The New Zealand Government has responded to the worsening home affordability crisis by unexpectedly widening the Reserve Bank of NZ’s remit, with immediate effect.
The RBNZ is now required to take into account government policy relating to "more sustainable house prices", while still working towards its other financial stability objectives.
The announcement by Finance Minister Grant Robertson follows Wednesday’s monetary policy statement in which the Reserve Bank said returning New Zealanders were adding to housing pressures.
"We had assumed that most of these people would not settle in New Zealand, and instead behave more like temporary visitors (by staying with friends and relatives, for example). However, it is increasingly apparent that many of these people may be settling in New Zealand on a more permanent basis, and participating in New Zealand’s economy in ways typical of permanent migrants (such as by seeking to purchase or rent houses),” the monetary policy committee said.
This week's CoreLogic Housing Affordability Report showed the house price to income ratio at its equal highest point since the data set began in 2004.
In announcing the RBNZ’s expanded remit, Robertson said the Bank's objectives and mandate remain the same – to maintain price stability, support full employment and promote a sound and stable financial system. But now it would also have to take into account the Government’s objective to support more sustainable house prices. These include dampening investor demand for existing housing stock to help improve affordability for first-home buyers, he said.
This new requirement is written into the remit of the Bank's Monetary Policy Committee.
“The Committee retains autonomy over whether and how its decisions take account of potential housing consequences, but it will need to explain regularly how it has sought to assess the impacts on housing outcomes,” Robertson said.
A direction has also been issued under the Reserve Bank Act requiring the bank to consider government policy on housing in relation to its financial policy functions.
Robertson added he had asked for further advice from the Reserve Bank on restricting interest-only mortgages and bringing in debt-to-income ratios.
“I want to understand the extent to which interest-only mortgages (particularly to speculators) pose risks to financial stability, and whether restrictions should apply. Some jurisdictions, like Australia, have in the past applied restrictions on interest-only mortgages due to financial stability risks."
The Reserve Bank has long been asking for debt-to-income ratios to be added to its monetary "toolbox". Now Robertson says he is ready to hear further advice on how they could be implemented – while making it clear they could only be applied to property investors.
"It’s important that any potential restrictions do not disproportionately affect first-home buyers and low-income borrowers."