Finance Minister English satisfied with Reserve Bank consideration of additional tools to constrain price bubbles

Finance Minister English satisfied with Reserve Bank consideration of additional tools to constrain price bubbles

Finance Minister Bill English says he is satisfied with the Reserve Bank of New Zealand’s consideration of new tools to control property and asset price cycles so there is no repeat of the house price bubble seen during the last decade.

Reserve Bank Governor Alan Bollard said last month the central bank had identified several macro-prudential tools such as loan-to-value ratio restrictions and counter-cyclical capital buffers it would consider using, potentially in tandem, to moderate a future overheating credit boom.

See more on Bollard's comments in Gareth Vaughan's article here.

English was speaking this afternoon to media after a speech to the Wellington Employers Chamber of Commerce on the upcoming May 19 Budget.

The government has signalled there will be no new spending in the budget from last year, with cuts having to be found in all departments except Health, Education and Justice. The government has also signalled its desire to tighten spending in the face of a credit rating downgrade and so it can begin paying back higher-than-expected debt brought on by the Christchurch earthquakes by 2015/16.

Asked whether he was confident the government had done enough to avoid a downgrade, English replied that was a matter the credit rating agencies would decide on, “and my understanding is they’ll wait to see what the budget says”.

“We’re confident that we’re going to be doing enough in this budget to keep the government on track to surplus and to, over the next three or four years, to stop the fast rise in public debt,” English said.

“I know those are issues that the credit rating agencies are concerned about, but we’re also concerned about,” he said.

Asked whether the government would also look to address the issue of New Zealand’s high private sector debt, English said households were addressing that themselves, reducing their new borrowing each year.

“Growth in household debt’s close to zero, and [they are] actually increasing their savings,” English said.

“They did have a debt binge, which meant they’ve got very high levels of debt, but they’re getting that under control. It’s now the government’s turn to get its debt under control,” he said.

English was then asked whether he was worried about a resumption in high foreign debt flows into New Zealand as interest rates rose, and what his thoughts were on new regulatory tools to control an injection of debt into the property market.

Banks 'near death experience'

The Reserve Bank has indicated it will raise interest rates quickly once inflationary effects from the rebuilding of Christchurch begin to flow through to the economy, with some economists picking the RBNZ to raise the Official Cash Rate on December 8 to 2.75% from 2.5% currently.

“We don’t want to see a repeat of the 2000s with excessive property speculation. I don’t think that either domestic or overseas banks are going to allow that to happen, because they’ve had a near death experience themselves, and they’d be reckless to go out and lend strongly against property speculation,” English said .

“I think you’ll find that the regulators like the Reserve Bank are keen to make sure that they reduce that prospect as well,” he said.

“The Reserve Bank is a bit ahead of the international pack, it’s been thinking through the issues of what they call macro-prudential regulation, which is, to deal precisely with property cycles that disrupt the macro economy, and they’ve disrupted it pretty severely in this last round.”

“I’m satisfied they are, by international standards, well ahead of most regulators in thinking through how to handle property cycles, and asset [price] cycles,” English said.

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 "The Reserve Bank has indicated it will raise interest rates quickly once inflationary effects from the rebuilding of Christchurch begin to flow through to the economy"......that's not what they said earlier....we were told "once the Chch rebuilding starts"....Bollard wants his cake and to eat it too...he may not get the chance considering the pressure on oil prices and how those costs are flowing into the whole for the is an absolute certainty that materials suppliers will shove their charges through the roof for every sodding thing going...they are not about to let the insurance industry walk away without a bloody nose. If Bollard waits until that happens...he will be too late...again.

In the UK the lying BoE continues to speak of 2% inflation when the data points to 4%....and the talk in the states indicates rates will rise post the Bernanke stupidity with his they are spitting tacks over the cost of fuel.....they are stuffed.

Well Wolly the inflationary effects will come pretty close timewise to the start of the rebuild. They could even come earlier as businesses/people position themselves for the start of the rebuild and the increased demand on resources and labour.

It's all about expectations, which happen before the event...

The move of people to floating rates does mean monetary policy will be more potent this time round, and will have a quicker effect than when everyone was in love with fixed rates.

Anyway, it's 6.00 and time for a pilsner.


Trouble is Bollard is playing the Bernanke game of Bolly's case near zirp...he will leave off lifting until it is too late...that we should count which case he will then be chasing inflation, when quality RB policy is to prevent it breaking out.

You are right to see those involved in the rebuild, raising charges fees and will be a race to the fat profits...and I expect Bollard to hold back with his near zirp...remember...the govt collects gst on all the fees charges and higher prices...they also will not mind screwing the re insurers and hammering Kiwi households for higher premiums in future years....a tax by any other name.

Alex - I hope you enjoyed the pilsner. Anyway, re proportions of fixed/floating and influence on speed of response, in your considered opinion, where do you think our OCR would have got to if fixed rate loans had been banned before the recent upswing? Do you think there is a case for banning fixed rates, or at least allowing RBNZ to specify and vary the maximum proportion of a loan that can be on fixed rate terms? Not trick questions, I've commented a fair bit on this idea (and/or giving RB the power to vary the principle repayment rate of fixed loans), and given you mention it am keen to see how you think it might have affected the bubble.

Cheers, Les. 

You are probably on the money there Wolly, my son has just come back from a visit to Christchurch and we will look to get involved, he feels there will be plenty of money about for helping rebuild the city and offers good business opportunities.

yep, as I've said before once the rebuild starts in earnest (still months away in my view) people will return to ChCh, even new people will be pulled down there away from Auckland - one of many reasons why in my view Auckland's economy is going to be pretty static next year or two

Bill says all the rights things (usually) its just whether he'll deliver on the words 

Of course things like LVR restrictions and more liberal planning controls are only about 9 years too late....


Claiming that New Zealand had a housing bubble is as silly as saying that there was a black market food price bubble during the Siege of Leningrad. The German Army choked off the supply of food to Leningrad and successive New Zealand governments have choked off the supply of housing here. What are building levels down to now? 1960s levels? Abominable.

Sorry (The Duke) of Westminster

We don't have an economy. We have a housing market with bits tacked on. Still.

Interest rates depend on where it's going. Consumer spending depends on where it's going.

Construction, finance, real estate, etc etc.

The housing market created our enormous debt. It's not going away.

And neither am I...



PS I'm still sticking to my view that the median house price will eventually fall 15% from its peak and not recover to the peak levels until 2018 at the earliest.

So, no economy apart from housing , eh? No dairy industry, co-operatively owned by 13,000 farmers enjoying record production levels and prices. No wool industry in resurgence. No tourism, meat, fishing, software, manufacturing, education, mining, oil production. No huge diaspora still and always attached to their mana whenua and remitting billions a year.  No construction, health-care, insurance, racing. No entertainment industry, professional sports, aged care, forestry, transport....

The building, improving, maintaining, designing, financing and managing of housing stock is an important part of any economy with a growing population. How long is it going to take you to get it that you don't get it. You made a big prediction nearly for years ago, got an inordinate amount of publicity for it, and turned out to be completely, utterly wrong. No economy apart from housing; pffft. That someone who so frequently spouts such bollocks is constantly fronting up in our media as an "expert" on anything, is beyond belief.  Stick to surfing you-tube for videos of cuddly kittens and muppets, something you are actually good at.


"Stick to surfing you-tube for videos of cuddly kittens and muppets"

Id prefer Bernard didnt watch videos of me if its all the same........its a personal thing


MK & KtF, no offense meant to you fellas, ok.

No problem...its just that Bernard seemed all loved up yesterday and I got a bit worried :-)


We don't have an economy. We have a housing market with bits tacked on.


Anybody who lives in this country and yet says something like that needs to (a) enrol in a primer on economics course, (b) get (at least a part-time) job and (c) go out more often.

You might want to consider BH's history...

or not....


The defination of a bubble is where houses are over-priced against established rations or "norms".....a widly accpeted ratio is 3:1 we have 6:1....

The defination of "burst" is well, a total destruction or deflation of the bubble, all we have had since 2007 is a slow leak... So all you can say with confidence is in 2007 we had a hiccup and a stagnant market since way has that deflated back to a norm.

If you dont agree and cant muster any sort of logical or reasonable arguemnt by all means risk your capital.....that's your choice....why waste time with us doomsayers?

Why bother coming in here if you dont agree? is it fear? you want to feel safe in your greed that "no its cant implode Im set to make a packet" mind set ?  because thats what it sounds cant bear the thought that non-lemmings exist....

Your lack of any substantial argument do only one thing, hmm  no two, make you look like a fool and further expose the property ponzi scheme for what it huge confidence con....


"a widly accpeted ratio is 3:1 we have 6:1"

It might be widely accepted but it is wrong. The average house size has grown by something like 70% since the time of the 3:1 ratio. Assuming input costs hadnt moved in the past 30 years (which they have) then purely on the basis of size the ratio should be 5.2:1.

Allowing for brainless council policy, brainless council money grabbing, a low interest rate environment and increased input costs and 6:1 is probably not far off. 


Yet you have no provable basis for your suposition..and in fact, example where this idea of yours falls flat on its face...

My house late 60's....its 130 (ish) sqm....43 years later its still 130 (ish) the time Ive owned it its jumped 2.5 times in value....

Im not sure what the average wage was in 2000, $35k? today its $45k? extra $10k wouldnt cover for the extra mortgage payments for that over 2 fold (paper) increase in value...


No provable basis ? To suggest that you can get 70 odd % more of something for the same price as 30 years ago is wishful thinking at best. Your house has gone from being larger than average to quite a bit smaller than average.

The point I was trying to make, which you may have got if you stopped prattling on about peak oil for a moment, was that those preaching the 3x mantra are not comparing apples with apples.

As long as the majority of Kiwis dont want to live in fibrolite rectangles then the 3x ratio is out the window.

My house is a very std design ie size for the day....very bog standard. So actually I am doing better than comparing apples with apples, in fact its the same apple.

Maybe you want to look at that difference in US houseprices in the last say few years, they are heading back down to that 3 to 1....and doing it very fact if the US banks were forced to account for the losses and property kept on their books it would be happening a lot harder and quicker.   Or the UK.....dont for an instant believe it couldnt happen here and not protect yourself from it is really dumb.

Larger houses are further up the buying tree ie beyond most first time buyers, but they are becoming a dis-proportionate % of the market....this suggests to me they are going to suffer bigger losses than other segments....time will tell whos right...

NB Peak oil will ruin your lifestyle...and will cause that 3 x 1 to be re-visited if nothing else does first....but it gets worse then of course when you allow for wage that 3:1 is on future wages, if a depression eventuates...

Your argument makes no sense....really... .but why worry be happy....Im happy to sit here and carry on.



My argument makes somewhat more sense than somebody claiming what happens in America must happen here. While we have our issues to deal with NZ is not America. House prices here will not revert to 3:1. Period.

In the meantime you keep sitting here watching, i'll keep driving my v8,  and spending my tax cut in ways that would make Bernard cringe.

"There was a bubble in 2006/2007" and " That cannot be described as a bubble". ! So was there a Bubble or not?

Your making progress Westmintser!...tell us what happened to the bubble?

So: That Bubble you see of 2006/7...What characterised it? fail again Westminster...the financial mess hit the fan in 07 and spat the dummy in 08 when the players discovered nobody trusted nobody to pay back what they owed...but the bubbles here in NZ remained intact because the RBNZ moved to prop up the property ponzi schemes with the support of the govt....only the debasement of the dollars value by over 12.5% so far and the property decline in the regions have together shrunk the bubble a wee bit...the rural bubble remains and Bollard was forced to comment on the likely drop in rural short Westminster, property remains about 20% over priced in NZ and in the rural area I don't have a % but it will be big. On top of all that, the debts remain...$350ooooooooo private and govt debt on top.

 " the reality is a property is worth what a buyer will pay"....this is just one viewpoint could also be said a property is worth what an economy can afford....or it is worth what a bank is prepared to lend....

You claimed an end to the bubble....I say you are wrong...we still have property that is unaffordable for average Kiwi. In some regions prices have dropped 10%...50% in some spots...but across NZ only a wee bit. From the peak bubble level a drop of 30% was needed. To date it is down by about 15% on average. There is still a way to go.

The massive debts remain. You are just blind to the truth.


Westminster, the bubble hasn't is still high compared to incomes, yes inflation has eaten away at our bubble property values, but the bubble hasn't burst like we've seen in US & Europe..still a way to go yet...

Bill English thinks banks don't want to encourage reckless speculation: “We don’t want to see a repeat of the 2000s with excessive property speculation. I don’t think that either domestic or overseas banks are going to allow that to happen, because they’ve had a near death experience themselves, and they’d be reckless to go out and lend strongly against property speculation."

So why then is Westpac advertising on national television it will lend 95%?

So why are brokers able to to get 95% or higher loans from both Westpac and ASB?

Why then is BNZ lending more than 90% directly to clients again?

Only ANZ is limiting itself to 90% loans.

Even the government owned Kiwibank is also doing 95% loans and just cut its 6 month rate to a record low 5.4%, funding by borrowing hot 90 day money offshore.

Why are they all back to the bubble time practice of discounting legal and application fees?

The banks are back in action with a vengeance trying to flog this horse back into a gallop.

They may not succeed, but they are trying.

I wonder if English or the RBNZ know what the banks are actually doing on the ground right now.



When I did the kiwibank calculator this morning it said didnt offer me what % I'd like...or a max of 80%....



So why then is Westpac advertising on national television it will lend 95%?

So why are brokers able to to get 95% or higher loans from both Westpac and ASB?

Why then is BNZ lending more than 90% directly to clients again?


I'll give you 3 answers to select from:

1. The banks do it because they are stupid.

2. The banks do it because they do not care about their profits.

3. The banks do it because they know where property prices are likely to move from now on.


4) The banks do it as a time delay....they know the market could implode so they want to keep momentum until a real recovery happens, a bridge effect....they are gambling...

2b) The CEOs care more about their bonuses than the bank itself.....the CEO is gambling....




I wonder if English or the RBNZ know what the banks are actually doing on the ground right now.

Well you’re the journo, go and ask them. See if they will release a statement to you for publication here about what they think about it.

Bernard, I think banks are doing what you don't like because they find customers respond positively to their offers.

The collective wisdom of the market place is that it is an increasingly good time to buy a property.


 "collective wisdom of the market place" - second best oxymoron I've read this past week.

These are extremely uncertain times, do you believe it prudent not only to risk your money, but the banks money as well on one single asset? Diversity is the key and value investing will always win.

Agree with you Muppet King re diversity. Therefore my advice always is to buy more than one property, so having mutiple assets to secure the bank's money with.

Your Landlord, the best diversity is to diversify between types of investments, can I assume that you have some sort of holdings in shares, commodities and bonds?

Don't know about YL, but the great (one might even say excessive or obcessive) interest in the subject of real estate this site exhibits encourages investing only in real estate :-)


Thats the point Alex, I like to try to encourage sensible investing in more than one sector. People are always dogging shares in this country, obviously because they don't know how to invest in them. Look at the Nasdaq, there is serious money to be made there right now. I made 50% on my commodities in the space of 6 months last year/this year, you can't tell me that investing in anything else except property is bad when we are making more money than PIs!

I think the term you are missing is a mono-culture is suicidal....funny that so many OAPs etc diversified their risk by putting lump sums into EVERY finance company they could duh.........On the other side of the coin of course diversifying into every asset class guarantees a loss...

If Pimco are substantially in cash that should be telling anyone with half a brain to do the same.....


Sold your house and put the cash in the bank yet ?

Ive sold all my shares house is my home.....all Im losing is a paper gain ive never realised.

Other than that yes selling up is worth considering.


or translated as, if we dont get more mortgages we dont eat....


Some say there is a chronic shortage of housing. If that's the case, then where are all the homeless people living?

To be honest, my comment was tongue in cheek, although not entirely nonsensical.

What I mean to say is that clearly there are many willing home buyers, and relatively few homes for them to choose from, so from a simple supply/demand (of homes) standpoint that would point to price rises, as you say.

However, it's not only the supply/demand of homes that you have to look at but the supply/demand of credit as well. Recently the supply of credit has been increasing but I'm not sure that the demand has. People may not be as willing to borrow 95%+ as they were in 2006/2007. In the meantime, most people do have somewhere to live. Hence, not homeless.





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