WHY ROBERTSON HAD TO ACT
Finance Minister Grant Robertson’s intervention into Reserve Bank Governor Adrian Orr’s patch is significant, while not overstepping the mark and impinging on the Reserve Bank’s independence.
Robertson, clearly responding to the slow and then sudden political pinch of rampant house price growth has put pressure back onto the Reserve Bank as well as tasking Treasury to go away and see what central Government can do to calm the frothy market.
The problem with the housing market is not affordability per se, money is basically the cheapest its ever been in history. The problem is getting a deposit to buy a house. As prices rise, that gets harder. Cheapmoney hosed out of central banks since the global financial crisis, then fire-hosed since Covid, has overwhelmingly favoured those who already own property and assets.
That makes the problem one of intergenerational inequity. Labour does not, and should not, want to be the party that entrenches – it didn’t create it – the reality that only those with parents who can help can afford a house.
Being able to buy and pay off a house prior to retirement has been a central part of New Zealand’s social contract. That, combined with universal superannuation are the cornerstones of New Zealand’s low poverty rate among the old.
So Robertson has written to Orr, aman who can bristle at criticism, ‘‘to seek his advice on possible ways the Reserve Bank can support the Government to meet its economic objectives, in particular with relation to house prices’’.
‘‘One proposal I am seeking advice from the Reserve Bank on is whether to include stability in house prices as a factor for consideration in the Remit when formulating monetary policy,’’ Robertson wrote.
Robertson was at pains to not blame the Reserve Bank for runaway house prices. But clearly both the bank and successive Governments both bear some responsibility.
The great irony is that the current sharp house price inflation is almost certainly driven more by a short-term lack of houses for sale as a result of people hunkering down after the wild uncertainty of Covid. It hasn’t actually been just the RBNZ printing money or the lack of supply built over decades. After all, interest rates had been cut and money was cheap prior to Covid and the underlying shortage was the same.
Sales are up significantly as demand for houses is up but inventory is down over 18 per cent nationally compared to this time last year. Moremoney chasing fewer houses equals price inflation. It is this real-world pressure Robertson is responding to. Median prices across the country are up a staggering 19.8 per cent across the country compared to October last year.
That makes the problem that Robertson now faces clearly political. He has to explain to people what Labour will do about it.
The first act of National’s curiously named ‘‘shadow Treasurer’’ Andrew Bayly (who is he shadowing?) last week was to take the bank to task for its low interest rates. It’s clearly a first goal for Bayly even if Robertson is at pains to say he didn’t do what Bayly suggested.
And the letter, while highly unusual, is appropriate. When the Reserve Bank Act was put in place it was primarily to keep price stability through the independent setting of interest rates, as well as its various regulatory functions. Independence is important but given all the extra tools the RBNZ governor now has at his fingertips – loan-to-value ratios and money printing – it is right that the Government of the day have a public opinion about the bank’s policy formulation. The bank is supposed to consult and this can be seen as part of that.
Orr put out a curt letter late yesterday acknowledging Robertson’s letter, saying the RBNZ would look into it, before defending the bank’s actions.
It’s a tough balance for Orr. He is between a rock and a hard place.
Maybe a bit of a spurt in house prices is the price that had to be paid for keeping the whole economy chugging along during Covid. Ormaybe it’s not. These are all legitimate questions.
Regardless, the politics of this have now shifted decisively. Labour has realised that this could morph into an acute political problem. It will have to make serious progress this term if it wishes to achieve what Robertson calls a ‘‘sustained moderation’’ in prices.