Fuel for Akld housing market
Lower interest rates may throw petrol on the Auckland house price fire, says the Opposition and some economists.
But Reserve Bank governor Graeme Wheeler is defending his surprise decision to cut official interest rates from 3.5 per cent to 3.25 per cent, saying falling dairy prices, slower demand and inflation near zero prompted him to act.
As well, the recent rise in petrol prices would slow income and demand growth.
Most economists pick the next cut to be made in September, but a move in July is seen as possible.
A big fall in the New Zealand dollar was also justified, Wheeler said, quoting a recent report by the Peterson Institute which suggested the kiwi was about 7 per cent overvalued.
This would help support dairy farmers who are facing a $7 billion drop in incomes compared with the high payouts of last year.
The Reserve Bank is expecting house price inflation to slow down over the next couple of years as more new homes are built and the migration boom rapidly fades away.
But BNZ head of research Stephen Toplis said the rate cut would exacerbate the ‘‘excesses’’ of the housing market.
And at Parliament’s Finance and Expenditure Select Committee, Labour’s finance spokesman Grant Robertson said a rate cut may pour petrol on the Auckland situation.
Wheeler said the Reserve Bank had thought ‘‘a lot’’ about Auckland, where prices rose 17 per cent in the past year.
‘‘If Auckland house prices continue to rise rapidly, the risk of a sharp correction just becomes more acute,’’ he said.
‘‘Supply [of new homes] will fix the problem in Auckland – it is getting there.’’
The Reserve Bank’s latest projections show a massive turnaround from the current migration boom, and the Government had also taken a tougher tax stance on property speculation.
The ‘‘register’’ of foreign buyer interest was important, Wheeler said.