BNZ chief economist Tony Alexander thinks the Reserve Bank might not stop at housing lending when it comes to controlling the amount of credit available.
The RBNZ's "speed limits" on high loan-to-value (LVR) residential lending took effect on October 1.
The BNZ-REINZ Residential Market Survey out this week suggested that there had been a big immediate impact, particularly on first home buyers.
In his Weekly Overview Alexander said through the imposition of the speed limits the RBNZ had laid the "logical groundwork" for credit controls in other areas.
"For instance, while the focus currently is on housing, the [RBNZ] has also in recent years expressed deep concern about the level of debt in the agricultural sector," he said.
"Should land price inflation pick up we should factor in the risk that the [RBNZ] will intervene to curtail bank lending to farmers."
Alexander said the central bank had "already done work in this area".
"In the same vein, logic suggests that if the [RBNZ's] goal is to suppress house price inflation and banking sector risks they could also contemplate loosening rules applying to bank lending into sectors which will boost housing supply and therefore also reduce house price inflation."
He said that "logic would suggest" that the RBNZ cut capital requirements applied to bank lending to property developers.
"However, before developers start their lobbying they should be aware that the logic of reducing bank exposure to the property sector means such rules should instead be tightened so we are less exposed in the event of a housing collapse."
Finance Minister Bill English said this week that the Reserve Bank and new home builders were in discussions about whether high Loan to Value Ratio (LVR) loans for new buildings should be exempted from the speed limits.
"My thoughts on that? This is why we ditched Muldoonist attempts to influence our economy through direct controls in the 1970s and 1980s," Alexander said
"One set of controls begets another set which begets exemptions which begets other controls and so on.
"This ball appears to have started rolling only two weeks into the credit controls coming into play. What a mess."
Alexander said "the signal appears to have been sent" to all lobby groups out there now to "ignore the proud talk for the past two-three decades of NZ central bank policy independence and purity of policy implementation, and instead to start directly lobbying the Reserve Bank, lobbying the politicians to lobby them, and lobbying the public through media campaigns to get our central bank to run the economy in their favour".
"Or to look at this from another angle. At what point exactly do we conclude that housing policy in New Zealand has been handed over to our central bank – a non-democratic closed box organisation?"
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