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Finance Minister says Governor Wheeler's speech was building case for more Macro-Prudential measures to slow Auckland housing inflation; agrees 'correction' possible

Finance Minister says Governor Wheeler's speech was building case for more Macro-Prudential measures to slow Auckland housing inflation; agrees 'correction' possible
Finance Minister Bill English speaking ahead of National Party Caucus meeting in Wellington on February 10. Lynn Grieveson/Hive News.

By Bernard Hickey

Finance Minister Bill English has described Reserve Bank Governor Graeme Wheeler's latest comments on the housing market and the activities of banks as the Reserve Bank making the case for further Macro-Prudential measures to slow Auckland's housing market inflation.

English said he agreed with the Reserve Bank that a correction in the Auckland housing market was possible.

He was commenting after Wheeler spoke last week about the risk of a correction and warned that the bank would talk more about the housing market.

Wheeler did not specify any new Macro-Prudential action on top of the existing high LVR speed limit, but said the central bank was monitoring the role of banks in the recent resurgence in house price inflation.

"It's been going up at double digit rates and that clearly can't go on forever," English told reporters before the National Party's Caucus meeting.

"Sometime it will slow down," he said.

Wheeler also said much more needed to be done to boost housing supply in Auckland, where economists estimate a shortfall of 15,000 to 20,000 dwellings. Less than 8,000 dwellings were consented in Auckland last year, which is less than 10,000 to 13,000 that is estimated as necessary to keep up with population growth, let alone catch up with past under-building.

Asked if the Government needed to do more, English said: "We can do as much as possible without actually taking over the Council function, so that's why we work with Council because there's a local element to all decisions around housing and land supply. But we've made our direction pretty clear and we're starting to get momentum, both with developers believing more supply is coming so that's speeding up their plans and more land actually coming available."

English, who is also Housing New Zealand minister, said there was also the prospect of an increase in the amount of Housing NZ house building.

Correction coming?

Asked again about the prospect of a correction, he said: "The Reserve Bank has responsibility for financial stability so they are always concerned about situations where it looks like people are borrowing quite a lot of money against an asset value that could change. But you'd need to talk to them about exactly what they mean. All I know is there's no asset price can go up at over 10 percent a year forever, so sometime it will stop. And in this case we are really starting to get more supply coming at speed into the market.

English said he would have liked the supply to come on stream faster, "but we've gone about as fast as we can so in the next three to five years the supply situation in Auckland will change. There will be more supply come in."

English said the Reserve Bank had talked publicly about asking banks to hold more capital for investors with more than five properties, but he had not seen any more than that.

"They've got a bit of a dilemma here where very low interest rate environment, there's no good reason to put interest rates up, they don't really have that tool to enable them to control the housing market so, two or three years ago, we put together the macro-prudential framework and that's available to them and it's up to them to decide how to use it," he said.

New Macro-Pru?

Asked if the Reserve Bank should use those extra tools, he said: "I think they are making judgements as they go. The situation now is a bit different than even four or five months ago, the rate of housing inflation's picked up again despite the LVRs. Where they might have been expecting to put interest rates up two or three months ago it now looks as though it will be flat for a while, so it's up to the Bank to try and make those balances."

"The Reserve Bank's primary responsibility is around financial stability, because we know what happens when housing markets get way out of control and crash. We saw that in Spain and Ireland - it pretty much wrecked the economies. So we support the Bank following its legislative mandate, paying attention to financial stability, taking the measures they believe are required," he said.

"And bear in mind, they will take action if they think there is significant pressure building up. They are not just going to take action because they might not like what they see. They'd need to make a case that there is a threat to financial stability," he said.

Asked if they were making that case, he said: "Well, I think the Governor's speech last week started to make that case."

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6 Comments

It's great how any National minister can talk easily about this without any thought of responsibility. 6 1/2 years in power and still just a shrug of the shoulders and talk of maybes and someone else's problem.

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English said he agreed with the Reserve Bank that a correction in the Auckland housing market was possible.

 

How plattitudinous

Of course, anything is possible

 

In the vernacular, a correction is anything around 10%, is considered a correction, and in market parlance, is nothing unusual

 

In this market, while arbitrage values are less than Hong Kong and Singapore and Toronto and Sydney and Beijing, it isn't going to happen

 

There is a huge difference between possibility and probability

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Could you explain what you mean by "arbitrage values"?

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Why now?

Why not 6 months ago?

Or even earlier?

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Bill tries the red herring that it's the councils job.  But central government has a lot it can do as well.

If they stomped on the immigration created distortions it would sure help.

For example Auckland is awash with  foreign 'students'.  While some are genuine, many are seeking residency via some pointless education.

If they were not there, the demand for housing would reduce markedly, and high unemployment in Auckland might reduce to the lower levels found in the rest of the country.

Why doesn't Bill do that.

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It would be great if some enterprising journalist asked questions about why central government refuses to touch the demand side.

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