Finance Minister Grant Robertson keen to see end to Reserve Bank's brakes on housing

Tuesday, 28 November 2017

Leader of the Opposition Bill English talks to media about LVRs.

Finance Minister Grant Robertson says it would make sense to remove large deposit requirements on home buyers, as his government is cracking down on speculation in other ways.

The Reserve Bank will release its six-monthly update on the state of the banking system on Wednesday morning, in which it is expected to set criteria for the removal of its loan-to-value ratios (LVRs).

LVRs were introduced in 2013 to cool the rapidly rising housing market. They require most people applying for a home loan to stump up a deposit of at least 20 per cent.

The Reserve Bank is expected to tell the public tomorrow how it may move to remove controversial LVRs.

The move has been criticised for making it harder for first-home-buyers to get onto the ladder.

Minster of Finance Grant Robertson and Acting Reserve Bank Governor Grant Spencer.

The bank described LVRs as 'temporary', but did not set a clear criteria for when they would be removed.

On his way into caucus on Tuesday morning, Robertson said Labour had long been worried about LVRs but respected the independence of the Reserve Bank.

'From the beginning we've been concerned about the impact of LVRs on first home buyers,' Robertson said.

He expected Acting Reserve Bank Governor Grant Spencer would be 'well aware' of the Government's moves to restrain speculation and increase demand, and would take them into account when making his decision.

Asked point blank whether he thought the Government's new measures would cool the market enough to make LVRs unnecessary, Robertson said 'that's right' - but noted again that the Reserve Bank was independent.

'The issue is [the policies] take a little bit of time to come onstream and take effect.'

The Government is planning to increase the 'bright line test' to five years, meaning anyone who sold a property that was not their family home within five years would have to pay income tax on any capital gains. They are also looking to dramatically increase supply with the 10-year, 100,000-home KiwiBuild plan.

Prime Minister Jacinda Ardern said her government's policies would mean the Reserve Bank would not be the only safety valve on the market.

'Our hope is that our agenda, the work programme that we have around housing, will ease the pressure on the housing market, so that we don't have the Reserve Bank as the only way to try and cool the market,' Ardern said.

She also said she would respect the independence of the Reserve Bank.

In its Monetary Policy Statement early in November, the bank said it expected the impact of the Government's 100,000 new KiwiBuild homes would be about halved, because of all the private homes that would not be built because builders were working on KiwiBuild. The Government disputed this.

National Party leader Bill English repeated what he said in August as prime minister - that it was time for the bank to give some detail on when LVRs would be lifted.

'The bank should think through the conditions under which it should lift the loan-to-value ratios,' English said.

'Whether the conditions are met now is a matter for the bank, but there seems to be some indication that they will start thinking through them.

'The whole point of the loan-to-value ratios was to prevent risk to the system from too many people borrowing at very high ratios for houses - the bank is the ultimate supervisor of the risk, if they think in the future the risks are a bit lower then they can change it.'

BNZ senior economist Craig Ebert said on Monday the market would be closely watching the release on Wednesday, as there was no real indication yet of what the conditions would be.

'They haven't been clear what the exit strategy is,' Ebert said.

He wasn't forecasting any sort of 'crash', but said house prices were stretched and it wouldn't take much to pull them down.

'If you believe there was a financial stability issue, one, two, three years ago, how is it less vulnerable now?'

While Robertson and Ardern were keen to respect the independence of the bank, part of their coalition agreement with NZ First sets out a review into the Reserve Bank Act that would look into the possibility of replacing the governor with a committee.