National is calling on the Government to temper the Reserve Bank’s latest inflammation of the property market by sending a letter of expectation to Adrian Orr immediately.
The Government should be mandating the Reserve Bank to ensure its funding for lending scheme is targeted at the more productive parts of our economy, not the housing market.
“The Reserve Bank’s funding for lending scheme could pump up to $28 billion into the banking system but there would be no requirement for that money to flow into productive parts of the economy,” National’s Shadow Treasurer Andrew Bayly says.
“Instead, it’s likely the new funding will flow straight into the already unaffordable housing market, when it could and should go towards new house builds, local businesses and our agriculture and horticulture sectors.
“After the latest Reserve Bank scheme was announced, economists forecasted that house prices could rise by 15 per cent over the next year.
“Our view is that the Reserve Bank can, and should, be requiring banks to direct this new funding into productive parts of the economy, particularly business lending. We have seen this happen in Australia.
“If the Government takes the housing situation seriously it will send a letter of expectation to Adrian Orr immediately, before the new scheme is implemented in December.
The current runaway house price situation is not sustainable, Mr Bayly says. Since March, housing lending has increased by $8.7 billion while business lending has fallen by $6.1 billion. There has been no new funding to support agriculture and horticulture, and little handed out to developers to build new houses.
“The worrying thing is that the Reserve Bank is only about a third of the way through its quantitative easing programme, so the problem is not going away.
“Unless something is done, house prices and the value of other assets will continue to sky-rocket as investors look for higher yields than they can get at their local banks.
“This is bad for first-home buyers. It will make it harder for them to compete with investors and raises the prospect of an asset price bubble pop when things eventually return to normal.
“While we support the independence of the Reserve Bank, we believe the Government can no longer afford to cross its fingers and hope for it to do the right thing.
“The Government needs to take this situation seriously and tell the Reserve Bank to stop throwing more and more printed money at our overpriced housing market.
“The fundamental problem with the housing market hasn’t changed: a lack of supply. The Reserve Bank’s actions have only added fuel to the fire.
“As well as requiring the Reserve Bank to target its new scheme towards business lending, the Government must urgently address the supply constraints by replacing the Resource Management Act, freeing up land, and getting more houses built.”