RBNZ says continuation of non-Auckland house price rises could be a 'challenge' for macro-prudential policy; signals softer approach to inflation targeting

RBNZ says continuation of non-Auckland house price rises could be a 'challenge' for macro-prudential policy; signals softer approach to inflation targeting

By David Hargreaves

The Reserve Bank's indicating an increasing level of concern about the now sharply rising house values outside of Auckland.

Our central bank's also indicating a softer approach to inflation targeting, and on meeting its Policy Targets Agreement with the Minister of Finance, which is inflation of between 1% and 3%. The RBNZ has been consistently missing its targets, with inflation having now been below 1% for nearly two years, while it hasn't approached the target 'midpoint' of 2% for nearly six years.

The RBNZ's widely expected to soon announce new macro-prudential measures aimed at the housing market, with speculation that it might increase the current deposit requirement of 30% for Auckland investors up to as much as 50%.

The central bank has till now appeared relatively sanguine about the recent resurgence of housing pressures outside of Auckland, stating in its Financial Stability Report issued last month that: "House prices have also begun increasing strongly in a number of regions across New Zealand, although house price-to-income ratios are generally much lower than in Auckland.

"The Reserve Bank is closely monitoring developments to assess whether further financial policy measures would be appropriate."

However, in the bank's new Statement of Intent official policy statement covering the period from this year to 2019, the RBNZ says: "House prices have been rising relatively rapidly in other parts of New Zealand, reflecting low mortgage interest rates and some displacement of activity away from Auckland.

"While house prices outside Auckland remain less stretched relative to income, a continuation of this trend could present challenges for macro-prudential policy."

The rest of the country too?

These comments would appear to open the door to the RBNZ perhaps considering the introduction of the currently Auckland-specific investor rules in the rest of the country too. Another option for the central bank would be a reversal of loosening of the LVR 'speed limits' outside of Auckland that applied from November last year.

Banks are still limited to advancing no more than 10% of new lending in Auckland to mortgages with LVRs in excess of 80%, but this 'speed limit' was looesened to 15% elsewhere in the country with a view at the time - presumably now very much abandoned in the short term - of ultimately getting rid of the LVR restrictions altogether. The RBNZ could very easily, at a stroke, reapply the 10% speed limit to the rest of New Zealand.

A softer success measure

Meanwhile, the RBNZ, which has continually failed to meet inflation forecasts and targets has significantly changed the wording in the latest statement of corporate intent in its key "Goal, organisation outcomes, functions, functional outcomes and success measures" section.

For the past three years under current Governor Graeme Wheeler the 'success measures' part of this section has been led off with this statement: "Reserve Bank forecasts of annual CPI inflation should be comfortably within the target range in the second half of the forecast horizon, and near the 2% target midpoint."

In the new corporate intent statement, however, that paragraph is gone, replaced with this seemingly far softer 'success measure': "The Bank implements monetary policy in a manner that can reasonably be expected to see CPI inflation outcomes between 1% and 3% on average over the medium term, with a focus on keeping future average inflation near the 2% target midpoint."

The RBNZ has appeared increasingly defensive about its inability to meet its inflation targeting in recent times. Asked at a recent press conference by interest.co.nz's Bernard Hickey about failing now for six years to meet the 2% 'midpoint' inflation target, assistant governor John McDermott remarked (about 26:30 into recording) that the questioner's "time-frame is very short". The RBNZ was a flexible inflation targeter with more to think about than just the CPI. The goal was get to the target over time so that you protect the real economy and don't create imbalances.

Over time the inflation rate had averaged just over 2% and in the "long span of history" the RBNZ was doing its job.

Appears perplexed

In recent times, however, the RBNZ has been putting out a lot of research work on inflation and the drivers of it. The bank has appeared clearly perplexed as to why past drivers of inflation have not kicked in during this current economic cycle.

And in the latest statement of corporate intent, the RBNZ has in its list of priorities for the 2016-19 put at number 1: "Continue to deepen our understanding of the current drivers of low inflation and their consequences for the economy and monetary policy."

This priority did not appear in the list of priorities that the bank included in last year's statement of corporate intent.

The RBNZ says that a protracted, very subdued economic recovery in the aftermath of the global financial crisis has led to significant falls in international commodity prices, and central banks around the world are grappling with a low inflation environment, despite unprecedented monetary stimulus.

"The Bank will undertake work to better understand the international and domestic drivers of inflation and the implications for monetary policy, and to ensure there is wide understanding of the Bank’s policy choices."

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Perhaps a more direct effective toolkit for the RB is to have the power to reduce immigration, reduce numbers of international students, restrict house buyers to NZ citizens, and monitor capital movements into NZ for the purpose of property purchasing.
And lobby the Govt on these factors as well.
Why should NZers be penalised with higher than necessary interest rates, and restrictive lending for FHBers and other NZ home buyers?


agree but also need the power to ban offshore buyers, or charge them 50% stamp duty.
too many of the solutions are in the hands of the government

Do we really care that "inflation" is below 2%? The RB is only worried about trading banks getting their money back IF/WHEN there is a fall in house prices. Don't banks take out insurance for this on each mortgage?
Agree that need to stop foreign buyers buying land and existing buildings. If they want to build new buildings then their land needs to be leased to them - if they want to build hotels then they lease the land.
Stamp duty is just another cost - and it is shown that foreigners are not as price sensitive as new home buyers (and are probably buying into a different price level too.

agree totally i do not understand the logic behind selling land to anyone that is not a NZ citizen.
companies are quite happy to lease as they can claim back and as for people they can rent until they become a citizen or move on

I also agree that only NZ citizens should be able to buy New Zealand land. Not so hard to implement and the transition would also be comfortable, because it would only apply at time of sale and would take some years as foreign owners progressively sold out.

Absolutely, many other countries only allow foreigners to lease land. It's very smart because the land is the appreciating component, not the buildings which depreciate over time. That way NZ would get income through leasing the land whilst still keeping control of the appreciating land

Foreigners taking your land used to be called an invasion, ended in war, Victor takes the spoils.
We have become such a bunch of namby pamby over OSHed cotton woolers we cant see the smoke for the tress.

If you don't want to sell your land to a non-citizen, you don't have to. You are very welcome to forgo the opportunity to get the best price you can for selling your land, if that's what you want. You'd probably only waste the additional money that you could have got by selling to an American anyway, wouldn't you.

non citizen means just that, if you want to own land here you should want to be part of country, culture, and pay your taxs to support NZ

Again - if you do not want to sell your land to a non-citizen, you do not have to.

....tell me Ms de meanour, would you have a problem if the farmers of Waikato were offered top dollar for their top soil by an overseas buyers and then proceeded to remove it all and freight it overseas?

Same difference as you defence of foreign land sales.

Not the same at all. Foreign ownership does not mean that environmental laws no longer apply to the land in question. This would not be allowed under environmental law, whether the buyer was a foreigner or a New Zealander.

You do realise we are a small island in the South Pacific ? I look at places like Rarotonga, Samoa - the land cant be owned by Foreigners. This means the locals benefit as a whole. It also keeps western greed at bay as it is not a single individual who benefits, although they have their own problems in this area - generally the clergy !

Higher than necessary interest rates? I take it you only imply that's the case according to our dodgy CPI? Our rates are domestically at record lows. And considering levels of migration/immigration etc the rates should really be much higher as such increases in population should be adding inflationary pressure....but where is it? Again, the economic indicators are a total and complete fraud. All this foreign money and people pooring in yet no inflation???? Smelling the rat yet?

It’s like a Grimm brothers story.
In 2012 Chinese buyers began aggressively buying all of Auckland real estate and quickly priced out most New Zealand FHB’s. Auckland house prices hyper inflated from 2012 to 2016 and continue to do so. Young FHB’s forced out of the Auckland market felt they had no choice but to buy in Hamilton or Taruanga, the two second tier cities within driving distance of Auckland. About the same time the RBNZ was also worried about Auckland and felt that it’s prices were out of kilter with the rest of the country so they changed the LVR rules making purchasing in Hamilton and Tauranga even more favourable for the beleaguered FHB’s. The government, who’d previously ignored the Chinese hyperinflation in Auckland, got very angry with the subsequent rapid price rises in the provinces because these price rises would increase accommodation supplement liabilities much more so than hyperinflation in Auckland (which incidentally only destroys the lives of FHB’s, and that’s no problem for the government). An so here we are… Story to be continued……..

In 2012 Chinesse govt went after black money in China as a result most chinese started to send money overseas and the best and relatively safe place to park unofficial money is property and that housing bubble is primary a result of that action ( Canada PM had admited of chinese money in housing bubble in Canada)

Australia has accepted and now put stamp duty on non residents ( no wonder is election time in Australia) but not our PM. Still in denial. Today saw a property sold last year for 680000 put on sale and expectation is high 900 to over a million. This is not 15% or 20% but 50% jump in a year.

Our PM wiĺl also act but will not be much before election.

Also heard that now even black money of Indian politicians have started to play in NZ. Govt should look at all funds comming from Punjab - state in India.

NZ has become a heaven for money laundering - outsiders are totaly exploiting loopholes in our syatem and sad thing is govt is allowing as money is comming and boosting already boosted housing market.

Need for JKEXIT. Need one trigger and may happen as no one had even imagned of Briexit and donald trump. Even in Indi the party that ruled India for 60 years out of 67 years, not only lost election but lost badly with less than 10% member of parliment.

Social movement of jkexit may start anytime, will not be surprised.

Truth Is Always Bitter. No blame but the truth is that housing bubble is result of overseas buyer. To prove need data but the problem is that even in developed coutry like NZ, data can be corrupt so how does one prove what is obvious to all.

Good grief you could take out the word Vancouver and insert Auckland in that story. Inflated houses, govt inaction etc.

I hope so, John Key et al are a big part of the problem. Asleep at the wheel, with major systemic damage on his watch. Joe Public are starting to wake up, to his lack of courage to acknowledge the obvious, or to his lack of honesty, or to his lack of vision that isn't self serving.

As I have said before, I don't believe that it is valid to assume that the relationship between CPI inflation and the OCR is consistent over the full range of CPI inflation values, particularly at low or negative inflation levels. It is relatively easy to construct hypothetical situations that blow their current model out of the water.
They also need to apply some considerable effort into how increased productivity can be incorporated in their model because, currently increased productivity and the consequential lowering of prices is measured as deflation. Lowering interest rate in response to increased productivity does not make sense.

Why do we need inflation again....? Is it simply to 'deflate' peoples and governments debt away into nothing over time...?

The reality is no-one with the power to change the situation will... for fear of retribution from their peers... And the fact it requires the govt to get off its behind and tackle it from multiple angles
it is a multifaceted problem involving all of the key factors including,
a) Immigration levels maintaining at levels that outstrip supply in Auckland 2 or 3:1 every month!
b) Ease of credit, causing increased debt to income levels
c) Tax avoidance loopholes/ corporate structures - with favourable tax treatment of property for either investment or speculation
d) LVR levels for multi home owners and total debt to income over the portfolio
e) Total debt to income ratios including those of corp entities controlled by the same persons
f) Foreign money influencing local markets either directly through a person or through "another me" i.e. legal entity, Ltd Liability Company or Foreign Trust or a combination of both
g) The 'V' in LVR, and the inherent conflict of interest between owners & investors seeking valuations - and the people being paid by them to provide them

None of these are simple fixes although some have more impact than others, the real question is is there any propensity to want to change the status quo? my thoughts are no....

So the band aids and talking heads will talk about change but not make any real headway until something in the market cracks and the folly will come to light too late - as it always does

You should have stopped after your 1st line, that's there is

New Zealand is better placed than most countries to weather any worsening in post-Brexit global turmoil due to its positive growth outlook and ability to cut interest rates, Finance Minister Bill English said.

“If there’s a significantly negative result, we’re in a very small group of countries -- the others being Iceland, South Korea and Australia -- that have got a combination of reasonable government finances, a reasonable growth path, and room for interest rates to move,” English said in an interview Tuesday in Wellington. “It makes you realize how few tools other countries have.” Read more

Such a shame plan B was not given much attention since the minister clearly acknowledges the limitations of interest rates at or below zero percent. I guess he is grasping at unicorns along with his peers in the Northern Hemisphere. It is certainly time for someone else to take the reins and steer the nation away from the totally proven failed policies of others.

Hey Stephen, have a read of Winston Peters' take on it;



a lot of what he says is truth, more the pity if any of his predictions come true

"a lot of what he says is truth"

Which parts weren't true?

Which parts were predictions and not fact?

prediction as I read it and agree with GFC2 when the worldwide debt bomb

No one knows how global events will unfold and no one can hold a New Zealand government responsible for events beyond its control.
However, a reasonable and prudent government might well conclude that the current situation is neither stable nor sustainable.
That being the case, there are things a wise NZ government could do to mitigate the impact of a global crisis

I just sent the link to my son. I think the young are starting to twig. Despite NZ media ignoring the elephant perching on economies of the globe.

I can't help but sigh in disbelief........

is the guv serious? The restrictions and policy settings that the rbnz introduced were always going to result in prices rising in the provinces. This has not only exacerbated the problem, but moved it elsewhere, and I would hazard a guess increased he risk to the overall financial system.

Inflation is irrelevant, and it has been for some time.

The majority of the costs that actually impact on consumers spending power are housing related, which are excluded from the CPI calculation.

they are included but with such a low weighting that they are overcome by other items in the basket.
it certainly does not match survey as to where peoples wages are spent. I.E 30% + spent on housing (mortgage or rent)

RBNZ please do not show concern but act. Showing concern does not help if really concern about NZ ecenony act now. NZ is waiting for some strong measures from you and not just token measure but one or few to combat this crazy speculation going on. For one thing is sure that govt will not act as must be scared though not showing to public as this mess is becoming to hot for anyone to handle. Ticking Time Bomb.

By targeting inflation at 2% it seems the world set a course for zero interest rates on government debt. It took a few years. I suspect there is a very simple arithmetic behind it.

"The bank has appeared clearly perplexed as to why past drivers of inflation have not kicked in during this current economic cycle."

I suggest they start reading ourfiniteworld.com ... it will tell them everything they need to know about why inflation, growth and ongoing energy is toast. The world is finite, who would have thought.

What, you mean there is a limit to the debt load the debt-serfs can carry? Well, well.

Yes. It would be much better if RBNZ act if really concerned and if possible not wait August but announce from 1st July.

Got to love the double-speak:
"The Reserve Bank is closely monitoring developments"

"We are sitting on our hands and have no intention of doing anything."

RBNZ is 100% owned by the New Zealand Government.
If RBNZ says they are closely monitoring developments. They probably are.

That is the problem that is owned by the government and is the govt interested to curb speculation ? If yes why denial and no action.

Question is : Is the government solution or part of a problem.

Voters elect governments. If voters are hooked on the housing speculation hype, then they won't vote for a government that curbs investment in housing.
Wiser people in Govt may think this is a problem.

I thought government is for welfare of the communty besides ecenomy but may be in todays world who cares about homeless people and housing bubble that is being created and after effect of it which is bound to happen.

The world would have been different if all the leaders of the world were only interested in creating bubble through speculation andnot about social welfare and justice.

I guess you have good and bad in all sphere of life but is this govt good, only time will tell.

The Govt probably trying their best. And good on them.
But when the greed takes over, when flipping houses is a national pastime instead of of actuallly working for a living.
The Govt has to act.

this government is doing what it can to not act from
deny there is a problem
say they don't keep stats so can not see any problem
commission a report that is slanted to downplay any problem
put a minister that has a poor track record in charge
bring in rules (bright line) that are watered down and not what IRD wanted
deny links between factors that make up the problem, foreign buyers, tax rules, immigration

which ever way you look at it this government is doing very little to slow or stop it why?
are the incompetent or do they get an advantage from it as a party and individuals
my answer the second option

The only thing this government is doing best is keeping their heads turned firmly away from the real problem and the root causes. I hope the crick in the neck turns out to be terminal.
One of the very worst things happening is foreigner buy up of lower end rentals, for which the public purse is dipped into to pay the exorbitant rentals for with accommodation top ups primarily and even, I suggest, any form of benefit. Everybody should be up in arms about that. I believe one particular "industry" is being used as a cover for this practice, and needs to be stopped pdq.

The Govt probably trying their best.

Yes govt is trying best to ignore the problem and do nothing.

However govt may deny and do nothing but it can only delay it slightly but not avoid and more the delay more the harm and need just one tick internally or from globe and will burst.

When has watching/monitoring actually ever achieved an objective? Never is when. They MUST act, do the job they are paid to do and bloody well get off their chuffs

RBNZ will monitor LVR , immigration levels,unemployment and other factors that impact the economy.
And adjust monetary policy accordingly.
That's there their job.

The problem is RBNZ and National party is aware, concerned, worried and everything but wants to do nothing.

Action speaks louder then words specially when have lose of trust. To win back confidence and trust of the people national party has to act and act now and denial and cover up with lie as is more annoying.

Until there is a new PTA, the RBNZ is shifting the gaol posts

Gaol - Freudian slip?

"RBNZ has in its list of priorities for the 2016-19 put at number 1: "Continue to deepen our understanding of the current drivers of low inflation and their consequences for the economy and monetary policy."

RBNZ Go subscribe to Steve Keen on youtube - There you will find the answers you are looking for! The anaemic growth is caused by excessive levels of private debt. The excessive private debt is caused by ultra low interest rates and Kiwis competing with foreigners to buy property in Auckland.

Case in point: A Tiny tiny little 2 bedroom unit off Kepa road sold last night for 860K. Its in a bad school zone too. That is just so insane I cant believe it.


2 bedroom unit for 860 that is what RBNZ are warning. Fail to understand when you know the problem, why not act.

Basically everyone knows the problem but somehow people who can act and stop does not want it to stop so does it matter and who cares about first home buyer and young generation as their would always be a rich foreigner from whom, one can rent, if can afford rent also.

Poor thinking and plaining by those who can make a difference. Strongly condem their non action.

Yes I agree its the governments responsibility to introduce a stamp duty for foreigners etc. I just worry that the RBNZ will react by making more stringent LVRs or implement debt to income ratios. That would destroy prices in the provinces. If the foreign money mediated ** hyperinflation ** of Auckland continues, and the RBNZ smashes prices in the provinces can you imagine how devastating that will be for people who fled the Auckland market to buy in the provinces. I've met so many young people who've purchased in Tauranga or Hamilton because they couldn't afford Auckland.

I don't know why people are calling Auckland a "supply shortage" I totally reject that narrative. Its foreign money mediated hyperinflation! If you define hyperinflation as persistent 10% or greater annual growth then Auckland housing is, and has been, hyper inflating. 10% growth per year and the doubling time is 7.2 years. That's exactly what we've had.

But Auckland is going hyperbolic now. Check the links below - the lovely 2 bedroom unit with new fixtures and fittings on PARITAI DRIVE sold for 900K at the start of the year. Compare that to this mediocre extremely small, (probably less that 50 sm + garage) unit with a 1960'e era kitchen with a lick of paint sold last night for 860K. Those two houses are in similar areas with the same school zones - very comparable! What is the inflation between Jan 2016 and June 2016? It must be 30 to 50% in the space of 6 months!

860K unit June 29 2016

900K unit Jan 2016 (on Paritai drive the most prestigious st in NZ - about 2 km away from the above unit)

Between febuary and now, house prices in Auckland have gone up by 20 t0 30% and from last year to now by 30 to 50%.

People ruling should decide if 2 bedroom unit touches million, is it good or bad.

Defintely first home buyers will be out of the market but also will not be able to rent assuming return of 4% rent should be between $700 to $800 and we are not taking about 3 bedroom houses but 2 bedroom unit.

If the rent does not go up than the house price will fall to correct the imbalance and the hardest hit will be first time buyer entering now as many would lose their deposit.

Both the scenario is bad as over a long time not possible to have high house price and very low rent .

Government should come out and act, only if this would have been election year, things would have been different.

How can the Govt take action on house prices?
I don't think they can now.