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Former RBNZ chairman Arthur Grimes says the Reserve Bank should tighten monetary policy gradually and continue this tightening till house prices return to 'a much more affordable level'

Former RBNZ chairman Arthur Grimes says the Reserve Bank should tighten monetary policy gradually and continue this tightening till house prices return to 'a much more affordable level'
Arthur Grimes. Photo from Victoria University.

A former Reserve Bank chairman Arthur Grimes is urging the central bank to tighten monetary policy and keep tightening it till house prices get more affordable.

The advice by Grimes comes as part of his participation in the NZ Institute of Economic Research's 'Shadow Board' through which an invited panel of economists, academics and business leaders state their views on what the Reserve Bank should do ahead of one of its Monetary Policy Reviews. The RBNZ's latest one of these is on Wednesday (February 24).

Grimes, a Senior Fellow at Motu Research and Professor in the Chair of Wellbeing and Public Policy at Victoria University, has previously stated strong views on how much the RBNZ eased its monetary policy after the Covid crisis struck last year and was especially critical of the 2018 law change requiring the RBNZ’s Monetary Policy Committee to target “maximum sustainable employment” as well as inflation.

Now in the latest 'Shadow Board' release from the NZIER Grimes goes quite a bit further.

"The RBNZ should tighten gradually," he said.

"The RBNZ loosened monetary policy too much through 2020, causing soaring house prices (as well as other asset prices) which is very damaging for disadvantaged New Zealanders and for the next generation.

"The blame really goes back to government for ill-advisedly (i.e. on the extremely poor quality advice of Treasury and their advisors) changing the Reserve Bank Act to include a dual mandate.

"The tightening should continue until such time as house prices return to a much more affordable level provided the goods market does not enter deflation."

A notable feature of the latest NZIER Shadow Board release is the diversity of views about what the RBNZ should do next, something that been apparent among previews of this week's RBNZ decision from economists as well.

BNZ head of research Stephen Toplis, who is also on the Shadow Board, said based on current information, monetary conditions "should be tightened" but there remains a risk that the current [fairly positive economic] environment is unsustainable.

"It is probably time to announce a tapering of the LSAP [Large Scale Asset Purchase - aka quantitative easing] programme with some reference to future upside for the [OCR] cash rate.

"Assuming no shock it would be appropriate for the LSAP programme to have concluded within the next year and the cash rate should be progressively raised."

And Viv Hall of Victoria University thinks similarly in terms of the year ahead.

"There has been some recent positive news on the inflation, labour market and GDP growth rate fronts, but some of this is unlikely to be of a sustained nature and very considerable economic and COVID-19 uncertainties remain.

"For this upcoming meeting, monetary policy should therefore remain the same. For the coming year RBNZ should consider some formal tightening of monetary policy. This should take the form of further reductions in large scale asset purchases (LSAPs)/quantitative easing. It would be premature to start raising the OCR, given the potentially unhelpful effects on the exchange rate."

In terms of the business perspective, NZ country manager for MYOB Ingrid Cronin-Knight says while the housing market and a stronger than expected bounce back in the economy are increasing inflationary pressures, many small and medium-size enterprises are still feeling the prolonged effects of Covid-19 disruption, particularly now in accessing and maintaining stock levels of supplies, ongoing cash reserves and access to working capital.

"The latest Level 3 lockdown will no doubt fuel uncertainty for businesses of all sizes, and apply direct costs without revenue to retail and domestic hospitality, while the knock-on effects of a prolonged slump in international tourism is being felt in the regions.

"Barring another significant community outbreak of Covid-19, 2021 will be fairly finely balanced between the need to maintain current levels of economic growth, minimising some uncertainty with the rollout of an effective vaccine, and - if the post-Covid upswing begins to impact the economy – managing growing inflation spurred by a strong housing market and balancing the offset of subsequent rising inequality, increasing consumer confidence and, potentially, the chance of opening of at least one significant international travel bubble."

Boffa Miskell CEO Kerry Gupwell says lockdowns remain a "constant worry" in terms of the potential impact.

"The economy has recovered better than anyone expected, the improvement in unemployment also surprised and the housing market keeps defying so called logic. I think the RBNZ need to hold the course at the moment. The housing market is a hot topic but I am not sure demand-side tinkering is the answer."

Business NZ CEO Kirk Hope says despite recent key economic data being more positive than expected e.g. employment/commodity prices and some potential inflationary pressures (principally housing-related), "there is no justification for moving the OCR either up or down at this stage".

"Further stimulus measures are not warranted under current circumstances.

"While the NZ economy has bounced back far better than expected there is still significant uncertainty internationally regarding Covid-19 and also the extent that the roll-out of vaccinations will allow the border to be reopened.

"Any significant changes to monetary policy settings need to be approached with a degree of caution as inflationary pressures are likely to be finely balanced."

Westpac chief economist Dominick Stephens believes monetary policy settings "are about right", and don’t need to change this week.

"The medium-term outlook for inflation is low, but current settings are probably sufficient to secure a return to [the target rate of] 2% over time.

"The balance of odds favours a gradual tightening later this year, starting with a reduction in the LSAP and confirmation that the FLP [Funding for Lending programme] will not be extended. However, there are huge uncertainties on both sides of this forecast."

Kiwibank chief economist Jarrod Kerr notes that the RBNZ has already announced a tightening in the loan to value ratio (LVR) rules.

"Supply, or fiscal policy, is the issue. Clearly, the global pandemic still poses a significant risk to the economy. Although the downside risks are evaporating. Inflation and unemployment are unlikely to be comfortably near the RBNZ’s targets for some time yet. The heat in the housing market should be considered via a macro-prudential lens. Although targeting demand is not going to solve the shortage of affordable dwellings."

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Bravo Mr Grimes!! Let's stop rewarding the property industry who are always cynically howling about the supply side while enjoying some of the lowest interest rates in history. We need to get the central bank and bingeing borrowers to lift their jackboots of the throats of savers, and get back to pricing the cost of money at a level where savers are lifted from penury & where house buyers are made to consider that risk is involved with their investing. The longer we delay the more inflated and unstable the property bubble will become. We also need an implicit signal from the government / central bank that property buyers are investing at their own risk, and there will be NO taxpayer funded bail-outs.


We need to get the central bank and bingeing borrowers to lift their jackboots of the throats of savers, and get back to pricing the cost of money at a level where savers are lifted from penury & where house buyers are made to consider that risk is involved with their investing.

Indeed: Nonetheless, residential property punters seem unaware that the long persistent rise in discounted present values of future cash flows associated with assets may have pivoted the other way.

Recent news that the RBNZ may no longer take action to move the OCR to a negative setting and in fact the term discount factor in the form of the government 10 year note has risen from a 0.50% yield last May to ~1.65% today are being ignored.

Given the lack of awareness of fundamentals, it's almost as though the majority of property investors aren't running a business at all, but are rather just Mums and Dads chucking cash in alongside the Jones's. Another lemmings off a cliff scenario incoming. This is the way.

by 'may have pivoted the other way" do you mean may have reached the point of diminishing returns?


We have a week to week Govt bail out for property owners. It is known as the Accommodation Supplement. It assists them in making month to month profits while QE and LSAP are Govt sponsored measures to ensure they also make (tax free) capital gains. So I think you mean no more bail-outs.


Bail-out action by the state includes the interest rate suppression & the money printing. I agree that we have an enormous bail-out that has been in progress for many years. Unfortunately the actions intended to stabilise and underwrite (i.e. bail-out) the property ponzi only result in dramatic price increases, as the general public are too stupid / greedy to actually realise they are being bailed-out. The only way to teach some harsh lessons is to let prices fall by removing support, as while prices keep going up the property hucksters will keep insisting it is a supply side issue & that with property you "can't lose". We have to bust the myth by derailing the taxpayer funded gravy train.

Good luck with that Tom

Thanks Yvil.

Mike Riddell wants the RBNZ to ease rates to 0% tomorrow, he's well respected and independent.

Respected by a clique of like-brainwashed folk.

When has he ever challenged growth, or talked of overshoot?

Bit like Gurus and hangers-on......

Of course rents won't fall, so the poor people who receive government largesse will pay the price. Prices might fall but where will everyone live in the meantime?

'Tis true. Property has become New Zealand's biggest social welfare scheme, and created a dependency problem.

Too soon to start the tightening. Better to watch for 2 more quarters to see whether the trend continues. RBNZ should not jump the gun.

They’ll always be some excuse not to do it. Interest rates are pinned to the canvas, lets be honest.


Of course the RBNZ should tighten monetary policy, right away but they won't

Not unless the rest of the western world go first. Orr will be sticking to his ‘Global best practice’ mantra.

Raising interest rates here will take our already at a 36 month high currency into the stratosphere, killing our exports in the process.

I don't like the infectiously positive image. It reminds me of an Aussie entertainer who best not be mentioned.

You mean old Jake The Peg with his extra leg. Always wondered what that song was about. Now we know.


We now know what he was referring to when he sang "tie my kangaroo down sport"


They could start by stopping the FLP right away and then reducing the cap of the LSAP to 60 billion

Same suggestion the QE/LSAP should be amounted not to 100b, initially I thought it's between 60-80b, but realising that OZ is about 5x the size of everything compare to NZ.
Then the best ideal QE/LSAP for NZ.. should be just 20b? but hey, remember.. Mr. Orr stated around Feb/Mar last year following US & OZ, he won't do a knee jerk reaction, the rest is history.
Him & his team mates are all have vested interest much in the ponzi, so there you're.. a jerk off shoot of ..100b (If not mistaken, the largest on the planet by country ratio size of ..basically everything).. even that still followed by 28b FLP? - and gladly, follow my advise here.. to siphon it into.. yip.. housing development.


Can I just paraphrase a well known saying - the housing market is not the economy stupid.
Its like economic comment in NZ is the perfect perpetual motion machine. One economist breathes out and another breathes in - rinse and repeat.
Tighten up the interest rates and/or exchange rate to slow the housing market down and potentially damage a fragile real economy. Grow some testicles and focus on housing, stop using a shotgun to shoot a sparrow. .


Not sure what you are trying to say, but currently interest rates are pathetically low. In fact, it has become a total farce. Enough molly-coddling of borrowers please, the 'fragile economy' argument doesn't fly - we cannot build any resilience when rely on cheap parlour tricks such as spoon-feeding subsidies, money printing, and permanent interest rate suppression.

I agree - interest rates are too low. It has been an unfair cost to the savers in our community. But I don't want to see a "solution" to one problem - housing - destroying other parts of the economy.
People's opinions on this site are largely based on their personal experience of Covid.
My daughter came home from uni last year and said she was the only one of her friends where both parents had kept their jobs.
But just because we are okay doesn't mean everyone in NZ is.

What you are saying is not being born out in the official unemployment figures.
4.9 percent in the December quarter.

Which when announced caused a temporary state of euphoria until challenged. The noisy sectors - housing, construction, infrastructure, contractors with govt contracts are firing on all cylinders. The SME are not so smiling. The mom and pop businesses where a lot of wives and family have ben working for free or cash to maintain the business - these are the ones hurting. Not statistics - however real people.
It is no where as bad as it could have been and we seem to be over the worst but drive through my closest town and count the empty shops. And yet in contradiction the new car sales yard keeps expanding.
We are all smiling at the camera but underneath are some significant employment changes coming. NZ Refining is an example or Tiwai Point only staying because of govt intervention. Rationalisation of meat processors will be next then petrol stations and shopping malls.

Which 'official' statistics? mean the jawboning variety I suspect

Frank - thanks for that, made interesting reading. Especially after all the economist comments that reducing unemployment is a sign of a reviving economy. Yet Job seeker claims as a % of working age went up in every region in NZ. Maybe my cynicism is a reflection of our local environment with Northland having the highest % of Job Seeker payments and Sole parent payments in NZ.

The economists look at this data and somehow proclaim that we are nearly at 'full employment'!!! Look at how much money work and income are pumping out to keep families afloat!!! down the road, here in New Plymouth, have been looking for 2 full time (permanent) packers for 3 weeks. No skills or quals reqd. $21 an hour + full benefits. Cannot find anyone to do the job.

Why grade produce when you can buy a house, rent it out with a gov. subsidy and trouser the capital gain tax free?....too many have sussed the game

First step is to get get your taxpayer funded ‘deposit grant’, plus make sure you gut your KiwiSaver, to get your deposit to take your place on the Ponzi gravy train.

Maybe they are too low, but that has nothing to do with why the price of housing needs to as high as it is. There are jurisdictions with the same interest rates or lower and for far longer periods of time, yet they have far more affordable housing.

Agree with you, DS. IT would seem to me that those countries limit the speculative gains on housing by a appropriate system, usually capital gains tax. It works. I live in Europe right now, with significant QE, very low interest rates, yet housing prices have risen at a much much lower single digit rate p/a. Here they have realised decades ago that housing is not fair game for speculators. Much healthier for the community. In NZ, politicians are not looking after the community, just the voter base. At the detriment of all, sooner or later. And we keep voting for them ...

'limit the speculative gains on housing by an appropriate system.'

Yes exactly. I prefer the Texas system, as that is the one I worked in for a number of years and was the system closest to the one we used in NZ up until we introduced the RMA and changed to MMP. Plus I think, if the tax stick is the first stick you grab to discipline the wayward property market child, it's probably more the parent's fault (too heavy-handed Govt. policy) more than the childs. True free-market incentives work better and are cheaper.

But whatever the system used, what it achieves is this. By removing speculative gains, ie the amount of increase in price solely due to restrictive monopoly advantage and with no addition of value-added amenity, then the property becomes less of a speculative commodity, and people will invest in other higher-yielding investments.

And this is the irony about housing speculative investments, in our present system, the only action you need to take to get the highest yield is to buy, and then do nothing (NON-VALUE-ADDED). As soon as you do something to add VALUE-ADDED amenity, the lower your yield for the effort/money/time involved. It becomes a self-fulfilling prophecy of creating further lack of supply, relative to demand to give a greater monopoly advantage.

When you remove the speculative gains, then the only way to make money in property is to add VALUE-ADDED amenity, ie you have to improve the property eg buy a section, build a house on it, and either rent or sell it. If you don't do either of these two things then you are not earning enough just by inflationary appreciation to justify the investment.

What this VALUE-ADDED reaction cause is an increase in volume to satisfy the demand, and since there is no money to be made in landbanking, then that land's value reverts closer to its last best economic use, which for fringe land is its rural land price, so the cost of land falls. If you get the land price right, then the rest of the system will be right almost by default.

The end result is supply meeting demand and at cheaper prices.

So...a tax on the value of the unimproved land, and no tax on any value-add (capital improvements, like houses). Offset it by reducing GST, income tax etc.

The issue with a tax is that first, it's an extra cost added into the system, which without freeing up land restrictions just means it gets passed onto the end consumer at a higher price.

It also starts its own bureaucracy eg who gets to decide what the definition of unimproved is, eg if a farming family has been farming for generations and the city has grown out to meet them, who is to say that their land is now unimproved just because it's needed for housing, or an old villa on a large site is now less improved because of a zoning change to higher density.

Also where the tax goes is first seen as revenue to whoever gets it, and once they have deducted the high admin. costs then can be very little left over to offset any negative effects of the noncompliance.

As I have said, using the tax stick first up is just bad and lazy parenting.

Local government should switch rates to assessing the value of unimproved land only. Taxing or rating improvements just discourages improvements being provided i.e. it discourages the homes, buildings, enterprises etc being constructed in the locations where there is demand for them. Changing local government rating systems could be done relatively quickly. Local government have all the tools to do it. It wouldn't be a silver bullet but as part of a package of changes it would make a significant difference.

who GAF what Boffa Miskell think about monetary policy???

Haha yeah.
Unless they are some sort of representation of business?

Agreed, not sure why an industry "hired gun" (for RMA applications) actually would even be consulted. As you say - who GAF about their opinions - they are on the corporate t.t and are well insulated. Crossed swords with Frank Boffa at an RMA hearing - he's not a nice bloke.


They are just a part of the infrastructure ponzi, which is part of the population ponzi.

Frank the Tank ?

Certainly I found him to be dismissive, antagonistic, overbearing and condescending

I don't mind if interest rates are raised specifically to address housing affordability. But there needs to be some acknowledgement that there's a large number of 'wrong place, wrong time' FHBs who seem to be at the wrong place and wrong time for almost everything as they grow up, and could well be facing a situation where others have tilted the deck in their favour, now cashed out and will also benefit from increased interest rates bought in to fix the mess they caused. I'd be curious to know on what moral basis you can justify stretching young families even further to benefit elders with spare cash. You may disagree, or feel it doesn't matter, but the people in that position don't disappear just because you don't think it's important.


Easily. No one forced you to buy a house. And any action taken to address housing affordability will benefit generations of younger Kiwis, not just the elderly.

No one forced investors to pile into the property market and under-report what should have been taxable gains either. If you want to go after someone, go after them instead of people who had the cheek to try and buy a family home. Unless you're seriously arguing it would be reasonable to expect every NZer between the ages of 30 and 40 to put off things like having a family or buying a home until prices corrected, which is so far taking 14 years (and counting) and with the current government showing no interest at all in fixing it. If you want to send someone to the breadline to make housing affordable, maybe start with the people who caused the problem.

In all seriousness, the Helen Clark Foundation argues that in the context of the benefits of severely reduced housing, a zero-rated loan buy-out programme for existing owner-occupiers would actually be extremely cheap and would mean households who were facing a negative equity situation didn't go under, or contribute to a deflationary environment as they would be less likely to cut back non-essential spending.

They'd also get the benefits of their next home being cheaper, so it's not all bad, but being plunged into negative equity on purpose by a state that showed no interest in intervening before they bought a home would be particularly galling, considering most of the current factors have been known issues for some time.

Great to hear someone else talking about this.

Yes, I also pondered this. and think it might have some merit, although I note the irony that this idea only comes to Clark AFTER she is no longer in power. This highlights that when politicians are in power, common sense and real solutions seem to vanish from their minds. But at least she is still thinking about how to solve this problem and she is tabling it during a Labour lead Govt.

One issue with this underwrite, is that it is taking away moral hazard, but since we have already done this with increasing house prices and not cared, we might need to ringfence that on the way down, as they suggest.

This is especially important to stop a loss of confidence that might cause an unnecessary bust.

What we are trying to do after all is safely lower house prices to where any increase is only at the rate of inflation, ie a more stable and predictable increase, and bring the median house price to income closer to 3x multiple.

It is the 'can't lose' nature of housing that is leading to astronomical house prices. And this sounds like another scheme to make it a 'can't lose' scenario. On the one hand, you may be able to reap enormous capital gains. On the other hand, if it goes pear-shaped the you'll get bailed out - by some means or other. Either way, you can't really lose. You'll either be filthy rich, or percieved as some sort of helpless victim who deserves a bail-out. Personally, I find it all a bit sickening. I belive that the more you promote moral hazard, the more reckless the behaviour you'll see. I can't believe the sums of money that people are borrowing, and the extent to which some are over-extending. If you bet big, why shouldn't you lose big when it goes wrong?

I agree 100% BUT if it means they will do nothing because that might happen on the way down, then I would be prepared to see those FBH last in and affected by negative equity ringfenced, so they are not being rewarded but also not sacrificed on being on the wrong side of history in bringing this to rentier behaviour to an end.

This would be a small % and would effectively take that bad debt of the bank books and prevent a negative flow on effect to others to borrow and purchase at the lower more stable price.

Up or down, the decisions that need to be made are going to require swallowing a few things, for a short time, things that are unpalatable.

Tiered interest rates could be one option too. One interest rate for owner-occupiers, another for investment properties.

This should be happening. Commercial property loans typically have two tiers for investment and for owner occupiers to reflect that owner occupiers have a bit more skin in the game. I’m not sure why residential investors get the same rate as owner occupiers. A 1% premium on investors would help.

Plenty of people live their entire lives in homes they rent, not own, and raise families there too. The idea that you need to purchase a house in order to start a family is a false dichotomy. You made a decision to purchase the house, to suggest that anyone other than you should own the consequences of that decision is the only immoral thing I see here.

Everyone gets a bail-out apparently. Prices rise massively, and they deserve those huge capital gains. Prices crash, they are helpless victims who deserve a bail-out. This whole attitude makes me sick.

And no one owes renters a house either.


So on what moral basis does interest rate suppression exist? It is a market distortion by the state that only creates other, bigger problems. The longer it goes on, the worse the bubble becomes, the more we have to consider your argument of 'oh, we can't put interest rates up as some people will get hurt'. It's either act now, or act later and face an even bigger problem. Or are you saying that interest rates must never go up, and to ensure that they never do we need to abandon the current psuedo-capitalist system? Of course, if we abandon this system as 'unfair' then we may be headed for a system where private ownership of property doesn't exist either.

Well said Tom. It is a type of property owners welfare or to be more accurate an Aussie banks/kiwi mortgage holders welfare scheme. And as you said it will probably create bigger problems down the line.

"It's either act now, or act later and face an even bigger problem." There was no urgency to act when this was being discussed as a problem when I bought, nor was there a credible plan to fix house prices. These are not new issues, so why didn't it matter when I was on the other side of the ledger? That things have gotten to this stage is a failure on the part of central banks and government planning and migration policies, as well as a government that could not promised what it delivered in the way of supply or taxation reform. Why recent FHBs should have to pay a life-long price for them getting things wrong at literally every opportunity is beyond me. They still got paid well, they still got their five weeks of annual leave, they (like investors) get to keep the cash while I'd be the one facing being wiped out and basically forced to leave NZ to earn enough to get back to square one before I died. Isn't it funny - no matter the way the cookie crumbles, everyone else is a protected species but you in this country.

By your logic, the government can now never take action on house prices, locking in those increases for all time. That is unfair to even more people than would be affected with a short sharp correction. Pain for 100,000 people now, or pain for millions over generations? It's a really hard call, which is why no one has had the courage to make it.

Easy answer: give everyone a small piece of land / a house so that the entire population is on the same central welfare scheme.

Yes, that’s where we are headed. Communism by stealth, and all because there was a refusal to deleverage.

GV27 Well I can tell you a little story about the 87 sharemarket crash. Two couples that my parents knew well at the time were both into the sharmarket big time. One chap decided to sell all his shares in the months leading up to the crash as he felt things were too good to be true. The other couple, of which the husband was an accountant, they sold their family home a month before the crash that they were mortgage free on. He decided to put all that money on the sharemarket to make a quick buck while they looked around for another house. Needless to say, you know what happened. They lost the lot and spent the rest of their lives working their butts off to just retire with something. I don't remember the Government bailing them out either. Just a thought.

Mr Grimes is an advocate for a big nz with open immigration...

Yes he is. His recent comments look like an exercise in populism.

He may well be, but he has an interesting slant on things and as long as interest rate rises are well signalled ahead of time and they are done gradually it may not cause too much disruption to current mortgage holders.
Hickey has some points to consider here -

Hickey's statements are foolish - especially as he had ample time to learn. It's a decade since I tried to educate him, but a comment he made (2 cent's worth RNZ, re Doughnut Economics) showed he still has absolutely no idea.

"What we need now is burst of growth" It would be a joke, but it comes from a serious claimed 'journalist'. Growth is what is killing out planet, exponentially-quickly. Hickey and Grimes, in their various ways, are hindering what has to be done.

What Hickey need to do is some journalistic research (and any time he wants an open debate on that..... (but he won't).

There are more than 4000 children living in motels in NZ - but hey that's fine - that can be their life because PDK says growth is bad. PDK your environmental doomerism re housing is providing more cover for the real estate guys to further cement their takeover of government.

I limited my ofspringiness to replacement-only, and did so 34 years ago, in full knowledge.

Arguing as you are, is too late. Work it backwards; the sustainable population of the planet (ex draw-down, meaning REAL sustainability) depends on your per-head consumption desires. At our level of consumption, I'm sorry, but my prior estimates of 1 billion look optimistic - 600,000,000 is probably about it.

For NZ, 2 million max. Yet you want to ignore (if you ever bothered to think about it) the fact that per-person square floor area has probably done nothing but increase, and want to justify our overshoot by building MORE - in essence, by adding to the overshoot/degradation predicament.

Don't worry, there's a s---load of undercover space will be available post re-set. A lot of hangars, for starters....

NZ's birthrate is below 2.1 replacement rate. So your 'limiting' population efforts is standard for the country. Having more than 4000 kiwis living in motels has nothing to do with the population explosion (and stabalisation once women get educated) elsewhere in the world.
P.S Your ad hominin attacks say more about you than me. I have bothered to think about your arguments and wrt housing I reject them.

For you, Brendon. Have a chuckle.
This is what you are arguing with. Forget anything you learn from Enrico Moretti - the way forward is a regression to a rural lifestyle. Poverty doesn't exist there, apparently.

Wasn't bad for way back then, eh?

Makes some folk sound like Neanderthals even now.....

Note poverty isn't mentioned. Being an entirely human construct, it merely represents inequalities, not the height of the ceiling......

Frankly if you are living in motels with your family you have to question your abilities. That is not the governments fault.

Agreed, standard central bank playbook - when the heat gets to much, bring out the shadow reserve bank or an ex-gov to push a gentle contrafactual.

Similar to the finance minister getting into a huff about great resets. Well if they stopped going to Davos - supporting the WEF by giving speeches, and rightly denounced the WEF agenda, what problem would there be? Ain't exactly a conspiracy Mr finance minister - all out in the open and very professionally documented.

I regret missing the tribal council where we decided that career politicians and central bankers were a good idea. Just merge RBNZ back into treasury, under govt control really, term limits for the poli's. Then citizens can focus our efforts in producing good theatre that benefits society.

Let's leave potential ad hominem attacks out of it & instead consider what he is saying about monetary policy. Play the ball etc.



It’s hard to when these “academics” will say anything for a headline and would do no different if they were in charge.

TV - why would we consider monetary policy?

Why not consider what underwrites it?

And what people might want?

Grimes has had opportunity to learn about the Limits to Growth, but the last time I was in on a Zoom with him, he chose to put an insinuative spanner into the discussion; and nothing positive. Like a lot of aging economists, he probably has trouble contemplating that his life's work was misdirected. I can understand that - even have some sympathy for that - but bulls have to be removed from China-shops if they continue to do damage.....

Why...because its too hard and the people dont wish to know....and so it will continue until it no longer can, which has already started despite their best efforts to magic it away with "money"

And he was head of the reserve bank and retail banks who have fostered this whole ponzi....take his words with a grain of salt.

“Targeting demand is not going to solve the shortage of affordable houses”

Give me a break, you think if you reduce the number of buyers (and more importantly the amount of credit they can access) and keeping supply rates static it’s not going to have an effect on supply total and thus housing inflation?

High prices seem to be feeding into an increased build rate. Highest number of BCs and CoCs in Auckland in many years - although granted off a low base. With the Urban Intensification LG rules perhaps a moderation in prices isn't that far away (couple of years?)

Past ya peak mate. RBNZ will ease again and again, and again. Social justice is no place for monetary policy, you'd fcuk it up worse than Wheeler or McDermott!

People who wish monetary tightening at this point of time probably never exported anything in their lifetimes except for babies.

We shouldn't have to rely on currency manipulation to be competitive.

That’s because we’re a commodity exporter that relies on cheap imported labour and house flipping to build “wealth”.

You are right Mr Grimes, the OCR has caused a serious housing problem that will have side effects.
I believe the OCR should be 0.75 now with 3 increases in the next 12 months to 1.5.
The end of the world covid scenario has now gone, no one listens to Orrs doom and gloom anymore.

I would be happy to see house prices fall. Yes some would be hurt who don't deserve it.
But huge huge numbers have been hurt by the price rise. We have to get back to reasonable house prices.

Not many would be hurt. Less than 2% (probably less than 1%) of existing houses have been sold in the last 6 months since the Auckland median was 830k.

My preference for how NZ gets out of this economic mess would be that interest rates remain low and the stimulated borrowing be directed at the logjams in housing supply. Housing related infrastructure, build-to-rents etc. To successfully do that I think NZ needs a housing commissioner not a reserve bank governor. A credible housing commissioner could address both deeper supply issues and first-home-buyers FOMO and property investors greedy demand expectations that currently are having a big impact on the housing market. See part 2 here.

As ever, you start from the wrong premise. So does Grimes.

This is an inevitable train-wreck; exponential growth into bounded system, does not go. The betting went on ahead, the underwrite isn't there, the bets had to be issued at zero to be plausible and now that phase has ended.

There will be a re-set. Whether the system survives that re-set, is another question.

PDK not every problem is a nail and not every solution is hammer. Pre fossil fuels and pre industrialisation societies were able to build housing for all their people. Yet now, for example we have over 4000 children living in motels. The reasons these kids and their families cannot access decent affordable housing is not a depleted resource issue. It is because our housing market rules are FUBARed.

Pre fossil fuels there were south of 1 billion planetary inhabitants - and a s---load more forest (although they were already worried about that) and wetland and biodiversity.

Yes, the commandeering of the Commons (qualified-only activities, approved materials) has done us a disservice. Yes, if broke I'd live happily in a trailer-yacht; the regulations re size and similarity are as you say, written to enrichen the rich.

But the days of growth are over. Even the days of being able to maintain the infrastructure we have NOW, are over. Why do you think rates rise so much recently, when interest-rates don't? It's a widening wedge and triage is becoming the only game in town. You make the same mistake the neolib's do; arguing anthropcentrically. We are not superior - to anything, indeed the way wee are going we look sillier than many species....

We are not superior - to anything

Ironic from the commentor with a textbook superiority complex.

Yeah, wisdom is not something we have particularly selected for ("Ooh look, berries - lets eat them all")
Our greed/fear cycle won't change, but 3 things do; the climate, resource depletion and technology. What do you think PDK - is tech change going to be fast enough to offset the first two and create nirvana on earth before this civilisation gets ploughed under?

That would be a no. PDK does not believe in technical progress - it's a necessary position in order to hold the opinions he does.

The answer is an obvious no. My question is really what is a sustainable number of people on this planet ? at the present we are increasing at the detriment of all other species and the environment and technology is not saving us so there simply has to be a limit .To much faith is put in technology if you ask me, its just an excuse to keep on kicking the can down the road with the idea that "Something will save us all" technology is like a religion for some people.

I guess PDK possibly holds a similar position to me? Biosphere collapse has largely been initiated and powered by "technical progress". We could have decided which "tech progress" has been beneficial and used it for the betterment of the human state, until the next asteroid strike, instead all techs been commercialised, commodified, corporatised, advertised, had the growth model applied and now we are faced with a future measuring decades, rather than millenia. Now we are testing whether climate can be modified before we cook the planet, , food can be made with algae, energy can be supplied with hugely complex and expensive fusion generators, while sperm counts collapse under the weight of our toxic tech legacy. You'd think when it becomes obvious bashing your head on the wall is causing pain, it might be time to reflect on the pains source? Indigenous pre industrial peoples on the other hand, had a future that could be labeled limitless. Tech society has basically put a cap on the human timeline!

is tech change going to be fast enough to offset the first two and create nirvana on earth before this civilisation gets ploughed under?

This is the big, existential question.

No, it isn't. We've already answered it. Every tech advancement we've done, has not been used to do more with less, it's been used to do even more with the same amount. Jevons was 100% correct. You have to de-grow to take advantage of tech - which can only do energy-efficiencies, after all; it can't create the stuff, nor can it transcend the Laws of Thermodynamics.

Interesting musings but world events will soon force the matter. I really don't think the NZ govt matters much anymore, even to NZ.
I'm sure I'd be one of those idiots who goes to the beach when the tidal wave alerts go off. This whole thing is AWESOME! Please let there by time to run a negative OCR for a few months, just so we can say we saw it.

Haha cool. While we're at it, Weimar hyperinflation would be interesting to live through - you know, while you wait in line to be served, the price on the burger you want goes up double. You'd still have people saying "House prices in NZ double over night! Amazing!" Westpac Chief economist Dominick Stephens says his bank sees 10,000% house price increases this year. Governor Orr says he'll keep the OCR on hold until employment stabilizes.

Former RBNZ chairman Arthur Grimes says the Reserve Bank should tighten monetary policy gradually and continue this tightening till house prices return to 'a much more affordable level'

Former RBNZ chairman, if would have been in power (current governor) would be singing singing different tune (supporting ponzi) just like Jacinda Arden when nkt in power was shouting from rooftop to cobtrol the ponzi and now when in power.....

Power corrupts and abosulte power... Jacinda Arden has absolute power.

Funny. Bet if he is still in that position he wouldn’t say anything. Easier to say when the responsibility isn’t on you.

I get the need for more affordable prices. But in dropping prices, first of all you crush all the first homers who bought in the last 2 ish years. 2nd you'll cause the economy to contract as people feel like, and maybe actually have, lost money. We don't need to explain what happens there.

I wonder if putting big constraints on speculation and 'investment' plus, inflating away the debts, increasing wages for all in doing so. Then do we get to a point where houses are affordable again but the crazy growth rates are gone. I can't really see losers in that scenario.

So you want houses to be affordable again but you don’t want prices to drop(?) Another one wanting to ‘have cake and eat it’.

This bullshit. The only people 'having their cake and eating it' are the people who made the tax free gains that pushed up housing and then stand to benefit from greater passive returns after they cash out. Recent FHBs have had to pay through the nose to secure a home and then face being wiped out by a correction caused by interest rates that will benefit the generation that caused the problem.

Whats your alternative? Hike interest rates, crash the prices? You wont be able to get a mortgage to buy them....
First off banks will fold, you will lose your savings (because NZ doesn't guarantee savings), then as banks call in overdrafts and other business credit facilities to save themselves businesses will struggle. They will also struggle as with everyone in negative equity and fearing losing all their savings will stop spending. And this will go around and around until we need a massive bail out loan from the IMF or similar, which we will all pay HUGE taxes to repay for many many decades. See Ireland 2008.

If we inflate the debt away, through currency deflation or similar, house prices stay the same (through demand controls and heavy speculator taxation) , but the value of those dollars in the house prices reduce. At the same time, wages increase in real dollar terms so you can buy these currently unaffordable houses. It would also make exports cheaper increasing productivity. From a human perspective that seems like a better way forward. politically it seems more palatable and might actually gain some party lots of votes.
I'm sure this is a very blunt solution and I've missed some side effects, but its certainly not as crude as the "hike interest rates and f**K everyone who bought a house"

Take the Iceland approach, not the Ireland approach. It requires politicians with courage, but it's better than giving the banks a free ride.


Take both approach: Ireland DTI to put the demand credit side on notice and the Iceland Bank regulatory approach.
NZ will see soon or later what is going to happen when the current binge goes uncheck. They all scream when petrol, grocery price hike, but not when the price of terminal housing ill hike big..big

I think there has been work done on this - as in if we take the "inflate the costs" approach it will take 20 years for houses to become affordable, and that is based on nil rises over that period and steady real wage increases. That's if we take a conservative approach. Then there is the Venezuela approach, where rampant inflation makes everything other than houses even more expensive than they already are (compared with other countries' food costs, for example). Even then, house prices have to remain stagnant for that period.
Whichever approach is taken someone loses. Pick the least affected (e.g. first home buyers since 2018) and the hurt hits those. Then you can target relief towards those affected rather than having to address everyone's needs.

the most politically expendable are the highly leveraged portfolio owners who use interest only loans....

ban the interest only loans which made up 45% of loans last month....investors will find it damn hard to make the numbers work on p&i

Works for me. True investors are prepared to take risks.

Agree this is probably one of the major causes of where we are. The banks also roll back to back interest only loans to them. i.e. interest only for 3years then at the end of that, they roll them out another 2-3 years.... and recently thats at an even lower rate!!

(in baritone) "Oh dear, how sad, never mind".

Grimes is just saying the same old thing - "Inflate away" (oops - sounds slightly painful, lets soften) "Inflate away, slowly".
Meanwhile the storm clouds of USD collapse are almost overhead, and there is a strange brrrrrrrr sound in the air.

It's not going to crash if the property ponzi is halted. There are too many stubborn old boombers around who own a bunch of houses outright for that to happen. A small correction is what we need. Even a 10% drop would only half undo the damage of the last 9 months. Houses corrected in 2010, the world didn't end then
NZ is going to be caught with it's pants down very soon as you're all worried about the wrong scenario

For me, Grimes is one of those guys who isn't as smart as he thinks he is.

Wow ... you must think you're the smartest guy in this chatroom

of course, he's German

The unemployment mandate is, was and will continue to be, bloody stupid.

The government should handle employment concerns via fiscal policy. Instead, this atrocious Labour lot side-stepped responsibility and dumped it on the Reserve Bank to handle, & in doing so skewed their mandate. Absolute wreckers and vandals.

Unfortunately, the central banks of the world are all playing the same game and for New Zealand to step out of line would have a negative impact on our exchange rate. The manipulated interested rate sends the wrong pricing signals as can been seen by the bubbles in the housing and stock market. They have backed themselves into a corner that they cannot get out of without major repercussions at some point. In the meantime, they continue to ‘kick the can down the road’.

Unfortunately, the central banks of the world are all playing the same game and for New Zealand to step out of line would have a negative impact on our exchange rate. The manipulated interested rate sends the wrong pricing signals as can been seen by the bubbles in the housing and stock market. They have backed themselves into a corner that they cannot get out of without major repercussions at some point. In the meantime, they continue to ‘kick the can down the road’.

until the can gets too big to kick

Shock ask JA or GR or Orr the following question: What is their best view for local young professional Kiwis ideal DTI ratio level?, where they have to work/live and hopefully afford to buy a house.