Analysis – Finance Minister Grant Robertson asks for Reserve Bank help to deal with the housing crisis, Oranga Tamariki chief executive says she won’t quit, Māori Party MPs walk out on day one, and should MPs wear ties?
Grant Robertson’s letter to Reserve Bank governor Adrian Orr this week was clear evidence of the seriousness of the housing crisis – and the government’s urgent need to deal with it or face the consequences at the next election.
The issue is whether the bank’s response to the recession – to pour cheap money into the economy – is going to fuel raging house price inflation. Prices increased by nearly 20 percent in the year to October and are forecast to increase another 15 percent next year.
The Reserve Bank intends giving retail banks $28 billion to lend out at interest rates even lower than they are now. There will be no restrictions on who the banks can lend to, and the fear is that most of it will end up in the housing market with investors at the front of the queue.
The Reserve Bank is independent of the government and Robertson cannot dictate monetary policy. To get around that, he has [https://www.rnz.co.nz/news/political/431339/finance-minister-robertson-calls-for-reserve-bank-to-tackle-housing asked Orr for advice on ways the bank could support help the government meet its economic objectives, particularly in relation to house prices.
Robertson was asking for help, but it is not clear how much he will get.
Orr’s response was that the Reserve Bank welcomed the opportunity to work with the government on housing affordability, but was already doing what Robertson had asked.
“The MPC (Monetary Policy Committee), in making its decisions, gives consideration to the potential impact of monetary policy on asset prices, including house prices.”
Orr doesn’t consider the Reserve Bank is responsible for the housing market.
In an interview with Stuff’s Thomas Coughlan after Robertson sent the letter, Orr said fiscal policy was far more effective for targeted interventions and that was in the hands of politicians.
Orr said he believed the letter requested the full gamut of the bank’s advice on the housing crisis. He assumed there could be tax changes to relieve pressure on the housing market.
Taxing investors on the vast profits they make from buying and selling houses is an obvious way to curb their activities.
But Robertson and Prime Minister Jacinda Ardern have ruled out a capital gains tax and promised no tax changes during Labour’s second term, other than a new top bracket.
Before Robertson sent the letter, the Reserve Bank had decided to reintroduce loan to value ratios (LVRs) on mortgage lending, probably from early next year. The LVRs will make it more difficult for people to get mortgages, because they will have to have a bigger deposit.
Ardern has identified deposits as the main problem facing first home buyers and she is looking for ways to help them.
In an interview with Morning Report on Thursday, Orr said the bank was working on the level of LVRs, but it was not obvious they would impact on house prices. Plenty of people could still meet the conditions.
He said the bank was “dusting off the research” on debt to income ratios. If it brings them in, mortgages will be linked proportionately to income.
That, too, could prejudice young couples who do not have high-paying jobs and make it even more difficult for first home buyers.
Economists reacted in different ways to Robertson’s letter.
Sense Partners’ Shamubeel Eaqub said it was “a huge wake-up call” to the bank.
“The Reserve Bank right now is creating harm in the economy by creating a bigger housing bubble in the middle of the biggest recession in our lifetime,” he said.
“We cannot blame anybody else. It is too much credit at cheap rates going into housing.”
Infometrics senior economist Brad Olsen did not think it would fundamentally shift the way the bank sets monetary policy.
“It’s certainly not going to see any real check on these rampant house price growth figures any time soon,” Olsen said.
The letter “reinforced” the government abdication of responsibility for the housing crisis, “because it refuses to make some of the necessary steps to increase supply”, Olsen said.
Former United Future Party leader Peter Dunne said the housing crisis was “quickly turning into the government’s Achilles’ heel” and accused the government of using “deflection tactics”.
Dunne said successive governments had failed to build enough new houses and the current crisis could “blow away the government’s parliamentary majority”.
Politik reported that Robertson’s approach to the Reserve Bank was just part of his strategy, and he had asked Treasury to work on a range of responses to try to tame the market.
Another worrying issue for the Government that came to a head this week was the controversy over Oranga Tamariki removing Māori children from their parents.
The agency’s chief executive, Grainne Moss, told a Waitangi Tribunal hearing that “structural racism” existed within Oranga Tamariki and needed to be tackled.
Moss later said she was not going to resign, despite new Minister for Children Kelvin Davis declining to say he had confidence in her.
Whānau Ora Minister Peeni Henare suggested Moss was going to quit “in a couple of hours”, which provoked a spat with Davis.
In a statement to RNZ, Davis said he had told Henare his comments were “inappropriate and inaccurate”.
The Waitangi Tribunal is holding its own inquiry into Oranga Tamariki and will eventually publish a report.
This week’s developments followed a scathing report by Children’s Commissioner Andrew Becroft, who called for a transfer of power to Māori.
Prime Minister Jacinda Ardern indicated the government would not go that far. Removing children involved a “significant use of power” and that was why it lay with the state, she said.
Parliament opened on Thursday with Ardern saying the Government’s top priorities were to keep New Zealanders safe from Covid-19 and get on with the economic recovery. Child poverty, climate change and homelessness were close behind.
The Māori Party’s two new MPs, co-leaders Rawiri Waititi and Debbie Ngarewa-Packer, walked out after Speaker Trevor Mallard shut down Waititi’s attempt to raise a point of order over speaking rights.
Under the rules, party leaders with more than six MPs get 30 minutes and smaller parties only get the chance if there is time before the adjournment.
Mallard later said he had intended calling them to speak, but by then they had gone.
Waititi complained about “the tyranny of the Pakeha majority” – a line that grabbed more media attention than he probably would have received if he had spoken.
On a lighter note, Green Party co-leader James Shaw asked Mallard to consider removing the tie-wearing rule from the dress code for male MPs.
Mallard told Checkpoint he would seek the opinion of MPs on that. He loathed ties, but in his current role would continue wearing them whatever the outcome.
The good news this week was that New Zealand is the best country in the world to be in during the Covid-19 era, according new Bloomberg Covid Resilience rankings.
The ratings are based on how countries have handled the virus and levels of disruption to business and society.
NZ Herald reported the survey ranked 53 countries and New Zealand scored top marks of 85.4, followed by Japan on 85, Taiwan on 82.9, and South Korea on 82.3.
Mexico was the worst with 37.6.
*Peter Wilson is a life member of Parliament’s press gallery, and worked for 22 years as NZPA’s political editor and seven as parliamentary bureau chief for NZ Newswire.