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Reserve Bank open to having more regard for house prices through the way it regulates banks, not through the way it conducts monetary policy; Asks for debt-to-income tools

Reserve Bank open to having more regard for house prices through the way it regulates banks, not through the way it conducts monetary policy; Asks for debt-to-income tools
RBNZ Governor Adrian Orr

The Reserve Bank (RBNZ) has rejected Finance Minister Grant Robertson’s proposal for its Monetary Policy Committee’s (MPC) remit to be changed to require it to consider house prices.

Rather, RBNZ Governor Adrian Orr suggests house prices be included in the RBNZ’s Financial Policy Remit.

In essence, the RBNZ believes there’s more scope for it to consider house prices through its financial stability arm – the way it regulates banks, than through its monetary policy arm – the way it mainly uses interest rates to achieve its inflation and employment targets.

Accordingly, the RBNZ is asking Robertson to add debt-to-income (DTI) ratios to its macro-prudential toolkit, so it can restrict bank lending to those seeking large mortgages compared to their incomes.

The RBNZ said DTIs could complement its loan-to-value ratio (LVR) restrictions (due to be reintroduced in March), but didn’t commit to applying DTIs.

“Under current law the Bank could not tighten prudential policies for the primary purpose of dampening house prices, if that is not justified on financial stability grounds,” Orr cautioned.

He also pointed out: “It is ambiguous as to whether increased LVR restrictions or the imposition of DTI restrictions and higher capital requirements would assist the Government’s goal of housing New Zealanders, and reducing inequality and poverty.

“Higher prudential requirements generally imply higher deposit requirements, lower credit ceilings, and higher interest costs for the mortgage borrower. All of these factors disadvantage lower income and lower wealth households.”

Orr's response is consistent with what the RBNZ has signalled and aligns with how RBNZ observers expected him to respond.

Orr didn't go so far as to detail how the Government should address the housing crisis, but said: "Given the wide range and number of parties involved, and the complexity of underlying issues, there is a need for a single agency or ‘clearing house’ to co-ordinate the Government’s response across agencies."

Robertson responded: “I thank the Governor for his response and will consider it, along with the advice I have requested from the Treasury. The Government will make announcements in the New Year.”

Keep monetary policy out of it

Coming back to changing the remit, Orr said adding a house price consideration to the monetary policy remit “would be unlikely to result in significant policy changes”.

He noted the MPC already considers house prices, and “if there were trade-offs between the house price consideration and the MPC’s economic objectives of stable inflation and sustainable employment, the MPC would be obligated to formulate policy that supports its price stability and employment objectives”.

If trade-offs were justified, the RBNZ was worried its monetary policy would be less effective. For example, higher interest rates could lead to higher borrowing and debt servicing costs and a stronger dollar.

What’s more, a house price clause “could also make the goal of monetary policy confusing and reduce financial market efficiency”.

Orr said: “There are considerably less trade-offs between the Reserve Bank’s financial policy objective, of a sound and efficient financial system, and stable house prices. It would also enable the Reserve Bank to use financial policies that can be specifically targeted at key drivers of the housing market.”

However, Orr cautioned: “Some financial policy actions could reduce the availability or increase the cost of finance for some borrowers.”

Orr suggested adding a house price consideration to the RBNZ’s financial policy settings could be done via the Reserve Bank of New Zealand Bill, which is going through Parliament.

“The RBNZ Bill is not expected to be enacted until the second half of 2021. However, a house price consideration could be added to the Reserve Bank’s financial policy remit more immediately using section 68B of the Act. This enables you to issue a direction to the Reserve Bank to have regard to a specific government policy when forming financial policy,” Orr told Robertson.

He said the house price consideration would have to be clearly articulated.

The politics

The RBNZ published the letter two days after it was sent to Robertson on December 9 - the last parliamentary sitting day of the year.

When Robertson first wrote to Orr on November 24 proposing a change to the Monetary Policy Committee's remit, he published his letter straight away. Orr responded within hours; likewise making his letter public straight away. on Wednesday asked Robertson whether he and Orr would be exchanging Christmas cards. Robertson chuckled and responded: “We haven’t but I’m not a big Christmas card sender. I’m sure we’ll continue to communicate in the professional and collegial manner we have all year.”

See the letter in full here.

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Why stop there? Price control for petrol, supermarket pricing, rates, new car pricing. Where will it end?


The slippery slope fallacy.


stop there because the others do not destroy the fabric of society like high rent does, We do not want a class society based mainly on property ownership.

Me and you don’t, I’m pretty sure everything is happening now is driven by the people who wouldn’t mind live in this kind of society. You will also find couple of them on this forum

Now we're talking.... letz do this!

I can hear some saying right now "Those who cannot remember the past are condemned to repeat it."

Where will it end... hmm house prices doubling in less than 5years like happened in the mid 80s when they last tried this sort of thing?

You're kidding, right? The most effective way, other than bombing, to destroy a city - that's your fix???


Rent control. Na. Thats just sitting on a lid, as the pressure continues to build.
Fix the fundamentals.
1. Population. A stable population would fix it. And a host of other things.
2. Eliminate tax deductions for interest cost. Reverses the plunge in home ownership. Reduces the house price bidding wars.


Population has to be a big part of it.
However, Labour seem as wedded to the population ponzi as National.

Yes, yes and yes.
Rent controls have been successfully used in Europe (for example in Germany, see
On top of this, the introduction of supplementary taxation on speculative property investment, and the removal of all existing forms of landlord subsidy/welfare will definitely help (especially if we use this supplementary income to support the real, productive economy).

I think RBNZ should concern more about the rising Kiwi dollars and its impact on the export.
Year 2020 export was good, but we have been lucky with weak Kiwi Dollars mostly in the 60~ 65c range.

Most commodity exporters have dedicated treasury experts to lock in their FX options in advance. I hope a good bunch of them did most of their options shopping during the March-20 lows.

That only helps them for a while. If the NZD stays high then their next hedge will also be at a high rate.

i sense a brewing chaos from now to June 2021.

and beyond. All this extra money applied to the system has to go somewhere.


It's like a John Clarke sketch.

"The extra money we printed so far? Already gone. We're spending the money we're printing next week."
"What happens to the money we're printing this exact moment?"
"We're using it prop up the table that we're going to put next week's money on. Bit wonky in places"
"Can the RBNZ not afford decent tables?
"Not ones that can support the weight of $28b of cheap Rutherfords, that's for sure. Have you ever tried to get anything through government procurement?
"So what happens if we print too much money?"
"Sorry there seems to be an issue with my earpiece, it sounded like you said "what happens if we print too much money?"
"I did"
"Well we can't possibly ever do that, you see, because what happens is we then take the extra money and dump that into a highly performing futures package that invests in companies producing real goods for things that there will be a constant demand for, which generates above-market returns for New Zealanders"
"And what do those companies produce?"
"They sell printers to central banks"

E: And to top this all off, I accidentally reported the comment the above one was replying to. Marvelous.

Hear it from the man himself:

Classic GV - sounds like a line out of "Yes Minister"!! what a classic show that was.


It's going into housing, that's where the inflation is. But they don't include housing in their inflation calculations. People have enough stuff so they buy more houses with the cheap money.

It will all go to asset bubbles, in particular it will allow the housing Ponzi to continue and further inflate, at least for the short term.

Have you been sitting under a rock this year X?


Superb hospital pass from Orr to Robertson. Time to talk to Gabriel.


More a hot potato scenario. Robertson attempting to throw Orr under the bus and Orr replying "no thanks".

Also trying to pass the buck.


He asks you, you ask him, in the end of the day, none of you are willing to take the responsibilities. This shows how our economy is severely damaged by housing market at the moment. All of them are scared to do anything to cool down overheated housing market. They are afraid if they even put a little bit restriction on, it will create devastated impact on our economy.

Agreed the interchange seems a bit of a charade but it is working towards a solution.
This is not a surprising response to Robertson's initial letter.
RBNZ has got to demonstrate that it acts independently of government influence and vice versa. As being directed is unacceptable, agreement is constrained but is being reached under the guise of diplomatic exchanges.
I feel something constructive is going to come out of this as it is in both RBNZ and the government's interest that the current housing situation is addressed.

too little too late


How about regulating the investor side of the housing market rather than the owner occupier side. Having investors push up the price of existing housing stock out of the reach of owner occupiers serves no social benefit.


Limit the sale of residential properties to owner occupiers only. This will allow home buyers to get into a home at lower prices. Boomers will get screwed as their retirement plans crash and burn but no one wants their votes anyway.

"but no one wants their votes anyway" - I'm pretty sure the desire to attract their votes is exactly what landed us in this situation.


Illogical suggestion as can't police who's an owner occupier or not. Plenty of "first home buyers" we did loans for at a mortgage broker and used their kiwisaver immediately rented the houses out anyway.

Make a law that if caught renting a property acquired post xx/xx/xx the Government will confiscate. Done.

It is not too hard to police. Are you suggesting the IRD is being defrauded for millions on rental income from landlords not disclosing they own rental properties?


Yes, I don't understand why they're so averse to measures that outright disincentivise investor competition with owner-occupiers. There's an insistence on not 'picking winners' out of fear of creating economic distortions, I suppose. but it just pushes the distortions elsewhere. It's so far from a level playing field. There's no way for FHBs to compete with the power of collateral that investors have, it just leads to ever-increasing clustering of assets in fewer and fewer hands.

Is Mr Orr. living in a parallel RB cinematic universe? Why would he believe LVR restrictions are not causing this huge spike in inequality we are seeing now? If it is just correlation what is the cause in his opinion?


DTIs bought in at a peak? Oh lord.


I agree with DTI's, it creates a constraint on borrowing outside of the property 'value' which is very subjective

It will hopefully slow down investors by creating a 'cashflow ceiling' preventing them leveraging up increasing their total DTI ratio
...and will likely put the brakes on house traders as well who are banking on capital gains only, likely revolving credit lines may have to be reduced to match the total DTI ratios

There still need to be rules around FHB exceptions and also refinancing existing homes

Will also need to put constraint on foreign cash buyers as they can circumvent these rules
i.e. they may borrow overseas where rules are much more relaxed

A blanket DTI is likely to significantly hit FHB rather than investors.
In terms of current situation - where LVRs are not mandated by RBNZ - RBNZ mortgage data show that for FHB 35% have LVR of 80% or more where as investors that figure is only 1%. Owner occupiers are 4%.
This indicates FHB are having to borrow considerable amounts, investors far less.
I think you also overlook that current bank DTI calculations - and the DTI equivalent in the UK - consider rental income as part of income.

Rental income doesn't get you very far if DTI limits at ~5-7, going by current yields of well under 5%. May allow you to borrow 30% of the value of a property, want any more than that and you have to use your own income to justify it.

Even worse if the rental income is netted against costs like insurance and rates that are associated with it.

Is this another kick in the guts lined up for first home buyers by Orr...?


I think it would actually help first home buyers substantially.

Far more damaging to investors than FHBs if it's done right. You'd have to have a huge income to take out mortgages on multiple properties - the days of highly leveraged portfolios would be numbered.

Interesting as PocketAces posted yesterday, one sixth of NZ homes are owned by investors - must likely full time professionals - who have 20 or more properties.
As their income is rent they will be laughing at any DTI especially if that property is cash flow positive which it most likely will be.
Even for first time investors leveraging of their home, they will have had that property some time and if not mortgage free close to it and, as they are usually older, will likely be on higher incomes than most FHB. They will be less worried about DTI than a FHB.
This could be far more damaging to FHB whom 35% are currently having to take very large loans (LVR over 80%) compared to the only 1% >80% LVR of investors.

With any reasonably setup DTI system, it will be significantly harder for those investors to leverage off of their portfolio. Sure, those who have 20 properties with significant equity in each may be alright, but those with a reasonably leveraged portfolio will have to sit back and pay down their loans for a while before they can go shopping again - especially if they have no income other than their properties.

There will be a period where current FHBs are disadvantaged - if all goes well this is paid off in the long run as house prices finally reduce to sensible levels. The situation has gone so far that there are no solutions without collateral damage.

This isn't the golden bullet, but part of a grab bag of solutions including increasing supply (e.g. better incentives for councils to allow development such as giving them GST associated with the development), reducing demand through reduced immigration and high taxes e.g. land tax. Lets hope the government actually get stuck in.

In essence, the RBNZ believes there’s more scope for it to consider house prices through its financial stability arm – the way it regulates banks, rather than through its monetary policy arm – the way it mainly uses interest rates to achieve its inflation and employment targets.
Accordingly, the RBNZ is also asking Robertson to add debt-to-income (DTI) ratios to its macro-prudential toolkit, so it can restrict banks from lending to those seeking a lot of debt compared to their income.

In essence:

High quality borrowers were given as much money as they could want while the rest of the economy was deprived of funds; liquidity and safety being the only preferences in what sounds entirely familiar. Link

No change at all in respect of responsible RBNZ regulatory oversight:
Banks extend 60 % of their lending to one third of already wealthy households to speculate in the residential property market because the RBNZ offers them an RWA capital reduction incentive, to do so.

And this:
RBNZ cutting OCR in half five times since July 2008, causing the rich to capitalise rising discounted present values of future asset cash flows.


" would need to specify a clear Government policy to which the Reserve Bank must have regard"
Clever. He's saying the government needs to articulate a policy (not a statement in a news conference) that has to do with house prices at the macro level. Your move Robertson.

Why not just make it illegal to sell above the RV?!?!?!?!!111oneone.

DTI income is the only answer

It stops prices flying away and encourages wage growth policy.

As ive said many time I would start with a DTI of 6.5 or 7 and reduce it by .2 per annum untill you reach the ideal (maybe 5.5 or 6)

Could punish low earners and make the divide worse.

Could also provoke low earners to upskill and become high earners. Overall , I think the Solution should be comprehensive, e.g combination of measures like dti, ban of using unrealised equaty


Bit late for DTIs isn't it? Yesterdays tool to fight today's issues.


Adrian Orr is possibly the most useless reserve bank governor ever.

When labour came into office they put a board in place with the specific purpose of ensuring the governor didnt become too powerful . At this point in time the question is where is the board in all of this - I suspect backing Orr becasue it protects their interests.

Labours model for the RBNZ board was supposedly modelled off the RBA in Australia. However in Australia the RBA board has a wide variety of experience on their board including representatives from community groups to represent the bottom quartile of society as well as the major industry sectors including mining, retail, agriculture etc. Meanwhile the RBNZ board has experience from just three sectors- the investment community, the property/ building sector and economists - it is no wonder the RBNZ continues to fuel the property market - because its in their interest to do so.

This is appropriate as well. Grant Robertson is possibly the most useless Finance minister ever.

Let's complete the trifecta with Jacinda being the most useless prime minister ever.


One wonders where Robertson has misplaced the carte-blanche that he got handed by voters only two months ago? Also Orr seems to advocate for a progressive RBNZ with a wide remit when it suits him, and then quickly hides behind "that's not my job" when it doesn't.

It would be bloody nice to see a bit of co-operation, risk-taking and strong action coming out of both camps to be honest. Too much politicking while the people suffer.

Great comment.

JAs Labour could do anything they wanted right now.

No more passing of the blame to past govt mistakes, Winston peaters, rbnz, referendums.

You have popularity (for a time) and a controlling majority re making any bloody law you choose.

Big times call for big players & personally I need more than nice selfie pics. What this govt does this term is important.

The starting point has to be to give consideration to the RB mandate that requires it to seek a level of inflation centred on 2%. That leads directly to the current interest rate policy of the RB which works through QE given the practical lower limts of the OCR. However, in the short term, inflation is not responding sufficiently to satisfy the RB and so the QE pump is further pumped. If the inflation target was centred on say 1% then the RB would no longer have the perceived need to keep pumping. It is the Government through the Minister of Finance , and not the Reserve Bank that sets the inflation target.

It is the Government through the Minister of Finance , and not the Reserve Bank that sets the inflation target.

And that is why I hold little hope of this situation being remedied if Labour stay true to previous form.

RBNZ has cut OCR in half five times since July 2008, which spurs the wealthy to capitalise rising discounted present values of future asset cash flows. The poor just hunker down since the returns on their savings purchase fewer goods and fail to meet rising liability costs.

And yet again:
What's the stated aim of central bank QE, other than to lower term interest rates to "stimulate" bank lending, to spur GDP qualifying growth which demands goods beyond existing production capacity, which then spikes CPI inflation along with rising interest rates as opportunity costs increase?

Seems to me banks see little opportunity to lend to productive enterprise that will repay their extension of credit and falling interest rates are the response to flush out a better collateralised borrower with more than adequate income to service said debt. Central banks actually don't have much of a role in all this. They just follow market interest rates down.

You're so right, Keith. The Clark-Cullen Labour government created the problem by changing the original 0 - 2% inflation target to 1 - 3%. Robertson has the power to return to the 0 - 2% target by merely writing a letter to Orr. There is much hand wringing about the resulting higher NZD affecting the profits of our exporters, But which is worse: an out of control housing market that is endangering fairness and financial stability or reduced profits for exporters?

I am sure DTI would help.
But it's just damage control from here on in.


Anything. Just do [swear word removed by Ed] anything. Nothing can make this worse. At this point flailing around in the control room, wildly pushing buttons and pulling levers would be better than sitting on your hands and not doing anything.


Look CJ, what government need is another working group to research the issue, cost the tax payer millions of dollars, come up with some really good ideas, then dismiss them because everyone wants house prices to keep going up, even though we have a poll that says 75% of NZ'ers don't want house prices to go up.

What they need to do is have a meeting about a meeting in which they plan another meeting.

Did a couple of years in Wgtn across a few public sector roles. That pretty much sums up my experience there...

I think it's beyond time to move on in terms of any forlorn hope of restoring some degree of affordability in terms of home ownership.
Let's shift to addressing renting. To their credit, the government have made an ok start in improving tenants rights.
If we give up the apparently forlorn hope of restoring some affordability to ownership, maybe in a new paradigm we can view investors / landlords as part of the solution?
Under this paradigm maybe we welcome more and more investor activity? Maybe it can help boost rental supply? That will help place a bit of a lid on rentals.
So we address rent cost stability, and also tenure security.

The only way I can see that happening is by forcing those wanting rental properties to build new rather than buying existing properties. That could be quite powerful.

Why do we need to force it?
Aren't new properties attractive enough in their own right? Plenty of new townhouses in Auckland offering yields of at least 4%, which seems pretty good and attractive in this day and age.


DTI would be a massive targeting debt based capital appreciation speculation. Specuvestors may try to triple their rent to qualify but no one will be able to pay it. That would just lead to a massive backlog at the tenancy tribunal for unpaid rent. This is a real chance for the Gummit to allow the RBNZ to implement tools for change, and put the ball in the RBNZs court to actually do something meaningful.

Watch this space. If Labour refuses DTi, is it is a loud and clear signal they have truly sold out to global banking/debt interests. Popcorn moment approaching.

In a potentially far-reaching move to address the problem, the parliament of the Berlin city-state on Thursday approved a five-year freeze on rents and a price cap of 9.80 euros per square meter — or about $1 per square foot.

Property values and rent prices in Berlin have exploded in recent years, making it one of the fastest-growing real estate markets in the world. While the average rent remains well below some other European capitals, surging costs have been a particular burden for residents of a city where salaries are relatively low, public housing stock is scarce and more than two-thirds of the population rents rather than owns.

Are the communication channels between the RBNZ Governor & the Minister of Finance so hopelessly clogged-up that they need to resort to exchange of letters & public venting of the contents? Its just public relations stunt to be SEEN as doing something but in actual fact just kicking the ball about. Could not pressing issues be more easily & expeditiously settled via face-to face meetings? Or maybe the spiralling house prices is not an emergency as the global-attention grabbing climate change?

House prices like the COVID response in the US is political. Its important that you show everyone which side of the argument you are on and if things aren't going to work out, who to blame first.

Used to think this chatroom had some intelligent people capable of carrying an intelligent conversation regarding the issues of the day... sadly this impression appears to be misplaced. Foolish, kneejerk, clickbait type, irrelevant opinions have now become the norm. Glad I don't waste my money subscribing

Hook do you, yourself have an interesting point to make?

Yet you waste your time commenting (unhelpfully). And time is more valuable than money in my opinion

In short, if you want to get ahead in life, keep buying houses, nothing is going to change in a hurry, the government and the RBNZ will have your back

That's easier said than done.
But yes if you are one of the fortunate minority who have leverage and money to burn it seems a pretty safe bet.

"That's easier said than done"

That's why the doers get ahead more than the talkers

Sorry to bang on the old drum but I do not see CGT as a means to address this issue it has not worked overseas. Also it has been excluded by the Government. LVR and DTi are what you would expect banks would use to assess a loan. They are not a means of levelling the playing field. The answer is to remove any gearing advantage that allows investors and the better off to out bid FHB. Money will always win so why give them an advantage. So let’s deny the tax deduction of borrowing costs including interest. This shoud also apply to other asset classes including shares. Would start for all new loans wriiten from 1 April. Not a new tax.

Or allow tax deductibility of owner-occupied home loans.