Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


Reserve Bank watching heat in housing market

Reserve Bank watching heat in housing market for signs of broader economic impact

April 8 (BusinessDesk) – The Reserve Bank of New Zealand would raise interest rates if there were signs that an overheated housing market in Auckland and Christchurch was spilling over into broader inflation pressures and consumer spending, says Deputy Governor Grant Spencer.

The nation needs to avoid another housing boom, which “could potentially be more costly than the last, particularly at a time when the economy faces headwinds from an overvalued exchange rate, drought and a substantial programme of fiscal consolidation,” Spencer told the Employers and Manufacturers Association in Auckland.

The speech comes after the central bank released a discussion paper proposing an increase in the capital cover that lenders carry on their balance sheets for high loan-to-value ratio mortgages among a new range of macro-prudential tools the bank could bring to bear to target key sectors of the economy.

“If the house price and credit expansion begin to fuel excessive consumption spending and inflationary pressures, a monetary policy response would become more likely,” Spender said. “The Reserve Bank’s flat interest rate outlook in our recent Monetary Policy Statement would need to be revisited.”

The central bank kept the official cash rate at 2.5 percent last month, indicating it didn’t expect to raise borrowing costs any time soon.

“Today's speech on the housing market from the RBNZ's Deputy Governor signalled a further small step in the RBNZ's evolving thinking on housing, in a more hawkish direction,” Westpac Banking Corp economists said in a statement. “

The RBNZ “is becoming more alert to the risks that a rising housing market could prompt broader increases in domestic demand and inflation than in its current forecasts,” they said. “On our view these risks will be progressively realised as the year goes on, prompting the RBNZ to begin hiking the OCR in December this year. “

Spencer said the Auckland property market is more complex and uncertain than in Christchurch, where the earthquakes created a general shortage of accommodation, driving the median house price up 12 percent, rents up 16 percent, and the cost of building up 10 percent in 2012.

Auckland’s council estimates a shortfall of 20,000 to 30,000 homes, with an additional 13,000 per year needed going forward, Spencer said. The currently build rate is well short, with residential building consents in the city currently running at just 4,900 per annum.

While the Ministry of Business Innovation and Employment estimates that land ready for subdivision in Auckland has the capacity for 14,500 new homes, only 2000 sites are ready to build on – with utilities actually connected and consents approved. Spencer cites the Productivity Commission’s assessment of supply constraints including the cost and the duration of subdivision development and house construction.

On the demand side, mortgage interest rates as low as 4.8 percent to 5 percent, the lowest on offer since the 1960s, combined with rising house prices “are strengthening the incentive for renters to become first-home buyers and for existing owner-occupiers to upgrade,” Spencer said.

“With new construction still at a slow pace, this excess housing demand increases house price pressures,” he said.

Lenders, for their part, have been “competing aggressively to gain or protect their mortgage market shares” including lending at high LVRs, with 30 percent of new lending at LVRs over 80 percent, compared to around 25 percent of lending in late 2011-early 2012.

Annual growth in housing credit is just over 4 percent and has been running at higher rates over recent months, Spencer said.

The central bank is expected to sign a memorandum with Finance Minister Bill English and the Treasury in the middle of the year governing how it would use new macro-prudential tools.

(BusinessDesk)

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

BusinessDesk: APN's NZME Sees Future In Paywalls, Growth In Digital Sales

APN News & Media has touted a single newsroom concept for its NZME unit in New Zealand, similar to what Germany's Die Welt uses, saying an 'integrated sales proposition' is helping it win market share, including ... More>>

Labour Party: Global Milk Prices Now Lowest In 6 Years

The latest fall in the global dairy price has brought it to the lowest level in six years and shows there must be meaningful action in tomorrow’s Budget to diversify the economy, says Labour’s Finance spokesperson Grant Robertson. “Dairy prices ... More>>

BusinessDesk: NZ Inflation Expectations Creep Higher In June Survey

May 19 (BusinessDesk) - New Zealand businesses lifted their expectations for inflation over the next two years, sapping any immediate pressure on the Reserve Bank to cut interest rates, and prompting the kiwi dollar to jump higher. More>>

BusinessDesk: Lower Fuel Costs Drive Down NZ Producer Input, Output Prices

May 19 - Producer input and output prices fell in the first quarter, mainly reflecting lower fuel costs and weakness in prices of meat and dairy products. More>>

Media: Fairfax Media NZ Announces Senior Editorial Team

Fairfax Media New Zealand has today confirmed its new editorial leadership team, as part of a transformation of its newsrooms aimed at enhancing local and national journalism across digital and print. More>>

Science: Flavonoids Reduce Cold And Cough Risk

Flavonoids reduce cold and cough risk Research from the University of Auckland shows eating flavonoids – found in green tea, apples, blueberries, cocoa, red wine and onions – can significantly reduce the risk of catching colds and coughs. The research, ... More>>


BusinessDesk: RBNZ House Alert Speech The Catalyst For Government Action

Prime Minister John Key all but conceded that pressure from the Reserve Bank of New Zealand for concerted action on rampant Auckland house prices was one of the main catalysts for the government's weekend announcements about tightly ... More>>

BusinessDesk: How To Fall Foul Of The New Housing Tax Rules: Tips From IRD

Just because you rented out your investment property doesn't absolve you from paying tax, says the Inland Revenue Department in a summary of commonly made mistakes by non-professional property investors when it comes to their tax liability.More>>

Legal: Superdiversity Law, Policy And Business Stocktake Announced

Mai Chen, Managing Partner at Chen Palmer New Zealand Public and Employment Law Specialists and Adjunct Professor of Law at the University of Auckland, today announced the establishment ... More>>

Housing: More House Price Gains Expected

House price expectations remain high, with a net 56% of respondents expecting house prices will increase. Fears of higher interest rates are fading, consistent with the RBNZ’s signals this year. Affordability and a lack of houses for ... More>>

TDDA: State-Of-The-Art Drug Testing Laboratory To Open In Auckland

World leading drug testing agencies, The Drug Detection Agency (TDDA) and Omega Laboratories, open New Zealand laboratory More>>

Network: Bigpipe Launches Ultra-Fast Broadband Into Wellington

Bigpipe Launches Ultra-Fast Broadband into Wellington Naked broadband provider Bigpipe has extended its national reach, announcing today, the launch of its unlimited UFB offering into Wellington. The Spark Venture business is giving Wellingtonians the ... More>>

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news