The housing market remains distorted by tax incentives and continues to have the potential for another boom, despite the recent sharp slowdown in the housing market, Reserve Bank Governor Alan Bollard said in an interview on Radio New Zealand.
"We need to have domestic policy in a way that doesn't mean it's advantageous from a tax point of view to pile money into housing," Bollard said.
The Reserve Bank had put forward various suggestions to remove some of the distortions from the housing market, but these had not been taken up by lawmakers, he said. These included the potential for a mortgage interest levy or changes in tax arrangements to remove tax incentives for property investing. The full details of the Reserve Bank's suggestions are here.
"None of the substantive things that we looked at have been taken up in a serious policy way," Bollard said.
"We still think the issue is out there," Bollard said.
"That monetary policy can only work in a reasonably neutral environment, not one where there's other incentives on people to get into housing, but having said that, no one rushing into housing at the moment," he said.
"We'll run up with this problem again at another time in the future."
Asked big the distortion was in the housing market, he said: "If you look at NZ household balance sheets, they just look different to others in the OECD. What do we hold in savings? We hold houses. If we've got enough money, we buy a bach. If we're got enough money after that, we buy a boat. If we've got more money, what do we do? We put it into investor housing (rental property)."
"That is not a balanced household portfolio. We don't put it into bonds, or shares or cash or most of things we see in other countries," Bollard said.
"We feel New Zealanders need to increase savings and we know it's a very big picture and it's a long term thing. It's got to start with financial literacy with schools."
Have your say. How should the incentives for property investment be changed? What did you think of the Reserve Bank's supplementary stabilisation instruments to reduce the dampening effect on monetary policy of heavy fixed rate mortgage usage and a property market boom and bust.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.