By Bernard Hickey
Gums have been flappin' aplenty this week over the dangers of a housing boom to the economy.
The Reserve Bank, the Government and ratings agency Fitch have opined about how dangerous a housing bubble is for household debt, our banking system and economic stability.
It was a chorus of tub thumping and finger wagging.
Reserve Bank Deputy Governor Grant Spencer was first in line, warning that avoiding a housing boom was critical for economic and financial stability. He even went as far as suggesting the Reserve Bank could increase the Official Cash Rate if the housing boom morphed into a surge in consumer price inflation.
He also reiterated the bank was looking at increasing capital requirements for banks issuing mortgages, particularly the riskier high loan to value ones, and at limiting high loan to value ratio loans themselves as part of its new 'macro-prudential policy' toolkit.
Then Fitch piped up from the sidelines with general warning that strong house price inflation could turn into an asset bubble that hurts banks when it bursts.
It muttered darkly about New Zealand's high household debt and how a significant house price correction could affect the 'credit profiles' of ANZ, Westpac, BNZ and ASB.
Then as if to confirm the fears, the Real Estate Institute reported house prices surging to record highs in March and house price volumes galloping back to the levels seen in March 2007 at the peak of the last boom.
House prices in Auckland rose 16.1% in the last year and NZ$4.1 billion worth of property deals were done during March alone.
That's NZ$132 million a day circulating around the economy, some of which is being skimmed off to buy curtains, cars, holidays and, of course, flat screen televisions.
The New Zealand dollar also surged to fresh record highs this week, which is helping to fuel a new spending and borrowing binge.
Finance Minister Bill English was the biggest finger wagger at the end of the week, saying real progress in increasing long term savings was within New Zealanders' grasp: "It would be a shame to throw it away on another risky housing cycle."
He said the government would work with developers, builders, regulators and councils to improve housing affordability.
So much talk this week, but so little action.
And it's been that way for a decade.
The Reserve Bank has been warning since at least 2004 about housing booms and borrowing. Yet its actions betray its complete lack of success in stopping it or even controlling it.
It had a chance between 2004 and 2007 to raise rates high enough to nip it in the bud, but failed because of its strict mandate to target consumer price inflation and to ignore both asset prices and lending growth.
It even investigated using other 'macro-prudential' like tools in 2006, but wouldn't soften its single target-single tool doctrine.
New Governor Graeme Wheeler even said as recently as December that even if he had the tools he wouldn't use them. A careful reading of Spencer's speech this week also shows the Reserve Bank has assumed this housing boom won't translate into higher consumer price inflation.
And the high New Zealand dollar is doing it's dirty work of controlling inflation anyway.
The government has talked up a storm, but has done nothing to solve the supply or demand issues driving the latest boom in Auckland. It has even blocked the Auckland Council's attempt to get its new unitary plan in place early, insisting instead on a three year delay.
It has done nothing to encourage or cajole the private sector into building the 13,000 houses needed every year in Auckland, rather than the less 5,000 a year they built over the last decade.
Housing NZ is planning to build a total of 1,441 houses net in Auckland in the 5 years to 2016, or less than 300 a year. In the last 2 years it has actually subtracted a net 13 houses from the Auckland housing market.
As Jerry Maquire was told in the movie of the same name: "Show me the money!" In this case it should be: Show me the houses!"
We should watch what our policymakers do. Not what they say.
This article was first published in the Herald on Sunday. It is used here with [ermission.