The National opposition says the Government should be "mandating" the Reserve Bank to ensure its new $28 billion Funding for Lending Programme (FLP) is "targeted at the more productive parts of our economy" and doesn't just end up further fuelling the housing market.
National's new Shadow Treasurer Andrew Bayly says his party supports the independence of the RBNZ, but "we believe the Government can no longer afford to cross its fingers and hope for it to do the right thing".
He is urging the Government to "temper the Reserve Bank’s latest inflammation of the property market by sending a letter of expectation to [RBNZ Governor] Adrian Orr immediately".
And Bayly's comments come as a long time former Labour Finance Minister and recent chair of the Tax Working Group Michael Cullen says in a column for the Stuff website that the RBNZ "now proposes to add fuel to this raging fire of property price rises" through the FLP.
"Little account seems to be taken of the RBNZ’s other main function – its prudential rules to ensure the financial system’s stability. The rules arguably make it hard to use the new credit to support much venture capital investment or, indeed, any risky lending to the business sector. The risk is that most of it will end up feeding the insatiable appetite of the property market," Cullen says.
Asked on Monday whether the Government could consider writing to the RBNZ and saying it did not agree with what the central bank was doing, the Prime Minister Jacinda Ardern noted the importance of the independent role the central bank has.
“That separation exists for very good reason. And that separation exists for the benefit of New Zealand and equally based on very hard lessons learned. And I have no intention of changing that.
"Keeping in mind of course we have used our ability to set out when we have an expectation that the Reserve Bank factor in to some of their decision making issues that are important to us.
"And you’ve seen us do that for instance on considerations around employment. But I take very seriously the separation that exists," she says.
National's Bayly says while the FLP could pump up to $28 billion into the banking system " there would be no requirement for that money to flow into productive parts of the economy".
“Instead, it’s likely the new funding will flow straight into the already unaffordable housing market, when it could and should go towards new house builds, local businesses and our agriculture and horticulture sectors."
'House prices could rise 15%'
Bayly noted that economists were now forecasting that house prices could rise by 15% over the next year.
"Our view is that the Reserve Bank can, and should, be requiring banks to direct this new funding into productive parts of the economy, particularly business lending. We have seen this happen in Australia."
If the Government "takes the housing situation seriously" it will send a letter of expectation to the RBNZ Governor immediately, before the new scheme is implemented in December.
"The current runaway house price situation is not sustainable, " Bayly says.
He says since March, housing lending has increased by $8.7 billion while business lending has fallen by $6.1 billion.
"There has been no new funding to support agriculture and horticulture, and little handed out to developers to build new houses.
'Problem not going away'
“The worrying thing is that the Reserve Bank is only about a third of the way through its quantitative easing programme, so the problem is not going away.
“Unless something is done, house prices and the value of other assets will continue to sky-rocket as investors look for higher yields than they can get at their local banks.
“This is bad for first-home buyers. It will make it harder for them to compete with investors and raises the prospect of an asset price bubble pop when things eventually return to normal."
Bayly says the Government needs to take this situation seriously "and tell the Reserve Bank to stop throwing more and more printed money at our overpriced housing market".
He says the the fundamental problem with the housing market - a lack of supply - hasn’t changed and the RBNZ’s actions "have only added fuel to the fire".
"As well as requiring the Reserve Bank to target its new scheme towards business lending, the Government must urgently address the supply constraints by replacing the Resource Management Act, freeing up land, and getting more houses built."