‘Not in my election year, you don’t,’’ Joyce has effectively told Reserve Bank Governor Graeme Wheeler.
The minister has manoeuvred to divert the Reserve Bank from undertaking the controversial housing measures in an election year by asking for a cost-benefit analysis and public consultation first.
It’s the exact reverse of the process applied when the Reserve Bank brought in Loan-to-Value Ratios (LVRs).
In that case, the bank asked former Finance Minister Bill English for the power to apply that tool. Of course, the bank does its homework before it makes the request, and once the minister gives the go-ahead it’s up to the bank to decide when and if to use it.
The Minister of Finance can’t interfere with the way the bank applies the powers he gives it, but he can delay their access.
The bank had already said it would publicly consult on DTIs before it applied them, but Joyce could see the opening; little in politics saps up more time than letting experts and the wider public have their say.
On the off-chance that all this comes together before the House rises, he would want to know that if he’s cutting out more of the younger generation from the housing market, there’ll be enough of an economic benefit elsewhere to spin.
If it comes together after the House rises, there may be a loose argument that Joyce could delay his decision at that point until after the election, as the Government moves into a ‘‘caretaker’’ period.
Of course, this is more than just a minor optics problem for the Government; it’s not just first home-buyers who would see it as a political issue. Children have rightly concerned parents, funnily enough making this a crossgenerational issue.
It wasn’t just students who voted for Labour’s interest-free student loan bribe in 2005, after all. As Wheeler reminded MPs at select committee this week, the DTI tool is designed to inoculate the economy against terminal levels of mortgage debt. While the housing market has slowed, prices aren’t exactly falling and the supply issue is far from resolved. The application of a DTI may not be inevitable, but it’s too big a risk for National to hand that power over yet. And while Joyce’s move may be cynical, it does show a sure-footed approach to political management and exactly why Joyce has doubled repeatedly as National’s go-to campaign manager. Stuck against a brick wall and staring down the barrels? In election year, Joyce wants an escape plan.