Falling OCR could put more pressure on New Zealand's housing crisis

by Roxanne Libatique14 Aug 2019

An economist has warned that the falling official cash rate (OCR) could put more pressure on New Zealand’s housing crisis if it dips into negatives, TVNZ reports.

After the Reserve Bank dropped the OCR to a record low last week, economists commented that it is possible for the rate to drop into the negatives.

Oliver Hartwich, executive director of The New Zealand Initiative, said that the OCR dropping into the negatives could mean people would pay less on mortgage while the government would pay less on their loans.

However, he added that it could also mean people would essentially pay banks a fee to look after their money and when they realise they are not getting monetary returns from their bank accounts and term deposits, they might try to invest elsewhere – including property.

“Imagine if we went in this negative interest territory. You could imagine in New Zealand you would see more pressure on the housing market, you would see house prices spiralling up once against because if you can't put your money in the bank you will probably put it in property and therefore you're pushing up the prices,” Hartwich told TVNZ.

Read more: Government needs to invest in infrastructure while rates are low

Hartwich reminded that in 2014, banks in Germany already introduced fees to customers for holding their money.

“The European Bank has now announced that the next step they're going to take will also be in the easing direction which means that they will go deeper into the narrative and therefore more banks in Europe, more banks in Germany are likely to spread it and soon,” he said.

“You might actually start to have to pay the bank - at least in Germany - from the first year you put in and this is a scenario that's now looming for New Zealand as well.”

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