* Housing is added to RBNZ authority, but not mandate
* The RBNZ needs to explain its impact on housing on a regular basis
* Mortgage debt-to-income and interest-only ratio considered (Adding background, comments from analysts and opposition leaders)
WELLINGTON / SYDNEY, February 25 (Reuters) – The New Zealand government on Thursday tasked the country’s central bank with considering the impact of its monetary and financial policy decisions on housing prices, a move to help calm the country’s fiery property market.
Finance Minister Grant Robertson said the Reserve Bank of New Zealand (RBNZ) should consider government policies regarding more sustainable housing prices.
“Today’s announcement is just the first step as the government weighs broader suggestions on how to cool the housing market,” Robertson said in a statement. “We know the rapid improvements we’ve seen in recent months are not sustainable, which means many first-time home buyers have a hard time accessing the market.”
The government’s authority ceases to impose new monetary policy objectives in the RBNZ, the first step in the world that RBNZ Governor Adrian Orr warned late last year when the government first pitched the idea.
Orr argued that adding housing to the bank’s mandate could make monetary policy less effective and affect the efficiency of financial markets, adding that monetary policy alone cannot fix the housing problem.
Orr on Thursday welcomed the addition of remits, which take effect March 1, noting that monetary and financial policy is one of the “many influences on house prices.” He also stressed the monetary policy committee’s targets – maintaining price stability and maximizing sustainable employment – remain unchanged.
Prime Minister Jacinda Arden’s government is under pressure to fix the country’s housing crisis, especially after the failure of its flagship public housing program failed. Property prices have skyrocketed in the past six months due to severe housing shortages and low interest rates.
Like many central banks during the coronavirus pandemic, the RBNZ has pushed interest rates to record lows, relaxed mortgage lending restrictions and incorporated NZ $ 100 billion ($ 70.4 billion) into quantitative easing programs.
These measures, while boosting the economy, have sparked an unprecedented housing market boom. In its latest forecast, the RBNZ sees house price inflation rising to 22.4% by the middle of this year, much higher than the November forecast of 7.9% for this year to June.
The New Zealand dollar touched its highest level since August 2017 following the government’s announcement, as it reinforces the view that monetary policy will be tighter. The ten-year New Zealand government bond yield was 1.82%, the highest since May 2019.
“Paying attention to housing may make the Reserve Bank more inclined towards meeting its inflation and employment targets … that means monetary policy is tighter than expected in the near term,” said Westpac senior economist Michael Gordon.
An immediate impact on the housing market itself is unlikely, said Gordon.
“The thing that is going to lower house prices are higher interest rates,” said Gordon. “It’s still cheaper to borrow now because it’s been going on for decades.”
Under the amendment, the RBNZ will retain autonomy over how its decisions take into account potential housing consequences, but will need to explain regularly how it takes into account the housing market outcomes.
Banks should also consider the government’s goals to support more sustainable housing prices, including by reducing investor demand for existing housing stocks to help increase the affordability of first-home buyers.
The RBNZ said it was investigating government requests for advice on implementation tools such as debt-to-income ratios and interest-specific mortgages. (Reporting by Renju Jose and Praveen Menon; editing by Jonathan Oatis, Rosalba O’Brien and Jane Wardell)