Treasury Secretary Caralee McLiesh and her officials yesterday more or less demolished one of the sustaining political myths about house prices that has driven much of the housing policy and debate since prices started to explode in 2009.

McLiesh was appearing before Parliament’s Finance and Expenditure Committee.

Whether it was Kiwibuild or the most recent proposal to abolish planning controls on housing under three storeys high, the Ardern Government has been working on the principle that all that was needed to restrain house prices was to build more.

There were other ideas in the background; that if it was possible to restrain immigration, that might also help slow price rises and that the Reserve Bank’s various prudential controls might also slow the market.

But as McLiesh pointed out last year, there was almost no migration,  record building consents and a booming construction sector, yet there was also record house price growth.

However, prices were now starting to turn.

“Dealing with what we’ve seen in house prices just in the last couple of months is that it’s looking like there is a there’s a turning point,” she said.

“And that’s consistent with what we’ve foreshadowed at the half-yearly update, showing our house prices falling in December and then again, just as reported yesterday in January, and that  takes annual growth down to 20 per cent, down from that high of 30 per cent.”

But why and why now?

“We have a good understanding of some of the main drivers of house housing market activity,” she said.


“One of the things I think that we’ve learned over the last, certainly over the throughout the pandemic, is just the importance of interest rates to house prices.

“And so our modelling is continuing to be refined to make sure that we have the best calibration possible.”

She said there were many factors that drove housing prices.

“I don’t think we were the only ones surprised, but we certainly were surprised by the really significant growth that we had during the


Dominick Stephens, Treasury’s  Chief Economic Adviser and Deputy Secretary, told the Committee that Treasury had formed a working group with the Reserve Bank and the Ministry of Housing and Urban development.

“The key conclusion that that group has drawn is the same as a key conclusion the Reserve Bank came out with at the end of last year, which is the biggest driver of house price rises over the past 30 years in New Zealand has been the large global decline in interest rates in the context of New Zealand’s land markets, etc.,” he said.

“I can say Treasury’s taken that on board so effectively in our forecasts, we have upped the importance of interest rates and reduced the importance of physical supply-demand factors in determining the forecast.

“And I think that the past couple of years bears that change out.

“We saw very low net migration and very strong building activity over the past couple of years, but very low interest rates.

“So it gave us a natural way to see which of those factors is a key driver and as I say, we’ve upped the importance of interest rates.’

Treasury was able to test this in their December Half Year Economic and Fiscal Update, which forecast a lift in interest rates and a moderation in the housing market.

“What we’ve seen over December and January is a 1.7 per cent decline in New Zealand house prices, according to the REINZ house price index and a 16 per cent decline in sales, which indicates further price weakness to come,” he said.

However, McLiesh warned the Committee that falling house prices could have a downside.

“The housing market has slowed, and over time we expect that this will lead to a moderation in consumer demand,” she said.

Robertson told the Committee the Budget would be on Thursday, May 19 and made it clear it would be, as he has promised, a climate change budget.

He is still not talking specifics, but he did offer some insights into how the Government might spend the $4.5 billion it expects to get over the next eight years from the Emissions Trading Scheme, which it will put into a Green Investment Fund.

Robertson warned that the $4.5 billion figure was not set; it would move around as the ETS unit price moved. (It is currently going up; last year it averaged around $47, current spot prices are $85)

“So there are initiatives in the transport sector that could have the effect of lowering emissions, but they are outside of the specific climate area,” he said.

“So all of that obviously will be clear in the Budget, but there will be some very significant projects being proposed in areas like transport that have a clear emissions reduction focus, and you can expect to see them within the Climate Emergency Response Fund.”

Potentially controversially, he is also proposing that the fund be used to fund some projects in agriculture even though agriculture is not in the ETS.

“We’ve made some really good progress in the agricultural sector in terms of on-farm emissions work and the plans that need to be done there in the research space where we need to continue to support that,” he said.

“That has other benefits beyond just the farming sector to the wider emissions reductions that we’re trying to achieve.

“I understand the point people are making, but I think we’ve got to make a practical decision about how the government can support seeing reductions from agricultural emissions.”

He was also positive about the agricultural sector’s Waka Heke Noa proposal, which would see farm emissions estimated through farm environmental plans and a levy paid directly on them rather than through the Emissions Trading Scheme.