Economist says the burden of the housing market should be on the government
New Zealand’s housing market boom shows little sign of abating despite a slight cool-down in Auckland prices, and Kiwibank economist Jarrod Kerr says that the government needs to take more responsibility for increasing supply.
When it comes to Reserve Bank intervention, Kerr says it will likely “take some time” to figure out what it can and should do, but believes that using tools like debt-to-income ratios (DTIs) will likely have a disproportionately negative impact on first home buyers. Instead, he says New Zealand should look overseas for an answer, and should potentially look at varying its interest rates in proportion to the risk attached to a mortgage.
“I think the Reserve Bank will do more to control the housing market, but I think they’ll take the next little while to figure out what they can and can’t do,” Kerr told NZ Adviser.
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“They have asked the government for debt-to-income ratios, but I’m not convinced that’s the right way to go - that actually hurts first home buyers more than other groups.”
“I think they should follow an international approach where you get the banks to put more appropriate risk weightings on different mortgages,” Kerr explained.
“For example, owner-occupier and first home buyer mortgages are less risky than interest-only or investor mortgages. Whenever there’s a downturn, people flog their investment properties first and those in interest-only are the ones that don’t have as much equity in their loans. Those are the groups that should have higher interest rates on them.”
Kerr says the Reserve Bank should also “take a good look” at the variable rates in New Zealand, and ask why they are so high.
He says the requirement for a 40% deposit from investors will likely have an immediate impact, however, he noted that more of the onus should also be placed on the government, as building affordable housing has been an area of underinvestment for many years.
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“We will see the impact of 40% investor LVR requirements coming through, and I do believe that will have an impact on investor sentiment and capability,” Kerr said.
“The last time we saw this happen, it had an immediate cool-down in the Auckland housing market, so I think we’ll see that again. But in my opinion, more needs to be done.
“The burden should be on the shoulders of the government - it’s their responsibility to facilitate a substantial increase in the availability of affordable dwellings, and, to date, no government has done enough. We have underinvested in this country for the last 30 years, and that needs to change.”
