BNZ chief economist Tony Alexander thinks the Reserve Bank might not stop at housing lending when it comes to controlling the amount of credit available.
The RBNZ's "speed limits" on high loan-to-value (LVR) residential lending took effect on October 1.
The BNZ-REINZ Residential Market Survey out this week suggested that there had been a big immediate impact, particularly on first home buyers.
In his Weekly Overview Alexander said through the imposition of the speed limits the RBNZ had laid the "logical groundwork" for credit controls in other areas.
"For instance, while the focus currently is on housing, the [RBNZ] has also in recent years expressed deep concern about the level of debt in the agricultural sector," he said.
"Should land price inflation pick up we should factor in the risk that the [RBNZ] will intervene to curtail bank lending to farmers."
Alexander said the central bank had "already done work in this area".
"In the same vein, logic suggests that if the [RBNZ's] goal is to suppress house price inflation and banking sector risks they could also contemplate loosening rules applying to bank lending into sectors which will boost housing supply and therefore also reduce house price inflation."
He said that "logic would suggest" that the RBNZ cut capital requirements applied to bank lending to property developers.
"However, before developers start their lobbying they should be aware that the logic of reducing bank exposure to the property sector means such rules should instead be tightened so we are less exposed in the event of a housing collapse."
Finance Minister Bill English said this week that the Reserve Bank and new home builders were in discussions about whether high Loan to Value Ratio (LVR) loans for new buildings should be exempted from the speed limits.
"My thoughts on that? This is why we ditched Muldoonist attempts to influence our economy through direct controls in the 1970s and 1980s," Alexander said
"One set of controls begets another set which begets exemptions which begets other controls and so on.
"This ball appears to have started rolling only two weeks into the credit controls coming into play. What a mess."
Alexander said "the signal appears to have been sent" to all lobby groups out there now to "ignore the proud talk for the past two-three decades of NZ central bank policy independence and purity of policy implementation, and instead to start directly lobbying the Reserve Bank, lobbying the politicians to lobby them, and lobbying the public through media campaigns to get our central bank to run the economy in their favour".
"Or to look at this from another angle. At what point exactly do we conclude that housing policy in New Zealand has been handed over to our central bank – a non-democratic closed box organisation?"
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A bit of pot and kettle.
Alexander said "the signal appears to have been sent" to all lobby groups out there now to "ignore the proud talk for the past two-three decades of NZ central bank policy independence and purity of policy implementation, and instead to start directly lobbying the Reserve Bank, lobbying the politicians to lobby them, and lobbying the public through media campaigns to get our central bank to run the economy in their favour".
Alexander is clearly now lobbying on behalf of the BNZ for completely unfettered capital flows and lending.
The four big Aussie Banks have an important role in NZ, and mostly do it okay.
But their interests are not totally aligned with those of New Zealanders, while the RBNZ can to some extent protect the banks from themselves.
The flood of cheap capital in the world looking for a home is clearly blowing asset bubbles. Raising interest rates here will only exacerbate the problem of more money flooding in; with other resulting damage as well- notably to the exchange rate and the trading sectors, so the RBNZ needs to consider other tools.
It is way past time the RBNZ dropped its previous ideological one tool one target approach. The results won't be perfect, nor all rosy; but good on them for giving it a go. The fact the banks are whinging suggests they are having an effect at least.
The Reseve Bank has shown that it is completely ignorant of what is happening in the real world and the reasons why. They still refuse to acknowledge the millions of Chinese dollars flowing in over which they have absolutely NO control. The Reseve Bank and the people who make statements on its behalf simply embarrass themselves. Chosing to penalise young kiwis starting out is plain stupid. These are people who will faithfully not only pay their mortgages, but also tax and rates along the way, contributing to NZ more so than Chinese 'investors' who will come and go chasing a quick buck.
The Reseve Bank has shown that it is completely ignorant of what is happening in the real world and the reasons why. They still refuse to acknowledge the millions of Chinese dollars flowing in over which they have absolutely NO control. The Reseve Bank and the people who make statements on its behalf simply embarrass themselves. Chosing to penalise young kiwis starting out is plain stupid. These are people who will faithfully not only pay their mortgages, but also tax and rates along the way, contributing to NZ more so than Chinese 'investors' who will come and go chasing a quick buck.
"Or to look at this from another angle. At what point exactly do we conclude that housing policy in New Zealand has been handed over to our central bank – a non-democratic closed box organisation?"
He makes a good point there, though I'd swap housing policy for overall economic policy. The Reserve Bank, a thoroughly undemocratic institution, have taken it upon themselves to determine the level of aggregate demand in our economy. A huge degree of power to have in the hands of just one organization. Its funny that the banksters are comfortable with this, when its workers, exporters, business, and homeowners who bear the costs of Reserve Banks policy prescriptions and condemn anybody with the temerity to protest, but its not so comfy when the shoe is on the other foot is it?
"In the note this is called coordinationof economic policy. However, that is not entirely correct. The RBNZ (alone!) determines the level of aggregate demand in the NZ economy, while the government determines the budget surplus/deficit and the level of public spending given what the RBNZ already have decided will be the level of aggregate demand."
http://marketmonetarist.com/2012/08/29/in-new-zealand-the-sumner-critique-is-official-policy/
Suck it up banksters! haha
"He makes a good point there, though I'd swap housing policy for overall economic policy. The Reserve Bank, a thoroughly undemocratic institution, have taken it upon themselves to determine the level of aggregate demand in our economy. A huge degree of power to have in the hands of just one organization."
Rubbish.. the LVRs are not about housing, goes way beyond that... The poolies in their wiseness of raganism, thatcherrisim , douglas decided around the world to remove loand to desposit ratios... market pressures where God...and forgot centuries old sensible business practice (own 1/3 of what u posses)... The bank saw a short term opening to be greedy, and we ended up with the biggest rescession in 70 odd years.
Now those who have short memories and dont do their home work have forgotten these unsuplious events of the early 90s thu 2006
deposit to loan rations on other large captal expense item was also part of the overall policies ...yep re intoduce...
Doing so then decreases the debit ratios of our citizens, companies and economy.
on 1 hand you guys critise the banks for the policies and consquines of those policies, then in the 2nd breath say the intututions who are meant to stop these things from happening are wrong.... well some one has to... either foreign banks responsable to the share holders, the pollies who are only interested in getting back into the treasury seats and nice salaries , or the reserve bank.
Bottom line u need to choose one right?
"Or to look at this from another angle. At what point exactly do we conclude that housing policy in New Zealand has been handed over to our central bank – a non-democratic closed box organisation?"
Is a charge of protofascism being laid at the door of the RBNZ?
Nonetheless, the cohort the global central banks have really aided with cheap finance and plenty of it, via QE, continue do what they do best.
Sadly, thanks to the Fed's perpetual QE which continues to hand over what little is left of middle class wealth to the uber-wealthiest, flipping is now a hobby reserved solely for the richest.
As RealtyTrac observes in its latest flipping report, while home-flipping among high-end homes, or those reserved exclusively for the New Normal aristocracy which buys and sells with reckless abandon almost exclusively on an all cash basis, is up 34% over the prior year with flipping on houses priced between $2 and $5 million was up a ridiculous 350%, overall flipping activity is finally starting to subside and in the third quarter was down by a third from Q3 and over 10% down from the the prior year. Read more
"Is a charge of protofascism being laid at the door of the RBNZ?"
No, I'd argue what we have is a classical example of a corporatocracy or a "Business Governement", where the country's economy is run primarily run for the benefit of the corporate capitalist class. Corporates are the biggest beneficiaries of an economic regime, where the government anchors the economy, through a social security system which provides a floor below which economic activity won't fall, where a central bank and government fiscal policy provides for stable prices, and large private actors through incestous relationships with the government are able to privatise profit and socialize risk.
Classic cases:
BNZ bailout
Air New Zealand Baiout
Tranzrail Nationalization and the Rail Freight Action Group
The Rio Tinto deal
The South Cantebury Finance bailout
new focus on Public Private Partnerships with large infrastructure corporations to finance and build public works.
the Solid Energy bailout
recent public asset privitizations
No, I'd argue what we have is a classical example of a corporatocracy or a "Business Governement",
Hmmm.. crony capitalism, hence "Crony Capitalism is Fascism"?
Steptoe,
It goes well beyond short-term greed. Governments can't control banking and finance, with any degree of effiacy, without enormous levels of unintended consequences.
Even during the mid 1970s, when the Western world's financial system was heavily regulated, and interest rates and loan to value ratios were strictly controlled, the banks needed a safety valve to manage the tremendous flows of surplus capital that were inevitably flowing through the world financial system and that was the Eurodollar market and odious Third World debt taken on by despots in Africa and Asia who were clients of the Western powers. Excess capital is built into the capitalist system, because income inequality is inherent within capitalism. Its a political, not an economic system. Economic activity and monetary accounting for that activity is a product, not its nature. Wealthy individuals and firms will always have surplus capital which they don't need to invest in their own production (including wages). The more unequal a society, the more surplus capital there is and for it to be employed without diminishing returns on capital at home it needs to be exported abroad. Third World dictators were the perfect avenues for the surplus capital, because they could enforce payments by their citizens with violence, because they lacked the public scruples of officials in nominally democratic governments of the West..
"LANCE TAYLOR: Beginning in the seventies, there was an episode of loan pushing from the commercial banks to developing countries. The chief source of supply was the recycling of OPEC bank deposits after the oil shock in 1973. You began to get overheating of the economies and overborrowing. The loans were cut off drastically in 1982, which gave rise to the debt crisis."
http://multinationalmonitor.org/hyper/issues/1990/04/interview-taylor.html
I was around before the 1st 'oil crisis'.. and one of those 1st home buyers watching homes increase fast than we could save...Forutunately we had those "boxes" group budget housing.
We could scrape enough despit together ... no draps , carpets paths, driveways gardens shed or shelter for a car, fences or even a damn lawn.
These are now the rentals in sth Auckland.... we built our garages , paths
In effect we had a morn new 1st home with the cost of extenal buildings lawns etc defered until we could afford to pay for them... and DIY. so how much would a modern basic 1st home cost then?
What effect would that have on current 1st home buyers? Even with 20% deposit on homes and high cost items like cars over a set value?
If we want to get ppl who save into their 1st home, we have to build the 'lower class' suburbs of the future now...That sounds real bad, not PC or whatever... but that basic system has been constant for time in memorial.
Dump these mordern budget houses 'added value ' proferteerring.
We can build all the houses we need, but if we cant get the 1st home buyers in because of the addons.....who will buy them?...
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