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- New Zealand’s record building activity will help to alleviate housing prices, which have reached “unsustainable” levels in the last year, according to New Zealand’s Reserve Bank
- Governor Adrian Orr says the level of home prices, which have increased nearly 30 per cent in 12 months, created financial stability issues
- However, Mr Orr downplayed the ability of the central bank to curve the soaring house prices, which have soared about 30 per cent in 12 months
- Mr Orr says the central bank forecasts an easing on house prices over the medium term as a result of increased home building activity alleviating tight supply.
New Zealand’s record building activity will help to alleviate housing prices, which have reached “unsustainable” levels in the last year, according to Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr.
Mr Orr stated in a speech delivered today to the Property Council of New Zealand Retail Conference that the unsustainable level of home prices creates monetary and financial stability issues.
“At the source of the financial stability risk is the inability of housing supply to respond in a timely fashion to changes in demand, and the drivers that lead to a bias towards housing as an investment choice beyond simply a place to reside,” he said.
However, Mr Orr downplayed the ability of the central bank to curve the soaring house prices, which have risen about 30 per cent in 12 months
“The role of the Reserve Bank is a ‘bit part’,” Mr Orr said.
“We are one cause of demand changes as we alter interest rates to meet our monetary policy remit,” he said.
“We also work to limit mortgage lending when it appears excessively risky. However, this is more about limiting the damage to banks’ balance sheets, rather than altering overall demand.”
The issues causing the soaring prices have solutions that are both accessible and being implemented, according to Mr Orr, who said the “solutions are simple, if not easy”.
“There is no one agency or silver bullet,” he said.
“House prices and housing affordability are affected by both supply and demand factors, ranging across immigration, tax policy, government benefits or transfers, land availability, building standards, infrastructure, and training programmes.
“Ultimately, it is access to land and space that has recently proved to be the biggest challenge to enabling a smooth functioning housing market.”
Mr Orr said the central bank forecasts an easing on house prices over the medium term as a result of increased home building activity alleviating tight supply.
“This means house prices would be moving back toward a more sustainable level – a level that can be explained by underlying economic fundamentals,” he said.
“The move toward more sustainable house prices will be incentivised by slowing demand – as an outcome of higher interest rates and low population growth, and an increase in space to build. The recent Government announcements on reducing urban building restrictions is significant in terms of adding to the ‘space to build’.”
