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Graeme Wheeler LVR

Better late than never – Reserve Bank edges ever closer to acknowledging mistake on mortgage policy

New Governor Graeme Wheeler

Is Reserve Bank Governor Graeme Wheeler weaning us of housing?

The consideration given by the Reserve Bank to controlling the bias in its policies that favour housing over all other lending types is most welcome (See NZ Herald article here). It is 20 years late but until they deal to this, New Zealand’s economic growth will suffer, capital will be misallocated and incomes and job numbers lower than they would otherwise be.

Whether the Bank does it by addressing risk weightings or via equity to loan ratios is a second order issue but the important thing is it stops pussyfooting about and gets on with it. The damage already done through years and years of neglect on this issue is immeasurable and it will just persist until we get some sort of responsible policy from the RB.

What’s important for the Bank to come to terms with, is that this is not about averting yet another financial crisis in the banking sector, the issue is far more insidious than that – it’s about the economic potential of NZ being needlessly held back by an aversion by policymakers to address the two main drivers of the distortion in the housing market – RB prudential policy and the tax loophole housing ownership offers.

The tax issue is the responsibility of the politicians so don’t get your expectations too high, our book “The Big Kahuna” outlines what to do, most politicians privately agree with it but don’t have the guts to provide leadership on it.

But getting one of these reforms away is better than none so Deputy Governor Grant Spencer is to be congratulated for at least stepping up and highlighting the bad mistake that the previous two Governors have stubbornly resisted addressing.

Any system that made these policymakers actually accountable would have forced those men to have acted during their watch. That neither did is an indictment on the accountability Reserve Bank operates to.

Of course there have been “discussion papers” from the RB on this before but the limited perspective both Governors had which led them to the conclusion that unless the financial system was at risk then it has been okay for the RB to tell banks to lend on mortgage in preference to all other forms of lending, saw the Bank come to the conclusion that there wasn’t a problem.

That conclusion was naïve in the extreme and New Zealand has paid the price in lost jobs, incomes and exacerbated wealth disparities as a result. Against that backdrop I won’t believe that the RB has actually mended its ways until it actually does something.

Until then I will continue, as most investors do, to prefer housing over all other forms of investment and in so doing push the price of it up further and further beyond the reach of more and more New Zealanders.