WELLINGTON, Feb 25, 2021 (BSS/AFP) – New Zealand on Thursday ordered the
central bank to consider the housing market when it sets interest rates, a
world-first move designed to ease a crisis that saw residential property
prices jump 20 percent in 2020.
Prime Minister Jacinda Ardern, who pledged to solve the country’s housing
issue when she was first elected in 2017, is under increasing pressure as the
cost of buying a home has continued to soar.
The government directive comes despite Reserve Bank of New Zealand protests
that the change could hinder its monetary policy goals.
Finance Minister Grant Robertson said the bank would remain independent,
but would need to examine how its decisions on interest rates impacted the
booming housing market.
“(It) 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,” he said.
The median residential house price rose 20 percent in 2020, according to
Real Estate Institute of New Zealand data, fuelled by high demand and record
low interest rates.
There has also been a knock-on effect in the rental market, meaning many
young Kiwis struggle to afford accommodation, let alone realise any dreams of
owning a home.
Ardern has ruled out a capital gains tax on investment properties because
it would be electorally unpopular, prompting critics to accuse her of lacking
political courage.
Attempts to ease demand by creating more public housing have failed and
Ardern faces increasing calls for action from young people locked out of the
property market, a key demographic in the centre-left leader’s support base.
The conservative National party opposition welcomed the move, saying it was
long overdue.
“Grant Robertson wasted precious time obfuscating, ducking and diving when
he should have been acting — house prices have increased by more than 40
percent under Labour,” National Finance spokesman Andrew Bayly said.
The Reserve Bank opposed the change in a policy briefing released in
December.
“Adding house prices to the monetary policy objective would be unique
internationally, which could make monetary policy less effective and impact
financial market efficiency, by reducing public understanding of the
objective of monetary policy,” it said.
After Robertson’s announcement, the bank issued a statement saying it
supported the change.
“The adjustments (will ) increase the focus on understanding and
communicating the impact of the bank’s decisions on house price
sustainability,” it said