Robertson Signals Unease With RBNZ’s Requested Housing Tool

(Bloomberg) -- New Zealand’s government is focused on giving first-time buyers access to the housing market, Finance Minister Grant Robertson said, suggesting he’s unlikely to allow the central bank to add debt-to-income ratios to its toolkit.

The government is “obliged” to consider the Reserve Bank’s request for DTIs “but that doesn’t automatically translate to approving it,” Robertson said in an interview with Bloomberg Thursday in Wellington. The last time the RBNZ asked for the tool, “there were concerns raised by the previous government around affordability issues, particularly for first-home buyers and those on lower incomes, so that would be a factor that I will take into consideration,” he said.

The government and the RBNZ have been engaged in a public discussion over ways to cool the rampant housing market since Robertson proposed to Governor Adrian Orr that house prices be added to the bank’s monetary policy remit. Orr rebuffed the suggestion, saying the RBNZ already took them into account and that a better place to formally recognize this was in its financial policy goals. He also formally requested approval for DTIs, which would set limits for how much someone could borrow relative to their income.

Robertson said he’ll take time to consider Orr’s response before deciding what to do, but agreed he doesn’t need the governor’s consent to press ahead with a change to the monetary policy remit.

“It’s still open to me to do that, yes,” he said. “The process is one where I consult, and that’s what I did. I’ll spend some time over the summer looking at the full package of how we’re going to deal with housing as an issue.”

Robertson’s reluctance to allow DTIs “could be interpreted as adding more pressure on the RBNZ to back away from further monetary policy easing,” said Imre Speizer, head of New Zealand market strategy at Westpac Banking Corp. in Auckland.

The New Zealand dollar rose a third of a U.S. cent on Robertson’s comments to 71.41 cents, its highest since April 2018.

Housing Frenzy

The RBNZ’s record-low interest rates have super-charged New Zealand’s housing market, raising concern that too many people will be unable to afford a home. The median house price surged 18.5% in November from a year earlier to a record NZ$749,000 ($533,000), according to the Real Estate Institute.

“Buying a home should be affordable for a wide range of New Zealanders,” Robertson said. “My focus is around first-home buyers and giving them a fair shot at this.”

Robertson declined to comment on the possibility that mortgage rates could fall further as the RBNZ offers cheap loans to banks via its Funding for Lending Program.

Asked whether it would be appropriate for the RBNZ to take its benchmark rate into negative territory next year if further monetary stimulus is required, he said the economy “is significantly stronger” than it was earlier this year, when negative rates were seen as a more likely policy response to the pandemic.

New Zealand’s successful elimination of Covid-19 from the community saw the economy surge out of recession in the third quarter, with gross domestic product jumping a record 14%, data showed today. The recovery is forecast to continue next year, prompting some economists to question whether further monetary or fiscal stimulus is required.

Robertson has NZ$10.3 billion remaining in his pandemic response fund and said he won’t spend it if he doesn’t need to. That would result in a better debt track, he said.

If the unallocated funds and the impact of the RBNZ’s alternative monetary policies are taken out of Treasury forecasts, net debt would peak at less than 43% of GDP. That’s well below the official figure of 52.6% published in the half-year update this week.

Robertson said the economy “has performed well relative both to other countries and to what we expected.”

Asked about the strength of the New Zealand dollar, which has gained 5.6% against the greenback in the past three months, Robertson said “that’s a function of the strength of the economy and the way people view us.”

“I’m not going to express any great discomfort with where we are,” he said.

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