By Jenée Tibshraeny
Labour will be stuck between a rock and a hard place campaigning on housing issues ahead of the election.
On the one hand it has house price growth to thank for the strengthening economy. On the other, it has house price growth to blame for making life more difficult for the most vulnerable in society it pledged to protect.
For every “good news” story published in recent weeks on the uptick in inflation, lower likelihood of an Official Cash Rate (OCR) cut this year, and improved business confidence survey results, there have been “bad news” stories on annual rent increases hitting an 11-year high, Emergency Housing Grants issued by the Government increasing five-fold in two years, and first home buyers in most parts of the country struggling to scrape together a 20% deposit.
Will the Government be able to campaign on the strength of the economy relative to other countries without mentioning the fact this has, to some extent, come at the expense of renters?
Put another way, will it be able to renew its promise to helping renters without cracking the pillar (IE the housing market) holding up the economy?
The thing is, while the public will fixate on KiwiBuild and blame Urban Development Minister Phil Twyford for failing to fix the housing market, the Reserve Bank (RBNZ) is rightly or wrongly the reason for the resurgence in house price growth.
Quite predictably, the 75-basis point OCR cuts made in 2019 have seen cheap money find a home in the housing market.
And in the absence of the Government having the muscle to ramp up housing supply quickly enough to dampen prices in the short-term, the RBNZ will continue to have the greatest influence on the market.
It will again in May review its loan-to-value ratio (LVR) restrictions, first imposed on banks in 2013.
The RBNZ’s decision to require property buyers to have larger deposits was what slowed the housing market at the end of the last National-led Government’s term.
The thinking a few months ago was that the RBNZ could consider further loosening LVR restrictions, following such loosening in early 2018 and again in 2019. However, ANZ economists earlier this month said there could actually be a case for the next change to be a tightening.
Great - this could cool the housing market, benefiting those renters Labour’s vouching for.
But actually, not-so-great… Banks requiring higher mortgage deposits would create another hurdle for thsoe first home buyers Labour’s trying to help.
The RBNZ pulled its OCR lever to strengthen the economy. It could now pull its LVR lever to cool house price growth, leaving the risk-adverse Government to campaign on “improving housing” in an environment it has little control over.
And here’s the thing, until the Government has the guts to change the fundamentals of the New Zealand economy so it doesn’t hinge on the trillion dollar-plus residential property market, it will continue to protect this asset.
National was in a similar position at the 2017 election, but being a centre-right party, didn’t need to pretend it was out to protect renters and those struggling to get in to the housing market.
I look forward to seeing how Labour responds to that catch 22, “Do house prices need to fall?” question ahead of this election, and whether the Green Party and The Opportunities Parties will, like in 2017, be the only ones to say, “Yes”.