By Bernard Hickey
Finance Minister Bill English has given a cautious view on the ongoing discussions with the Reserve Bank of New Zealand about whether the bank should be able to add Debt to Income Multiple restrictions (DTIs) to its Macro-Prudential tool kit for dealing with the financial stability risks created by an over-valued housing market.
Last month the Reserve Bank formally asked English to add the DTI tool to its kit, but English's office said he had asked the bank for more information. See Gareth Vaughan's October 24 article for more detail.
However, English was less than enthusiastic in his first public comments since that confirmation of a formal request, and since QV figures showed earlier this week that Auckland's house price inflation had eased in the last three months since the Reserve Bank applied its third round of Loan to Value Ratio (LVR) restrictions, including a nationwide 40% deposit requirement for landlords.
Asked by reporters in Parliament about the progress with the DTI tool, English said: "There's just ongoing discussion. The Reserve Bank has a number of tools already available to it. You need a pretty strong case to put further tools in the tool kit. There's a discussion going on about what debt to income ratios would add or not add to the current tool kit."
English was particularly focused on unintended consequences.
"The case for...all these tools have indirect and unexpected effects as well as some direct effects, and you have to make sure you understand all those, particularly when the Reserve Bank has already got a number of levers that it could pull," he said.
"For instance, the impact on first home buyers, the impact of businesses that borrow against their households to source some of their debt and working capital. You've got to understand what you're doing."
Key says Auckland stabilising
Later in Parliament, Key was challenged by Labour Leader Andrew Little about housing shortages in Auckland and by home ownership rates of 20% or less in many parts of the Mt Roskill electorate for people under the age 40.
Key said he did not think home ownership rates had changed dramatically in Mt Roskill over the last 10 decade for the young, and he said a construction boom in Auckland meant the market was stabilising. He also pointed to the benefits of low interest rates for young homeowners, saying they could save them up to NZ$16,000 a year.
"There are a number of factors as to why home ownership rates around the world have been falling, but I think we can see, by the construction numbers, the consent numbers, and the employment numbers that we have seen, how much construction is now taking place," Key said.
"We can see that the elements of the plan are not only actually working in Auckland but, I think, starting to work around New Zealand, and I am confident that the housing markets will stabilise over time and more supply will be there," he said.
Key open to DTI in election year
On Monday afternoon Key was open to the idea of a DTI, but cautioned that the negotiations were being handled by English.
"Ultimately, New Zealanders have been saying they they recognise there's been pressure in the housing markets. They've been expecting the Government to respond and the agencies of the Government to respond and they can see that we're doing that," he said.
"They're realistic enough to accept that these things take time. Ultimately, I think it's a good thing that the Reserve Bank has more tools in the toolbox and if you look at the most recent results it looks like the LVRs are having some impact and certainly some impact in the investor category. Whether that carries on and whether this is a short term blip, I don't know, we'll have to get better data on that."