MBIE knowingly used older data

The Government ignored a warning before releasing its new housing affordability measure that it was using incorrect interest rates that could make houses look more affordable than they are.

New documents released to Radio NZshow the Reserve Bank sent an email to the Ministry of Business Innovation and Employment (MBIE) just two days before the release in May, warning that the model used to calculate interest rates was about to be discontinued.

MBIE officials, likely under pressure after delaying the measure several times and admitting they were worried that ministers wouldn’t ‘‘agree’’ with it, released it anyway - but did stress that it was a still an ‘‘experimental series’’.

The Housing Affordability Measure (HAM) was damning showing 80 per cent of current renters could not afford mortgage payments on a new home in their area - but also showed very low affordability during the last years of the previous Labour government. Ministers have used the measure to defend their record on housing affordability.

The Reserve Bank wrote to MBIE two days before the public release of the measure saying its new customer mortgage rate was ‘‘more relevant for assessing affordability’’ and the older series ‘‘probably wasn’t the best measure to be using anyway’’.

MBIE has now taken that advice and is changing the measure, but defended the public

"It's MBIE's measure, they need to make sure it's a credible measure." Prime Minister Bill English

release and rejected any accusation that there was an ‘‘error’’.

‘‘It is true the RBNZ disagreed with the statistical series used, but that doesn’t make it incorrect,’’ spokesman John Tulloch said.

Tulloch said MBIE’s analysts were aware of the advice but used the older series because it covered a wider timeframe; the measure goes back to 2003.

‘‘The HAM is an experimental statistical series. As such it is undergoing a period of user testing for purposes of public discussion and commentary.‘‘

Prime Minister Bill English said the measure needed to be reliable, but no one model would be perfect.

‘‘It’s MBIE’s measure, they need to make sure it’s a credible measure.’’

Labour housing spokesman Phil Twyford said it was extraordinary that MBIE released the measure with this fundamental error. ‘‘A measure of home affordability that assumes home buyers get a 100 per cent 30-year mortgage at a rate well below what any first home buyer can get is completely out of touch with reality.

‘‘Nick Smith needs to urgently re-issue HAM with accurate numbers on the true state of housing affordability,’’ he said.