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Graeme Wheeler LVRGareth Morgan

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.

  • Damian Sugrue

    something needs to be done…our children will not be able to afford to buy or rent in their own country…local/overseas investors are taking advantage of our children’s futures…

  • Murray Ireland

    Doesn’t Deputy Mayor Penny Hulse have a point with regard to the government approval of the unitary plan (

    If key and the reserve bank are in sync this should be a no brainer…

  • boranin

    ” the two main drivers of the distortion in the housing market – RB prudential policy and the tax loophole housing ownership offers”.

    Foreign ownership rights is becoming a third one. Rents return 5-9%. Even after taxes, this is a good return for overseas investors that will be pushing the prices up regardless of the tax (CG if introduced), as the investments will be considered long-term.

    If I was you Gareth, I would buy myself a large piece of land in Auckland (to start with), mass-produce 100-200 homes on it, sell and repeat. Building on a large scale would allow you a good bargaining position with vendors. After 3-5 rounds of this, you would see house prices going down significantly. It will not be just about the supply quantities, but psychological effect as well. Plus, now is a great time to start as the local govt is being pressured to lower the cost of sections. That will come into place at the right time for this project.

    Otherwise, you are not helping to your bellowed NZ (and mine as well) by buying yet another property.

  • jh

    I have read Health Cheque and am into the Big kahuna. A lot of it is going in one ear and out the other; needs a power point/ web page?. I downloaded it to my kindle. The E book format doesn’t work so well with books and charts.

  • jh

    “The tax issue is the responsibility of the politicians so don’t get your expectations too high”

    yes and I wonder how much the political system is corrupted by vested interests, especially where issues are contestable such as “what is it that causes high house prices?”. Economists seem to be the ultimate PR weapon.

    MMP simply rearranged the deck chairs where factions became parties and the buck now stops with our coalition partner (not the PM).

    We just can’t rely on politicians or the news media* or the public dis service. We need a formal decision map administered by people trained in critical thinking?

  • wikiriwhi

    It is highly interesting this has come up at this time. Housing is more a hot potato than ever and the reserve Bank is feeling the pressure. Never from the politicians of course because they are always owned by Reserve Banks. To be succinct, the reason why Iran is being targeted is because they have no Reserve Bank, which are all owned by the Rothchilds, and therefore can’t have their economy manipulated. As for housing you’ll find the Reserve Bank is dictated by the UN and UN Agenda 21 which was uncovered way back in 1971 in a book called ‘None dare call it Conspiracy’. You’ll find soon housing will become a diminishing asset.