RBNZ scotches talk it may develop new Macro-Prudential measures to control Auckland house price inflation; says Auckland now a supply problem

RBNZ scotches talk it may develop new Macro-Prudential measures to control Auckland house price inflation; says Auckland now a supply problem
Reserve Bank Governor Graeme Wheeler at the December 11 2014 Monetary Policy Statement news conference. Lynn Grieveson/Hive News

By Bernard Hickey

Reserve Bank Governor Graeme Wheeler has scotched growing talk in recent weeks that the Reserve Bank would have to ramp up the use of new or existing Macro-Prudential policy tools to slow down lending into the resurgent Auckland housing market.

Wheeler told a news conference and a Parliamentary hearing after the bank's December Quarter Monetary Policy Statement (MPS) that the bank was not considering further Macro-Prudential tools at this stage to address Auckland's housing market. Wheeler said the bank was watching the Auckland market,  but it had cooled off and the bank was not sure it had rebounded strongly yet. 

"We are concerned about house price inflation in the Auckland situation," Wheeler said.

He pointed to a halving of annual house price inflation to around 9% between September last year and November this year after the Reserve Bank's introduction of its high LVR speed limit and its 1% increase in the Official Cash Rate between March and July. 

Asked about signs evident in October and November of a resurgence in activity and prices in Auckland, Wheeler said it was too early to say if there was a new boom or whether the renewed activity was seasonal or simply linked to the election result. He said the bank would get a more accurate picture in February or March, but even then, he thought Auckland's problem was a supply issue the Reserve Bank could not address.

"The issue there in Auckland is very much a supply side problem. It's housing supply. Period," Wheeler told the Finance and Expenditure select committee.

Labour Finance Spokesman Grant Robertson then asked if the Reserve Bank was looking at tightening its use of its high LVR speed limits or using other Macro-Prudential tools. 

"No. At this stage we're not looking at any further Macro-Prudential instruments," he said.

"The challenge is to get supply sorted out as quickly as possible."

Wheeler pointed out that Auckland had been forecast to need an extra 10,000 dwellings a year for the next 30 years to keep up with future population growth. Auckland had built around 7,500 new dwellings over the last year, which was up 30% from a year ago and double two years earlier.

"It's still well short of the 10,000 needed and you've probably got a shortfall to begin with of 20,000 to 30,000 to catch up on," Wheeler said.

He said it was paramount that everything was done to resolve regulatory issues restricting housing supply in Auckland.

Wheeler was then asked if the Reserve Bank planned to take any demand-side measures to address the Auckland issue.

Wheeler said Auckland and Christchurch representated half of the market and were experiencing annual house price inflation of 9% and 8.5% respectively. He pointed to Canterbury Development Corporation figures suggesting an eventual over-supply of housing in Christchurch because of the large building programmes at the moment. 

"If you look at house price inflation in the rest of New Zealand, it's 2%, so it's a very segmented situation," he said.

APRA and ASIC moves?

Green Co-Leader Russel Norman then asked if the Reserve Bank was looking at actions announced on Monday by Australia's APRA and ASIC to intensify regulatory oversight of bank lending to rental property investors in particular. 

Deputy Governor Grant Spencer said the Australian regulators were looking at those banks increasing rental investor lending by more than 10% per annum, and also interest-only loans to owner-occupiers.

"Generally, that growth in investor lending they're seeing in Australia, we're not seeing to the same extent in New Zealand," Spencer said.

"Here most of the interest-only is on investor lending and Agri lending. We do monitor interest-only and talk to the banks in our prudential discussions, but it's not something that we're focusing on right now," he said.

"The evidence and froth in the Australian market is around investor lending, and it's not reflected in the New Zealand market at present."

Wheeler and Spencer were then asked by Robertson what it would take for the bank to intervene again to slow the Auckland housing market. He asked what threshold would need to be crossed.

"What we'd need to see a situation where there's increasing risk to the financial system. Say there's a strong growth in investor lending or there's a big increase in debt service ratios of customers that make banks more vulnerable," Spencer said. 

"Last year before we applied the LVR restrictions there was a big build up in high LVR lending, which was increasing the risk in the bank balance sheets, as well as adding pressure to the housing market, which threatened a downturn on the other side," he said.

"In other words, we need a prudential rationale and if the drivers are purely a supply shortage or a flooding in of migrants then there's not there's a not a basis for prudential policy."

Spencer agreed that a rise in credit growth that boosted house prices to levels that threatened bank stability would be an issue for the bank.

However, Wheeler noted that a rapid appreciation in Auckland house prices could spill over into extra consumer demand that increased inflationary pressures, "then you would be factoring that into your monetary policy considerations."

(Updated with more comments from Wheeler and Spencer)

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And we pay this guy mega bucks to avoid the problems of uncontrolled push from immigration and the uneducated values of offshore investors.

BB3
 
you are mixing monetary policy and fiscal policy responsibilities
 
Explain to me how you would have monetary policy deal with a "sudden" influx of billions of dollars of cash from India, China, Singapore, Japan, Taiwan and Russia, all chasing Auckland property

That is the point.
Wheeler should be going to the Government and telling them "You either help with this or I am out of here" 
I would suggest he only wants to keep his job .........at any cost!

You're comfortable with the idea of an unelected bureaucrat dictating policy to the elected Government?

That is a bit of a wild assumption. They do not have to act on his option.
He does it now given his so-called independence and Key and English sit on their hands concerning the things they could help  with like excessive and uncontrolled immigration, dirty money being laundered into Auckland housing and local investors treading on the fingers of any FHB who dares to try to buy a home at a realistic price.
I do not mind Wheeler giving them a message on that which he cannot control. It is up to them to act or continue to not govern.
 

same problem - different response - see how it's done

Governor of RBA tells Abbott Government to "get real"

See todays top headline in SMH http://www.smh.com.au/

Glenn Stevens has issued a blistering challenge to all federal politicians that they need to “get real” about fixing medium-term budget difficulties by having a serious discussion that avoids simplistic “slogans and name-calling.”

"...Wheeler has scotched growing talk in recent weeks that the Reserve Bank would have to ramp up the use of new or existing Macro-Prudential policy tools to slow down lending into the resurgent Auckland housing market."
 
Combined with lower, possibly going lower, interest rates for longer.  And massive Chinese foreign investment.  And a population boom.  And a massive supply shortage that's getting worse by the day...   Auckland property is now the only game in town, we're probably looking at double digit house price inflation for years to come. 

OK, so tackling supply has now being earmarked as the main challege. Not really sure how you're going to change decades of the institutional and public mindset of NZ in order to address this. I say don't change anything and keep supply at current levels and growth rates. People will be forced to move out of Auckland to Hamilton (already happening) and other provicincial cities such as Whangarei. Surely, this is a good thing  to boost population in the provinces. If you really want to live in Auckland for the "job" be prepared to pay for the privilege (if you're young anway). It that doesn't work for you, best to live in Whangarei, take it easy, and enjoy the fishing. 

J.C. so you're saying let the free market do it's thing...  Crazy...  No, what we need is at least a dozen reviews, the same amount of select commitees and 5 referendums all paid for by the tax payer then the problem will be sorted. 

Any reference to right wing ideology is not well received on this site; the state has to control everything you see...

No, I'm not saying that at all. It's not a free market, which is part of the problem,. It's almost like a social welfare framework to keep people employed (except in industries such as construction) in professions like planning, banking, brokering, media advertising, and real estate sales. As you know, the higher prices go, the more people spend in the retail sector. The public sector generates income. In many ways, it's the biggest busines in town. 
What I'm saying is that we don't see willing or capable of changing things, so why don't we leave it as it is and see if the "negatives" can be turned into "positives". Life is all about trade offs (which is why I prefer to not work or live in Auckland or NZ) and I think that the appeal of living in Auckland can be only be supported by a very high level of remuneration. Without working the numbers, 80K supporting a lifestlye in Whangarei is quite possibly better than 120K in Auckland. And part of that qualitative asssessment is obviously the cost of living. 

If you really want to live in Auckland, you need to be able to position yourself to be able to do so. And that willr equire devoting your energy to driving sufficient income. If that doesn't work for you, the other options don't appear so bad. 

The fact is there is little that can be done while immigration runs at these levels.  Even if you completely removed the rural/urban boundary there are not enough qualified tradies to build the houses at the speed we need them.  The only real solution is to stop issuing new passports... as our mortality rate is higher than our birth rate our population will stabilise, the supply catches up to demand, and whamoo prices stabilse.  But government at all levels are committed to endless growth so inflation becomes systemic. 

Eventually places like Whangarei will look more attractive but right now there just arn't the jobs. 

I have run the figures. There are a lot of variables but these figures should give you an indication of the relative salary required in each city for the same cost of living:
 
Auckland - $150,000
Wellington - $116,000
Christchurch - $110,000
Tauranga - $104,000

At times David Chaston is quite sympathetic to the right.
The trouble is that right wing ideology defies logical argument except for the converted.
Not dissimilar to left wing ideology though the proponents are usually not quite as shrill.
;o)
I would rather be a multi millionaire lefty than a wannabe righty.

I think that people need to forget their red or blue stripes and focus on the reality. Japan was able to build housing for all after WWII, from low-income, high density housing to inner city Western style homes worth a small fortune. However, what was necessary was a national self sacrifice so that the economy could be developed. In the case of NZ, it all seems to be about lifestlye and the economic focus seems to be a secondary consideration. If the objective is to create an asset farm of residential housing, then so be it. 

From an outside perspective that seems to be one of the biggest problems with New Zealand.  It's the endless left / right bickering while nothing pragmatic ever gets accomplished.

Especially if you ever disagree with National policy you are immediately lumped in the "looney leftie union lover" basket.  So infuriatingly juvenile.

Yeah it is. It seems to be an issue all over the Anglo-Saxon world and is a reflection of how our media and peer groups shape the thoughts of people. 

We all know deep down that the correct way is somewhere in the middle. 

Even if it wasn't going to rebound strongly you have a sycophantic cheerleading media / press release republishing apparatus that will create up a frenzy at the mere whiff it.  
This website has become part of that problem, how many real estate to the moon stories a day do you really need to publish?

Well think about it. If 7 out of 10 media releases are related to property, what are you going to do? The amount of churn is phenomenal, both in NZ and Australia. The annyoing thing is that the narrative barely changes. And it's a battle for hearts and minds as so many people are dependent on the sector to put food on the table. If that changed, the atmosphere would be pretty dour. 
Interest.co.nz tries to push as far as it can, particularly BH, regardless if he spins your wheels or not.