Foreign banks lending to overcooked housing market must be slowed

Green Media Release March 29 2007

The Finance Minister needs to step in to slow down lending by the foreign owned banks into the overcooked housing market, says the Green Party, as this lending is exacerbating the already disastrous current account deficit as well as making home ownership unaffordable for many.

“Statistics New Zealand has in large part attributed the $329million seasonally adjusted increase in the December quarter current account deficit to an increase in profits expatriated by foreign owned companies, in particular the big foreign owned banks,” says Russel Norman, Green Co-Leader and Economics Spokesperson.

“These banks are making a fortune by borrowing money from overseas and lending it into the overcooked New Zealand housing market, and then sending the profits back to their Australian owners.

“We are in the middle of an out-of-control asset boom which is being fuelled by the banks and the banks are making a fortune out of it.

“This asset boom is leading to increased interest rates, as the Reserve Bank Governor tries to quell inflation, with the resulting high New Zealand dollar which is turn is having a very detrimental effect on the productive sector causing a merchandise trade deficit.

“There is no way the banks will stop fuelling the housing boom by themselves, as it is far too profitable, and relying just on interest rates is destroying the productive sector.

“The Finance Minister needs to encourage the Reserve Bank to increase the capital adequacy requirements that banks must meet and if there is uncertainty as to the legality of such a move then Dr. Cullen should urgently support a law change to allow it.

“The situation will also be helped by a series of direct measures to control the housing asset boom such as: limiting sale of land to permanent residents and citizens; introducing a capital gains tax exempting the primary family home; tightening up the rules for tax breaks on investment properties; allowing greater urban densities around electric rail corridors in Auckland; and investing in more social housing to provide some relief in the rental market.

“It is also worth noting that the current account deficit would have been even worse but for the drop in the price of oil. The drop in the price of oil is only a temporary reprieve and the sooner we reduce our dependency on oil the better.”

ENDS

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