A for sale sign on a billboard in front of a house in the city of Auckland

With the Reserve Bank yesterday forecasting that annual house price inflation will reach 22 per cent by the middle of the year, the Government had little to say in reply.

Ministers answering questions in Parliament yesterday on housing focussed on social housing or a scheme to allow low-income people to buy houses.

There is still no sign of the long-promised housing package, which is supposed to address the price rises and particularly the difficulty they present to young people seeking to buy their first home.

Back in November last year, the Prime Minister, Jacinda Ardern, told a media standup in Auckland that she didn’t think the growth that we were seeing in the housing market was sustainable.

“It just cannot keep increasing at the rate that it is,” she said.

Since she made that statement, the CoreLogic House Price Index has jumped 7.1 per cent.

The index has climbed 12.8 per cent in the 12 months to January; Auckland has gone up 9.8 per cent; Wellington, 14.0 per cent; Christchurch, 9.9 per cent and Dunedin, 12.4 per cent.

The Reserve Bank, in its Monetary Statement yesterday, said a larger portion of New Zealanders’ wealth was in housing.

“House price gains over 2020 reflected a variety of demand factors, in the face of significant impediments to housing supply,’ 

“High inward migration prior to border restrictions being implemented is likely to have contributed


 significantly to the increase in house prices,” it said.

 “In addition, lower interest rates and the removal of Loan to Value Ration (LVR)  restrictions have made mortgages cheaper and more accessible for homebuyers, contributing to stronger demand.

“The resilient labour market has also been playing a supporting role, helping to underpin home loan serviceability.”

A week before the Prime Minister’s comments last November, CoreLogic’s Head of research, Nick Goodall, pout some of the blame for the rising prices on the Reserve Bank and its accommodative monetary policies.

“Indeed, the Reserve Bank has acknowledged a consequence of its monetary policy is increasing asset prices, but that this is a better outcome than the counter-scenario of a loss in confidence, resulting in decreasing property values,” he said.

At her standup, the Prime Minister refused to get drawn into this debate.

She said the Government could not give instructions to the Bank.

And she continued: “But it is fair to say that we do have concerns around, as we always have, affordability.

“A house is one of the most significant assets that most families will have.

“And of course, they want to make sure that their asset retains its value.

“But at the same time, we have to make sure that people can access the housing market.”

One of the challenges facing the Bank is that under changes made in the Government’s last term by Finance Minister Grant Robertson, it is now obliged to keep employment near its maximum sustainable level along with the objective it has always had of keeping inflation within a defined range.

Keeping employment levels high has meant stimulating the economy by keeping interest rates low and pouring more cash into it.

Goodall noted that in September last year, the Bank reported that monthly bank lending was running at $7.3 billion; $2 billion more than the same month in 2019.

And that pressure to keep employment up is evident in the report of the Bank’s Monetary Policy Committee when it met to consider the Monetary Policy Statement.

“Members agreed that domestic borrowing costs would need to remain low to achieve the Committee’s objectives,” it said.

Nevertheless, the Bank is forecasting that the rate of growth of house prices will slow after the middle of this year.

“Annual house price growth is expected to decrease over the scenario horizon, from 22% in mid-2021 to 5.6% in 2023,” it said.

“The assumed slowdown reflects a range of factors, including the fading impact of interest rate declines, low net migration over most of 2020 and 2021, elevated unemployment compared to before the pandemic, and the reintroduction of LVR restrictions.”

However, that optimism that prices will fall quickly is not shared by Westpac economists Dominick Stephens and Michael Gordon.

“The RBNZ is still assuming the house price growth will slow dramatically by year-end; our view is that further gains are on the cards while mortgage rates remain low,” they said.

But what this means is that the reduction in prices could be slow and could extend over the whole of the current Government’s term.

This is a political problem that seems unlikely to go away.

Ardern has previously suggested that one move the Government might consider is to expand its current Progressive Home Ownership scheme.

The Government has allocated  $400 million to the Progressive Home Ownership Fund and claims it will help between 1,500 and 4,000 New Zealand families buy their own homes.

The Fund will enable low to median income households partner with a Non-Governmental Organisation to access shared ownership, rent to buy, or leasehold arrangements to step into homeownership.

The Fund has a specific aim to address housing affordability issues for three priority groups: Māori, Pacific peoples, and families with children. 

But yesterday in Parliament, Housing Minister Megan Woods confirmed that for this financial year, the Government was expecting to get 100 people into homeownership through the scheme and 300 next year.

She said the $400 million was the budget for the next five years.

There has been spin from the Beehive for the past three or four months pointing to a housing package supposedly early this year.

A fortnight ago, Robertson told a BNZ breakfast in Auckland that he expected to make an announcement on the demand side by the end of this month (which is three days away).

“As we foreshadowed in January, the Government will announce a rolling series of measures to build on what we did last term to address the crisis in housing,” he said.

“The first of those will be on the demand side measures, which will come in late February. “We all know that building more houses, particularly affordable houses, is critical.

“But we also can do more to manage demand, particularly from those who are speculating.

“New Zealanders are seeing family members being crowded out of the opportunity to purchase a home of their own by speculators and investors.

“We want to tilt the balance more towards first home buyers while also incentivising more investment in the construction of homes.

“As I said late last year, we have received advice from both the Treasury and the Reserve Bank on our existing measures to manage demand and discourage speculation and how they can be enhanced or changed.

“Proposals will shortly go before Cabinet.”

Those are sure to include further measures to control property speculation, most probably a move to limit the tax-deductibility of mortgage interest payments.

But there was an intriguing insight into the scale of property speculation in New Zealand from Inland Revenue Commissioner, Naomi Ferguson, appearing before a Select Committee yesterday who said that IRD is now finding that between 18 and 20 per cent of all property transactions are within the Brightline Tax time period.

Currently, that means that anyone selling a property other than the family home within five years must pay income tax on any capital gain.

Clearly, the tax, which was introduced by the National Government, in 2015 has done little to discourage property speculation.

Finding a way to do that is now Labour’s challenge.