By David Hargreaves
The big missing ingredient in Prime Minister Bill English's remarks about loan to value restrictions this week was what his Government would propose to do in the event that the housing market took off again.
And Labour leader Jacinda Ardern's comments on the same subject are not encouraging either.
Well, no, there is reference in English's comments to building more houses and infrastructure - effectively reiterating the past mantra of this Government of 'supply, supply, supply' and refusing to do anything to quell the demand side of the equation. Labour's answer is similar.
Okay, increasing supply - fantastic idea. But what about if the demand side of the equation needs dampening before the supply catches up? Well, this is where we've come from. And it's where we could head again very easily.
The big problem with the Government's approach during the past few years is that to this point it has not come close to meeting its housing supply targets in the crucial Auckland market.
The changes this Government made to policies around migration, particularly the one that allowed students to work 20 hours a week, have aided and abetted the massive surge in net migration. The majority of people end up in Auckland. That's keeping the pressure on. The numbers of houses being built in Auckland are not matching the growth in the population of the city.
So, while the housing market has gone quiet at the moment, the Auckland market in particular remains under-supplied with houses, which means another demand-driven surge in prices could potentially happen at any time - particularly if the banks lift their current mood of caution and start turning on the tap again.
This Government has found out the hard way that you can't just jawbone the building of new houses - well not unless the Government itself puts our money where its mouth is and physically builds them on the state tab.
So, if you can't immediately fix the supply problem - what about the demand issue? What about that?
What if the market takes off again?
Both National and Labour are talking about the desirability of removing LVR restrictions - but what happens if these are removed and the house prices take off again? What would either party in Government actually do to curb the demand side of the housing market?
It's easy to see why the political parties like to talk about building new houses and infrastructure, because those are very positive things they can be seen to be doing.
Discouraging people from buying houses, or making it harder for them to do so - even if there is an intended public good in it - is very negative. It's a bad look. It loses votes.
It's a dirty job, so, it has been left to the RBNZ. And now the RBNZ is likely to get kicked in the teeth for attempting to do that job.
To refresh memories, the Reserve Bank introduced 'speed limits' on high loan to value ratio (LVR) lending in 2013. This was part of its new 'macro-prudential toolkit' agreed between the RBNZ Governor and Bill English in his then role as Minister of Finance.
Doing the Government's job
The RBNZ moved to do something about the demand side of the housing market in response to the fact that this Government WASN'T doing anything about it. Some subsequent Government measures, such as the bright-line test only came after the RBNZ had literally implored the Government to do something.
The RBNZ was trying to do a job the Government wasn't - and it seems still isn't - prepared to do.
The comments of both English and Ardern on LVRs this week matter because after the election the incoming Government will have to appoint a new RBNZ Governor.
The appointment process is interesting. Basically, the RBNZ board picks the candidate - but the Government gets to sign off on it. So, theoretically if the Government doesn't like the choice it can push back.
Will the board have the guts to front up to the new Government after the election with a candidate who is gungho about continued LVRs and indeed more macro-prudential tools? I don't know.
It was interesting that the worldwide advertisements for a new Governor did make explicit reference to the independence of the RBNZ.
Now, too much can be read into things but it did appear as if the board had awareness that independence is becoming an issue.
While both English and Ardern stressed this week that they would not look to interfere with the independence of the RBNZ, well, to be frank, they wouldn't need to if they ended up with a Governor that didn't push for things like macro-pru tools.
It's worth asking the question as to whether any potential Governors out there might have been put off by the political comments this week. Let's put it this way: They would have hardly been encouraged.
Look, both National and Labour are right. In the very long term New Zealand and particularly its largest city need to build enough houses. Along with that there needs to be a coherent population policy that dovetails with housing and infrastructure requirements.
Grasp the nettle
But clearly some Government some time needs to grasp the nettle and produce some policies that can tackle and exert some influence on the demand side too. Don't pressure the RBNZ into stopping doing that particular job and then not replace it with anything.
The rules, taxes etc in New Zealand explicitly favour investment in housing over other investment classes.
So, essentially what's needed is some sensible measures that level the playing field. Everybody knows what the potential options are. It doesn't mean taxing the blazes out of people buying property - just trying to ensure that the investment classes as much as possible are treated the same.
Until such time as a New Zealand Government has tackled that imbalance in the New Zealand economy the country is always going to be more heavily exposed than it should be to a major property market downturn. Which is a worry.
Tackle the demand side of the housing market and the Government might just find it doesn't have to disagree with the RBNZ - because the RBNZ will not longer feel it needs to do the Government's job for it.