JP Morgan: RBNZ's submission on housing

RBNZ's submission on housing affordability, and proposed Gov't action

RBNZ today published a submission to the Commerce Committee on the inquiry into housing affordability in New Zealand.

The submission outlined the various drivers behind house price appreciation over the past decade and the resultant erosion in housing affordability.

The report stated that the Government should now turn its attention to the supply side of the housing market, rather than further stimulate the demand side. The RBNZ made it clear that concerns around the continued acceleration in house prices remain, and this rate of acceleration may have implications for monetary policy (higher inflation - through rising rents and the household 'wealth effect') and financial stability (rising mortgage defaults - as the level of household debt and debt servicing makes households more vulnerable to shocks such as rising unemployment).

On the demand side, RBNZ recommended the Government to consider policy changes around:

Managing migration flows with a view to lessening their impact on house prices; and

Reviewing tax policy, which appears to be more favourably disposed towards returns from rental property than it is in other countries. Capital gains from investment housing go largely untaxed in New Zealand.

RBNZ also noted:

Making provisions for long-term rental agreements; and

The ongoing need for analysis and better data regarding housing.

"The Reserve Bank is of the view that government policies should generally focus on increasing the responsiveness of housing supply to changes in demand rather than schemes which increase demand. Policies that do increase demand [e.g. Kiwisaver] should be carefully targeted in order to minimise their possible impact on the overall level of house prices."

On the supply side, while not providing much detail on how to stimulate housing supply, RBNZ suggested reviewing planning practices, with a view to possibly relaxing ‘urban fences’ and encouraging medium density redevelopment in existing areas.

The ball is now is the Governments court.

A link to the full report is below:

http://www.rbnz.govt.nz/monpol/about/index.html#Heading34

ENDS

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